I love to see a CEO who takes the time to educate investors a little bit. This time, the honorary Fool is Analog Devices (NYSE:ADI) boss Jerald Fishman.
It's easy to say that your business is turning around, or bouncing off the bottom, or heading into recovery. It's harder to come up with a real explanation of the signs that really show such an upturn. After reporting a surprisingly strong second quarter with $0.18 of net income per share on $475 million in sales, Fishman explained to analysts why he's raising his estimates for the coming quarters.
AD's sales to industrial customers have been tumbling at a higher rate than the decline in industrial production indicators in its key markets. That's a clear sign that major customers have cleared out their AD inventories and should be ready to start buying new chips again. "We have absorbed a very significant inventory correction," in Fishman's words. Therefore, it is "logical to assume" that order volumes will soon pick up again at the far side of this order trough. Easy there, ol' Spock.
More to the point, AD is reaping the benefits of 3G wireless network rollouts in China, as China Mobile (NYSE:CHL), China Telecom (NYSE:CHA), and China Unicom Hong Kong (NYSE:CHU) are all hard at work improving their networks.
Analog Devices generally doesn't spill the beans on customer names, but since this Chinese 3G burst was singled out as a growth factor, one can surmise that Alcatel-Lucent (NYSE:ALU) -- which recently landed $1.7 billion of contracts with China Mobile and China Telecom -- might be one anonymous client. Motorola (NYSE:MOT) signed the dotted line with China Unicom in April.
So in short, Chinese wireless infrastructure deals are powering AD through these tough times, and the rest of the semiconductor-consuming world probably needs to refill their inventories before too long. And this tech giant pays a quarterly dividend of $0.20 per share. What's not to love?
Further analog Foolishness:
