Analog Devices (NASDAQ:ADI) Q2 Sales Beat Estimates, Next Quarter’s Growth Looks Optimistic

Manufacturer of analog chips, Analog Devices (NASDAQ:ADI) reported Q2 CY2024 results topping analysts’ expectations, with revenue down 24.8% year on year to $2.31 billion. The company expects next quarter’s revenue to be around $2.4 billion, in line with analysts’ estimates. It made a non-GAAP profit of $1.58 per share, down from its profit of $2.49 per share in the same quarter last year.

Is now the time to buy Analog Devices? Find out by accessing our full research report, it’s free.

"ADI's revenue finished above our guided midpoint with stronger profitability driving earnings per share near the high end of our outlook," said Vincent Roche, CEO and Chair.

Founded by two MIT graduates, Ray Stata and Matthew Lorber in 1965, Analog Devices (NASDAQ:ADI) is one of the largest providers of high performance analog integrated circuits used mainly in industrial end markets, along with communications, autos, and consumer devices.

Analog Semiconductors

Demand for analog chips is generally linked to the overall level of economic growth, as analog chips serve as the building blocks of most electronic goods and equipment. Unlike digital chip designers, analog chip makers tend to produce the majority of their own chips, as analog chip production does not require expensive leading edge nodes. Less dependent on major secular growth drivers, analog product cycles are much longer, often 5-7 years.

Sales Growth

Analog Devices’s revenue growth over the last three years has been strong, averaging 21% annually. But as you can see below, its revenue declined from $3.08 billion in the same quarter last year to $2.31 billion. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

Even though Analog Devices surpassed analysts’ revenue estimates, this was a slow quarter for the company as its revenue dropped 24.8% year on year. This could mean that the current downcycle is deepening.

Analog Devices may be headed for an upturn. Although the company is guiding for a year-on-year revenue decline of 11.7% next quarter, analysts are expecting revenue to grow 6.2% over the next 12 months.

Unless you’ve been living under a rock, it should be obvious by now that generative AI is going to have a huge impact on how large corporations do business. While Nvidia and AMD are trading close to all-time highs, we prefer a lesser-known (but still profitable) semiconductor stock benefitting from the rise of AI. Click here to access our free report on our favorite semiconductor growth story.

Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business’ capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.

This quarter, Analog Devices’s DIO came in at 130, which is 12 days above its five-year average. These numbers suggest that despite the recent decrease, the company’s inventory levels are higher than what we’ve seen in the past.

Key Takeaways from Analog Devices’s Q2 Results

We enjoyed seeing Analog Devices exceed analysts’ revenue and EPS expectations this quarter. We were also glad its inventory levels shrunk. Overall, this quarter was solid. The stock traded up 4.7% to $233.90 immediately following the results.

So should you invest in Analog Devices right now? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.