UPDATE 3-Analog Devices 4th-qtr results beat estimates

Mon Nov 23, 2009 8:51pm EST

* Q4 EPS ex-items 36 cents vs Street view 26 cents

* Q4 revenue $572 mln vs Street view $524 mln

* Sees Q1 2010 EPS ex-items 36 cents to 37 cents

* Shares up 0.9 percent (Adds comments from CFO, background, updates shares)

By Ian Sherr

SAN FRANCISCO, Nov 23 (Reuters) - Microchip maker Analog Devices Inc ADI.N on Monday reported higher-than-expected quarterly sales buoyed by consumer demand and forecast higher profit margins and busier factories by the end of fiscal 2010.

Analog Devices' Chief Financial Officer, David Zinsner, told Reuters that the company has focused heavily on cost cuts, excising two of four manufacturing facilities from its books, and pushing efficiency to cut operating costs.

"We're in a pretty good position," Zinsner told Reuters. "It's certainly not over, and we have to continue to act in that way or expenses will creep up, but we think there's a plan in place."

BEATING THE FOURTH QUARTER

Analog Devices, which makes chips for cars, video game consoles and defense equipment, said on Monday its net income fell to $105.6 million, or 36 cents a share, in its fiscal fourth quarter ended Oct. 13, from $143.9 million, or 49 cents a share, in the year-ago period.

Excluding items, earnings were 36 cents a share, ahead of the average analyst estimate of 26 cents a share, according to Thomson Reuters I/B/E/S.

Revenue fell to $571.6 million from $660.7 million a year ago. The average Wall Street estimate was for $524 million.

Consumer sales, which include chips for audio and video equipment for home entertainment systems, were especially strong, rising 7 percent over the previous year. Other segments such as industrial and communications dropped 14 percent and 25 percent, respectively.

GROWTH AREAS

Analog Devices may have beat Street expectations and forecast yearly growth, but still has a way to go before it reaches ideal efficiencies.

Factory utilization is roughly 50 percent, compared to the company's target of 75 percent. And gross margins are currently "a hair" over the mid-50 percent range, compared with the target of low-60 percent for the end of fiscal 2010.

Analog Devices, which competes with Broadcom Corp (BRCM.O), Texas Instruments Inc TXN.N, and STMicroelectronics NV (STM.PA), is forecasting earnings per share for the current quarter of 36 cents to 37 cents, excluding restructuring charges associated with a manufacturing facility in Cambridge, Massachusetts.

And Zinsner said he expects first quarter revenue to remain roughly flat sequentially from the fourth quarter, which he said was atypical for a seasonally down quarter.

Analysts seem to agree. Earlier this week, Goldman Sachs added Analog Devices to its Americas conviction buy list [ID:nBNG504529] and after the Nov. 23 earnings release, Canaccord Adams raised its price target for the company's stock to $33 from $30 on expected higher gross margins and leaner costs [ID:nWNAB9142]. Additionally, out of 22 analysts polled by Thomson Reuters I/B/E/S, seven rate the stock a hold, six rate the stock a buy, and nine place a "strong buy" rating. None recommend selling, or expect underperformance.

Shares of the Massachusetts-based company closed at $27.94 on the New York Stock Exchange, but rose 0.9 percent to $28.20 in extended trading. (Reporting by Ian Sherr; Editing by Carol Bishopric, Bernard Orr) ((ian.sherr@thomsonreuters.com; +1 415.677.2542; Reuters Messaging: ian.sherr.thomsonreuters.com@reuters.net)) ((See blogs.reuters.com/mediafile/ for Media and Technology -- Reuters' media and technology blog.))

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