In the previous part of this series, we saw that Analog Devices’ (ADI) consumer segment is highly correlated to Apple (AAPL). However, this segment is highly volatile, making its share toward revenue also volatile.
Unlike the consumer segment, the industrial segment is more stable, and its contribution toward the company’s revenue has been over 45% in the past two years, except in fiscal 3Q15 and 4Q15, when the consumer segment posted record high revenues.
Industrial segment’s performance
However, the industrial segment is subject to seasonality, with its peak season being in the second and third quarters and its off-season being in the fourth and first quarters. In fiscal 2Q16, the segment’s revenue fell by 1% YoY (year-over-year) but rose by 11% quarter-over-quarter to $385.3 million.
This sequential growth was driven by strong demand in factory automation, industrial instrumentation, and aerospace and defense verticals.
However, the company reported a 1% YoY fall in fiscal 2Q16, as fiscal 2Q15 was a strong quarter for the industrial segment in terms of revenue. Looking at the past ten quarters of data, industrial revenue was the highest in fiscal 2Q15 at $390 million.
ADI expects the industrial segment to continue to grow in fiscal 3Q16, as the company’s orderbook reports stable growth.
Industrial and semiconductor markets
In 2015, the industrial segment outperformed the semiconductor market despite macroeconomic weakness in China (FXI), the largest consumer of industrial semiconductors in the world. According to IHS, global industrial semiconductor revenue rose by less than 1% in 2015, whereas overall semiconductor revenue fell by less than 1% during the year.
Texas Instruments (TXN) continued to be the largest industrial semiconductor supplier in the world in 2015. It was followed by Infineon Technologies, Intel (INTC), STMicroelectronics (STM), and ADI in the second, third, fourth, and fifth positions, respectively. With macroeconomic conditions stabilizing in China, growth is expected to pick up in the coming quarters, and ADI is well positioned to tap this growth.
IHS expects the industrial semiconductor market to grow at a CAGR (compound annual growth rate) of 8.4% between 2015 and 2020.
Next, we’ll look at the performance and growth drivers of ADI’s communications infrastructure segment.