Analog Devices CFO Says Inventory Correction Over For Company
March 03 2011 - 12:18PM
Dow Jones News
Analog Devices Inc.'s (ADI) chief financial officer said the
inventory correction is behind the semiconductor company and
margins should continue improving going forward.
Analog Devices, which specializes in devices that measure
information such as temperature or light and converts it into
digital data, has posted soaring profits in recent quarters. The
company generates most of its revenue from the industrial market
and has limited exposure to consumers.
ADI last month reported its fiscal first-quarter profit jumped
84%, and it projected better-than-expected fiscal second-quarter
results.
Chief Financial Officer Dave Zinsner said Thursday that the
company went through an inventory correction "pretty quickly."
"When we talk to customers for 2011 in total, they seem pretty
optimistic about what's going on and what their order flow to us is
going to look like," Zinsner said. "It looks like the inventory
correction is behind us."
ADI shares, up 39% over the past 12 months, grew 1.7% to $40.43
in recent trading.
Zinsner's statements echo recent comments from other chip makers
in the analog market, such as Texas Instruments Inc. (TXN). TI has
long said the inventory correction would be short and shallow, and
Chairman and Chief Executive Rich Templeton reiterated that belief
Wednesday at the Morgan Stanley conference.
"This [slowdown] has been lighter because capacity has been
under-invested," Templeton said. "So we never got to excess
inventories anywhere near the magnitude we've seen in prior
cycles."
Zinsner, meanwhile, said chip makers that "did particularly well
in managing lead times," or how long it takes customers to receive
products, didn't see much of an inventory correction.
When lead times become longer, customers buy more products on
worries they won't be able to get semiconductors when needed. That
leads to a build up in inventory and falling demand once lead times
start declining. Many companies, such as ADI, have worked to keep
lead times steady, lessening the impact of a correction.
In addition, Zinsner said there are still opportunities for the
company to grow its gross margins going forward. ADI's margins have
been steadily improving in recent quarters, with the gross margin
in the fiscal first quarter widening to 66.2% from 61.1% in the
year-ago period.
"Where gross margins are today is probably right for the level
of sales we have today, but we think we can improve margins as
sales go up," he said.
-By Shara Tibken, Dow Jones Newswires; 212-416-2189;
shara.tibken@dowjones.com
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