On Tuesday night, it's time for a fourth-quarter report from broad-line semiconductor designer Analog Devices (NYSE:ADI). Let's get all digital with Analog's big picture to see where the company is going from here.
What Fools say:
Here's how ADI's CAPS scoring rates against some of its peers and competitors:
|
Market Cap (millions) |
Trailing P/E Ratio |
CAPS Rating | |
|---|---|---|---|
|
Texas Instruments (NYSE:TXN) |
$43,260 |
17.7 |
**** |
|
STMicroelectronics NV (NYSE:STM) |
$13,620 |
NM |
** |
|
Analog Devices |
$9,620 |
19.7 |
*** |
|
Linear Technology (NASDAQ:LLTC) |
$6,700 |
21.2 |
**** |
|
National Semiconductor (NYSE:NSM) |
$5,810 |
20.6 |
**** |
Judging by these scores, Analog appears to be playing catch-up in an attractive sector. One optimistic Fool praises the strong balance sheet and management's commitment to buying back stock, while a bearish player laments a crumbling stock chart, despite the ADI presence in Nintendo's (OTC BB: NTDOY.PK) hot, hot, hot Wii console. "I don't believe they get enough of their business from Nintendo to make an impact," ends that diatribe.
What management does:
The margin slide that began a few months ago continues, with one notable exception. ADI is generating strong cash flows, even as profit margins dwindle away.
|
4/2006 |
7/2006 |
10/2006 |
2/2007 |
5/2007 |
8/2007 | |
|---|---|---|---|---|---|---|
|
Gross |
58.4% |
58.6% |
59.2% |
59.3% |
58.7% |
58.3% |
|
Operating |
23.2% |
23.3% |
23.1% |
22.8% |
21.9% |
21.1% |
|
Net |
18.5% |
18.8% |
21.4% |
22.3% |
21.3% |
20.3% |
|
FCF/Revenue |
27.2% |
21.4% |
19.1% |
19.4% |
20.1% |
24.7% |
One Fool says:
Analog is trying to slim down a bit. Three months ago, the company sold off some -- but not all -- of its wireless signal chips to Taiwanese semiconductor maker MediaTek. A couple of weeks ago, voltage regulators and thermal monitoring designs were handed off to rival On Semiconductor (NASDAQ:ONNN). The two deals combined will bring in $535 million in cash. While extra cash rarely hurts, ADI's balance sheet is already in decent shape: no debt, $1.3 billion in cash equivalents, and an outsourced, fabless manufacturing strategy.
It's way too early to call this the beginning of a turnaround, particularly in light of the margin trends above. Simplifying the product portfolio could be a good move, though. The company website touts its 60,000 customers and 10,000 different products, which sounds impressive, but must be a nightmare to manage and support. Spinning out a couple of minor product lines is a start, but perhaps it's time to dig deep and refocus ADI on what it does best. That would be analog/digital converter chips and amplifier processors. With a sharper focus, Analog could be a semiconductor powerhouse, rather than a distracted also-ran.
