Analog Devices shares fall on gross margin slip

By Amanda Beck

SAN FRANCISCO (Reuters) - Analog Devices Inc's (ADI.N) quarterly profit rose 6 percent, boosted by increased sales to industrial and communications markets, but the chip maker's stock fell 2 percent as its gross margin disappointed investors.

The maker of chips for cars, video game consoles, defense equipment and mobile phone transmitters said on Tuesday net income rose to $133.1 million, or 45 cents per share, for its second fiscal quarter ended May 3.

In the year-earlier period, the company posted net income of $125.4 million, or 37 cents per share.

Analog Devices reported a gross profit margin of 61.0 percent in the second quarter, down slightly from 61.2 percent in its first quarter.

An analyst, who declined to be identified, said the margin was lower than expectations. That figure is also likely to fall farther later in the year, when lower-margin consumer product chips are likely to comprise more of its revenue, the analyst said.

Shares of Analog Devices fell 2.1 percent to $34.01 in after-hours trade from their close of $34.75 on the New York Stock Exchange.

On a call with analysts, Chief Executive Jerald Fishman defended the gross margin figures.

"I would take all the business I could get at a 61 percent gross margin, because it's a tremendously profitable business," he said.

"A STRONG QUARTER"

Second-quarter revenue advanced to $649.3 million from $597.5 million in the year-earlier period, and was comfortably ahead of the average analyst forecast of $627 million.

Earnings per share were 44 cents from continuing operations, better than the average analyst forecast of 41 cents, according to Reuters Estimates.

Fishman said the company experienced "a strong quarter" aided by its recent sale of two businesses that produce chips for radio transceivers and regulating computer temperatures.

"We've reshaped our product portfolio to focus on our high-performance products," he said.

Many of the company's high-end products are bought by industrial customers in the automotive, medical, defense and security fields, which accounted for half of the company's second-quarter revenue.

Fishman projected that revenue from industrial customers would grow at "solid rates" in the future.