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Analog Devices likely to post weak Q3 earnings

Analog Devices (NASDAQ: ADI) is set to release its third-quarter earnings results on Wednesday before the market opens. The chipmaker’s results will be hurt by the discontinue of the products shipments as well as the restructuring of certain manufacturing facilities. The bottom line will hurt by higher costs and expenses due to an increase in research and development expenses.

The company’s customers are likely to delay their existing and future orders due to the postponement of spending by consumers and businesses. This was due to the continuing uncertainty surrounding the stability of global credit and financial markets. The significant disruption to markets could adversely impact the company’s ability to access external financing sources.

The company’s future success significantly depends on its continued ability to execute business strategy, improve existing products and develop new products while entering new markets. The new products design remained a costly process for Analog Devices as it involves significant investment in research and development with no assurance of return.

Analog Devices likely to post weak Q3 earnings
Photo Courtesy: Analog Devices / Facebook post

In addition, the company could require additional investment for establishing itself in the developing markets such as Industry 4.0, autonomous driving, artificial intelligence, and 5G. Analog Devices faces intense competition in the semiconductor industry and expects this competition to increase in the future, including companies located outside the US.

Analysts expect the company’s earnings to decrease by 20.30% to $1.22 per share and revenue to decline by 7.70% to $1.45 billion for the third quarter. In comparison, during the previous year quarter, Analog Devices posted a profit of $1.53 per share on revenue of $1.57 billion. The company has surprised investors by beating analysts’ expectations in all of the past four quarters.

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For the second quarter, Analog Devices reported an 8% drop in earnings due to a 2% decline in revenue hurt by the volatile and uncertain market. However, the company saw strong growth in its communication applications across multiple markets. For the long-term, the company remained well-positioned to continue to deliver sustainable profitable growth and strong shareholder returns.

For the third quarter, the company expects revenue in the range of $1.40 billion to $1.50 billion and earnings in the range of $0.79 to $0.93 per share. Adjusted earnings are anticipated to be in the range of $1.15 to $1.29 per share. The forecast takes into account the estimated impact on Analog Devices from the US Government’s recent export restrictions on a large communications company.

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