Chip designer Analog Devices (NYSE:ADI) just reported earnings of $0.44 per share on $649 million in sales, up from $0.37 and $597 million a year ago. That's not too shabby for a provider of commodity products under heavy fire from rivals like Texas Instruments (NYSE:TXN) and National Semiconductor (NYSE:NSM). But it wasn't good enough to appease a hungry market; the stock price dropped a steep 5.5% overnight.

I think that the market punished Analog Devices because of a less-than-glowing line from its otherwise perfectly sane and unsurprising forward guidance. After detailing expectations of slightly stronger gross margins and normal seasonality in the top- and bottom-line changes, the statement noted that the plan "does not factor in potential effects of ongoing financial market uncertainty which could translate into a more cautious stance from our customers."

Yeah, that's all it takes to sink a stock in this jumpy market. Investors have since come to their senses a bit, bringing the shares back to last night's closing price in a few trading hours. The company is growing sales in its two largest reporting segments by 8% or more over last year's levels. That includes the analog/digital converter and amplifier product lines that bring in 69% of the company's moola.

So the core business is healthy, and management is working on increasing the company's profit muscle. CEO Jerry Fishman said that at the current gross margins (around 61%), he'd take all the business he could get because "it's an enormously profitable business. The challenge and the opportunity for us is to get the operating expense ratios down so we can get the operating margins moving."

That's why the headcount stayed flat -- to keep operating expenses growing more slowly than revenues. ADI is not great at delivering consistent results, quarter after quarter, but it's working on improving its street cred in that department.

By moving a couple more product lines to Taiwan Semiconductor's (NYSE:TSM) manufacturing lines, the company is emulating Texas Instruments' lean operating model and letting a bit more of its top line drop further down the income statement. A few more quarters of this, and we'll be looking at a lean, mean profit machine. This solid results sheet is good news for semiconductor companies in general, and for communications specialists like TI and Qualcomm (NASDAQ:QCOM) in particular.

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