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Earnings preview: Costs to hurt Analog Devices Q2 results

Semiconductor firm Analog Devices (ADI) is scheduled to report its earnings results for the second quarter of 2019 on Wednesday before the market opens. The results will be hurt by higher costs and expenses related to the 4G upgrades and initial 5G deployments, as well as a challenging macroeconomic environment.

The company has increased in its go to market activities to further broaden and deepen its customer reach and its engagements. The quarterly performance could be hurt by weaker demand in factory automation and memory test. This is likely to offset highly diversified business revenue growth in healthcare, electronic test, and measurement, as well as aerospace and defense.

The auto business could witness vehicle unit weakness and consumer business will experience a decline due to lower portables. The B2B markets of industrial, automotive, and communications could fall slightly due to the communications market. However, the company expects operating expenses to be relatively flat as moving through the balance of the year.

Analog Devices promotion in Honolulu, Hawaii in 2017
Image Courtesy: Analog Devices / Facebook post

The results will be hurt by the continuing slump in the company’s consumer business, the ongoing US-China trade dispute, and volatilities in the global economy. The deepening weakness in the demand for products used in portable consumer applications remained a major concern despite the strong prospects of core business segments.

Analysts expect the company’s earnings to drop by 10.30% to $1.30 per share and revenue will decline by 0.70% to $1.5 billion for the second quarter. In comparison, during the previous year quarter, Analog Devices posted a profit of $1.45 per share on revenue of $1.51 billion.

The company has surprised investors by beating analysts’ expectations in the past four quarters. It is expected that Analog Devices could report upbeat results for the second quarter. Majority of the analysts recommended a “strong buy” or “buy” rating while expecting the stock to reach $117.6 per share in the next 52 weeks.

Also read: Texas Instruments Q1 earnings results

For the first quarter of 2019, the chipmaker posted a 21% jump in earnings helped by lower costs and expenses as well as a decline in income taxes provision. The results were aided by the ongoing 4G upgrades and initial 5G deployments. However, revenue declined by 2% hurt by a fall in three segments.

For the second quarter, the company expects adjusted earnings in the range of $1.23 to $1.37 per share and revenues in the range of $1.45 billion to $1.55 billion. Earnings are anticipated to be in the range of $0.87 to $1.01 per share.

Shares of Analog Devices opened lower on Monday and is trading in the red territory on the Nasdaq. The stock has risen over 3% in the past year while it has fallen over 5% in the past three months.

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