Analog Devices's (NASDAQ:ADI) Q1 Sales Top Estimates, Stock Soars

Max Juang /
2024/05/22 7:05 am EDT

Manufacturer of analog chips, Analog Devices (NASDAQ:ADI) reported Q1 CY2024 results topping analysts' expectations, with revenue down 33.8% year on year to $2.16 billion. Guidance for next quarter's revenue was also optimistic at $2.27 billion at the midpoint, 4.5% above analysts' estimates. It made a non-GAAP profit of $1.40 per share, down from its profit of $2.83 per share in the same quarter last year.

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Analog Devices (ADI) Q1 CY2024 Highlights:

  • Revenue: $2.16 billion vs analyst estimates of $2.11 billion (2.5% beat)
  • EPS (non-GAAP): $1.40 vs analyst estimates of $1.27 (10.3% beat)
  • Revenue Guidance for Q2 CY2024 is $2.27 billion at the midpoint, above analyst estimates of $2.17 billion
  • Gross Margin (GAAP): 54.7%, down from 65.7% in the same quarter last year
  • Inventory Days Outstanding: 137, up from 136 in the previous quarter
  • Free Cash Flow of $619.7 million, down 32.3% from the previous quarter
  • Market Capitalization: $107.4 billion

"ADI delivered second quarter revenue above the midpoint of our outlook, despite continued macro and inventory headwinds. Further, the strength and resiliency of our business model, coupled with disciplined cost control, enabled us to achieve profitability and earnings per share above the high-end of our outlook," said Vincent Roche, CEO and Chair.

Founded by two MIT graduates, Ray Stata and Matthew Lorber in 1965, Analog Devices (NASDAQ:ADI) is one of the largest providers of high performance analog integrated circuits used mainly in industrial end markets, along with communications, autos, and consumer devices.

Analog Semiconductors

Demand for analog chips is generally linked to the overall level of economic growth, as analog chips serve as the building blocks of most electronic goods and equipment. Unlike digital chip designers, analog chip makers tend to produce the majority of their own chips, as analog chip production does not require expensive leading edge nodes. Less dependent on major secular growth drivers, analog product cycles are much longer, often 5-7 years.

Sales Growth

Analog Devices's revenue growth over the last three years has been strong, averaging 24.8% annually. But as you can see below, its revenue declined from $3.26 billion in the same quarter last year to $2.16 billion. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

Analog Devices Total Revenue

Even though Analog Devices surpassed analysts' revenue estimates, this was a slow quarter for the company as its revenue dropped 33.8% year on year. This could mean that the current downcycle is deepening.

Analog Devices's revenue growth has decelerated over the last three quarters and its management team projects revenue to fall next quarter. As such, the company is guiding for a 26.2% year-on-year revenue decline while analysts are expecting a 8.9% drop over the next 12 months.

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Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.

Analog Devices Inventory Days Outstanding

This quarter, Analog Devices's DIO came in at 137, which is 20 days above its five-year average, suggesting that the company's inventory has grown to higher levels than we've seen in the past.

Key Takeaways from Analog Devices's Q1 Results

We were impressed by how significantly Analog Devices blew past analysts' EPS expectations this quarter. We were also glad next quarter's revenue guidance came in higher than Wall Street's estimates. . Zooming out, we think this was a a very solid quarter, showing that the company is staying on track. The stock is up 5.3% after reporting and currently trades at $227.98 per share.

So should you invest in Analog Devices right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.