November 28, 2007
Analog Devices (NYSE: ADI ) seems to be content with its sprawling product portfolio after selling a tiny sliver of the catalog to rivals On Semiconductor (Nasdaq: ONNN ) and MediaTek. This Fool remains convinced that a much deeper cut is in order, though.
Making chips for signal processing, conversion, and amplification is a notoriously fragmented market. If Analog were to adopt the famous General Electric (NYSE: GE ) strategy of striving for top-three status in any market the company entered, they'd have to get rid of very large chunks of their operations. Analog is the leader in amplifier chips and data converters but falls behind competitors like Texas Instruments (NYSE: TXN ) , Freescale, and Linear Technology (Nasdaq: LLTC ) almost everywhere else.
I could understand if Analog simply wanted to provide its customers with a complete signal-handling platform, but I haven't seen Nokia (NYSE: NOK ) and Apple (Nasdaq: AAPL ) stumbling over themselves to build gadgets around ADI-only platforms. When the company does land in your favorite devices, which does happen, it's usually just a chip or two.
So last night's report showed a third consecutive period of fading margins, and management still called it a "solid quarter." Color me unimpressed. You can't be all things to all customers, so why settle for piecemeal deals outside your core competency? Simplify, focus, and drive the core business as hard as it will go, I say. Until then, there are plenty of other chip designers who run a tighter ship than Analog Devices.