You don't often see a tech company miss both earnings and sales estimates only to trade sideways the next day -- the natural reaction is a headlong fall into the ditches of Wall Street. But that sanguine anomaly is exactly what's happening to chip maker Analog Devices
In the just-reported third quarter, Analog dug up $0.71 of earnings per share from $758 million in revenue, which is a slight earnings miss but a significant revenue shortfall. Those sales also failed to meet management guidance by a long shot.
Revenue misses are often punished by a harsh market, but not so much this time. For one, investors may have seen this coming from a mile away as Texas Instruments
Another explanation comes from how management explained away the sales miss. After the Japanese earthquake and tsunami this spring, many customers overstocked on chip supplies just in case materials and finished chips pouring out of the affected region might dry up later. And in the third quarter, they simply ate up some of that oversupply in lieu of placing fresh orders.
That's a very reasonable explanation and a sterling lesson in the market effects of supply-and-demand swings.
Looking ahead, Analog is cautiously optimistic but couldn't overstress the fact that their crystal ball is as cloudy as anyone else's in this economy. Moreover, some 40% of the revenue shortfall this quarter came from an identifiable market as telecommunications equipment makers had to wait for delivery of other chips that really did suffer from supply shortages.
That points an accusing finger right at telecom-gear builders such as Alcatel-Lucent
Investors are holding their itchy sell-trigger fingers for good reason, it seems. Like TI, this stock looks very affordable today after a roughly 20% drop in six weeks. Both stocks sport respectable four-star CAPS ratings and trade for less than 11 times trailing earnings.
I wouldn't fault you for diving into these proven performers and generous dividend-payers at this point. If you're not quite ready to take that plunge, ADI and friends surely belong on your Foolish watchlist.