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Apple Juices Analog Devices' Outlook

The chipmaker is also exposed to favorable trends in the automotive end market.

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 Analog Devices (ADI) reported strong fiscal third-quarter results and provided investors with a bright fourth-quarter forecast, both of which are almost entirely due to ADI's design win in Apple's Force Touch, a technology that is expected to be deployed in Apple's upcoming iPhone 6s launch. Excluding Apple, we estimate that ADI's results were relatively in line with the soft financial performance reported by many peers in recent weeks, especially given ADI's exposure to the slumping telecommunications infrastructure end market.

Revenue in the July quarter was $863 million, up 5% sequentially and at the high end of the firm's forecast range of $825 million-$865 million. Consumer chip sales were again the highlight, up 90% sequentially; we estimate that ADI's design success with Apple's new iPhones boosted revenue by at least $86 million and perhaps a bit more. The shot in the arm from Apple more than made up for a 22% sequential decline in sales of communications infrastructure chips, as 4G network buildouts in China have taken a hefty pause. Industrial sales were down 2% sequentially, about in line with peers. Automotive sales were down 7% sequentially and flat with the year-ago quarter after a strong prior quarter. We remain optimistic about ADI's long-term secular content gains in the automotive end market. We find it encouraging that ADI's gross margins fell only 40 basis points sequentially, as we think it implies that pricing is holding up relatively well on its chip sales to Apple.

Brian Colello does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.