NORWOOD, Mass. -- Analog Devices Inc. today cut its outlook for its fiscal third-quarter results, which ends Aug. 4, to $480 million or 20% below $601 million in the prior fiscal quarter.
"At these updated revenue levels, we estimate that our analog product revenues will decline approximately 15% sequentially and 30% from peak levels and be approximately flat for the year, after growing 70% last year," said Jerry Fishman, president and CEO of Analog Devices.
"We estimate that our DSP product revenues will decline approximately 35% sequentially from last quarter and 65% from peak levels and will be down 35% for the year, after growing 115% last year," he said "We now estimate that ADI's total revenues for fiscal 2001 will decline approximately 10% compared to the prior year, after growing 78% last year."
With revenues in the $480 million range for the current fiscal quarter, Analog Devices said its operating margin is expected to be 15-to-16% of sales and pro forma earnings per share are estimated to be in the $0.16 to $0.17 range. (Pro forma earnings exclude the effects of restructuring charges and the amortization of intangibles and other acquisition-related expenses.)
"We estimate that gross margin will remain strong at approximately 53% of sales, despite operating our internal fabs at below 70% utilization and $20 million of additional inventory reserves this quarter," said the chief executive officer. "Manufacturing spending has declined over 40% from peak levels, aided by our strategy of outsourcing the fabrication of our most volatile system-level products, scheduled periodic shut downs of manufacturing operations worldwide and the acceleration of the consolidation of testing operations worldwide."
He said the fiscal third quarter's operating expenses should decline 15% from peak levels "as a result of the elimination of bonuses, reductions in salary for higher paid employees and other actions to reduce discretionary expenses." He added that as previously announced Analog Devices is likely to take some restructuring charges in both the fiscal third and fourth quarters to cover cost cuts.. Details on those charges will be released on Aug. 16 when results are posted.
In the next fiscal quarter, beginning in early August, ADI sees the possibility for an end of the sequential declines in revenues, but it is remaining cautious and predicting a slight drop from the current period. "While this market makes it difficult to offer precise guidance for the fourth quarter, there are signs we may be approaching trough revenues for this cycle," Fishman said. "We believe there is little risk of additional revenue downside in the wireless and wire-line communications markets and the PC and automatic test equipment markets -- where we have seen the most dramatic declines.
"Our distribution business also appears to be stabilizing, after falling 30% from its peak," he added. "Nonetheless, we think it is prudent to plan for a 5-to-10% sequential revenue decline for the fourth quarter, which has historically been a seasonally weak period. We also believe our gross margin percentage could stabilize near the third-quarter level and operating expenses could show a slight decline from the third quarter. This scenario would result in only a modest reduction in operating margin from the third-quarter's level."