uploads///A_Semiconductors_ADI_Q Consumer revenue

Will Apple Boost ADI’s Consumer Business?

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Feb. 10 2017, Updated 10:36 a.m. ET

ADI’s Consumer segment

Analog Devices’ (ADI) B2B (business-to-business) segments of Automotive, Communications, and Industrial are more or less stable because the design win process is slow, and consumers are reluctant to change suppliers frequently. The Consumer segment, however, is ADI’s most volatile segment as its revenue depends on smartphone sales. Apple (AAPL) is ADI’s key customer in this segment.

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Correlation between ADI and Apple

ADI’s revenue from consumer segment is directly proportional to Apple’s iPhone sales. A slight increase in iPhone sales has a major impact on ADI’s consumer revenue as content per phone increases significantly. However, a decline in iPhone sales has little impact on ADI’s Consumer segment revenues as it does on the company’s more stable Industrial, Automotive, and Communications segments, which together account for 83% of the company’s total revenues.

ADI has reduced its dependence on Apple and moved to other segments for growth. In fiscal 4Q16, when Apple reported a 13% YoY (year-over-year) fall in iPhone sales, ADI’s consumer segment revenue fell 7.2%. However, on a sequential basis, ADI’s consumer revenue grew 58% in fiscal 4Q16, when iPhone sales rose only 17%.

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Revenue estimates for the Consumer segment

For fiscal 1Q17, ADI expects the Consumer segment’s revenue to fall 30% sequentially to $205.8 million. This would decrease the segment’s contribution to total revenue from 29.4% in fiscal 4Q16 to 23.6% in fiscal 1Q17.

But if we take the YoY perspective, things still look pretty strong. Apple reported a record-high quarter with iPhone sales rising 5% YoY in fiscal 1Q17, and so ADI expects consumer segment’s revenue to increase 63.7% YoY during the same quarter.

Apple’s high revenue growth came at the cost of Samsung (SSNLF), which recalled and stopped production of its Galaxy Note 7 due to overheating issues.

ADI reduces focus on consumer

ADI is reducing its exposure in Apple and focusing on the other markets as the overall demand for smartphones slow. Notably, it’s spending more than 90% of its R&D (research and development) expense on its B2B segments, and it’s also making R&D efforts in the automotive and communications spaces.

Now let’s take a look at the company’s Automotive segment.

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