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

****

Data taken from Motley Fool CAPS on 11/26/2007.

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.

Margins

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%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

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.