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Analog Devices, Inc. (ADI - Analyst Report) is scheduled to announce its fiscal fourth-quarter 2012 results on November 27. We see a few downward revisions in analyst estimates prior to the earnings release.

Prior-Quarter Synopsis

Analog Devices' third quarter 2012 pro forma earnings of 56 cents were in line with the Zacks Consensus Estimate.

Revenue in the quarter was $683.0 million, up 1.2% sequentially and just within management’s revenue guidance range of $682–$702 million, attributable to strong sales across a wide range of communications infrastructure applications, partially offset by weakness in the automotive and industrial segments.

Gross margin of 65.6% was up sequentially on account of slightly better utilization rates. However, operating margins shrunk 43 basis points (bps) sequentially due to special charges related to restructuring activity.

Fourth Quarter Guidance

Management expects fourth quarter revenue between $685 million and $715 million (a 0–5% sequential increase), gross margin of 65%, operating expenses of around $231 million and diluted earnings per share (EPS) of 54 to 60 cents.

(Detailed third quarter earnings results can be viewed in the blog titled: Analog’s Guidance Disappoints Again

Agreement of Analysts

Out of the 20 analysts providing estimates for the fourth quarter, 2 analysts made downward revisions while 1 out of 22 analysts providing estimates for fiscal 2012 made a downward revision in the last 30 days.

The majority of analysts expect fourth quarter revenue/earnings to come in below Street consensus estimate due to a weak overall demand environment. They expect poor demand particularly in the Industrial and Communications end markets, which together comprise roughly 67% of Analog’s total revenue.

They also expect a weak first quarter guidance due to the sluggish macro environment and tight inventory management.

However, a few analysts believe that share gains in its Automotive and Consumer segments could help to mitigate the decline. The analysts also remain positive about the fact that the company has none to very little PC exposure and believe that the consumer business is expected to grow at a robust pace.

Magnitude of Estimate Revisions

In the past 30 days, the Zacks Consensus Estimate remained unchanged at 57 cents and $2.13 for the fourth quarter and fiscal 2012, respectively. The Zacks Consensus Estimates also remained unchanged over the 90-day period.

Our Recommendation

Analog Devices is a leading supplier of analog and DSP integrated circuits. We remain encouraged by the company’s dominant position in many of its product segments, and meaningfully improved gross and operating margin structures.

However, given recent weak reports by its peers, the continued macro sluggishness and continued softness within the industrial infrastructure markets, we do not expect Analog Devices to report a strong fourth quarter.

Currently, Analog Devices has a Zacks #4 Rank (short-term Sell rating), reflecting end market weakness and a disappointing fourth quarter guidance provided by management.

We note that analog peer Intersil Corporation (ISIL - Snapshot Report) also carries a Zacks #4 Rank, although others like Maxim Integrated Products (MXIM - Analyst Report) and Texas Instruments (TXN - Analyst Report) carry a Zacks #3 Rank (short-term Hold rating).

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