ADI in the Industrial Space: A Question of Momentum
ADI’s Industrial segment
Analog Devices’ (ADI) Linear Technology (LLTC) acquisition should increase the size of ADI’s Industrial, Communications, and Automotive segments, which together account for 83% of the company’s revenue.
The Industrial segment is ADI’s largest segment, accounting for 39.6% of the company’s revenue in fiscal 4Q16. This segment covers a range of sectors including healthcare, industry automation, energy, and A&D (aerospace and defense).
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Revenue estimates for the Industrial segment
Fiscal 4Q16 was a better-than-expected quarter for ADI’s industrial segment as it reported 8% YoY (year-over-year) growth in revenue to $396.3 million. Generally, fiscal 4Q is a weaker period for industrial but fiscal 4Q16 saw strong growth in all segments. Demand from A&D rebounded and the company’s investment in the healthcare segment started showing results.
However, things are likely to slow in fiscal 1Q17 as seasonal demand weakens. ADI expects revenue from industrial segment to fall by around 10% sequentially to $356.7 million in fiscal 1Q17. But the overall fiscal 2017 looks bright for the industrial segment as the Trump administration look to boost manufacturing within the United States.
ADI’s industrial solutions
At the fiscal 4Q16 earnings call, ADI chief executive Vincent Roche talked about the company’s offerings in the industrial space. Roche stated that ADI’s solutions help car manufacturers’ improve fuel efficiency and reduce carbon dioxide, thereby bringing them savings of $30 per vehicle.
ADI’s input-output solutions help factories optimize channel density and physical space while reducing thermal discharge. All this is done while reducing the cost of wiring and installation. ADI’s vital signs monitoring products help bring clinical grade patient monitoring into the home, thereby reducing or eliminating the cost of the hospital stay.
The acquisition of Linear Technology would increase ADI’s total addressable market by adding power management solutions to its portfolio.
Notably, the PowerShares QQQ ETF (QQQ) has holdings in technology stocks, including 8.7% in semiconductor stocks. QQQ has 0.40% exposure in ADI.
Now let’s look at ADI’s second-biggest and most volatile Consumer segment.