Analog Devices (ADI, Financial) posted its first sequential growth in over a year in Q3, exceeding analysts' earnings and sales expectations. The chip maker also projected Q4 EPS and revenue in line with consensus, signaling another quarter of sequential improvements.
Like its peers Texas Instruments (TXN, Financial) and On Semi (ON, Financial), ADI is optimistic that the worst of the inventory digestion is over. However, it remains cautious due to economic and geopolitical uncertainties that could affect recovery.
- In Q3, ADI's core verticals, automotive and industrial, which make up over 75% of annual revenue, showed significant inventory adjustments. Adjusted EPS dropped 36.5% year-over-year to $1.58, and revenue fell 24.8% to $2.31 billion. However, on a quarter-over-quarter basis, earnings grew 12.9% and revenue increased 6.9%.
- For Q4, ADI expects adjusted EPS of $1.53-1.73 and revenue of $2.30-2.50 billion. These forecasts indicate potential sequential growth, reflecting ADI's confidence in overcoming the inventory rebalancing phase.
- Customer inventory levels are improving, supporting ADI's optimistic outlook. Order momentum is increasing across most markets, and AI continues to drive growth as companies invest in AI infrastructure and power-efficient components, benefiting ADI.
- Despite the positive outlook, ADI remains cautious due to global uncertainties. STMicroelectronics (STM, Financial) recently noted a prolonged inventory correction in the industrial market. Similarly, TXN mentioned ongoing weaknesses in industrial and automotive sectors.
Investors are responding positively to ADI's confidence in overcoming the inventory cycle, despite the uncertain near-term outlook. With AI providing a strong tailwind, ADI is well-positioned for long-term growth.
