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Although artificial intelligence has captured much of the attention, the semiconductor industry has had an uneven recovery following the pandemic, particularly the analog part of the market.
And while some believe this segment is on the road to recovery, that This mindset is not shared by everyone, especially not by investment firm Baird.
“We take a more measured view, particularly given that our recent channel checks highlight weaker demand and a lower visibility outlook for the remainder of this year across the industry compared to expectations two months ago,” analyst Tristan Gerra wrote in a note to investors. “We do not believe the recent sequential rally in the analog sector is sustainable.”
Despite that belief, Gerra said that Analog Devices (NASDAQ:ADI) has returned to shipping in line with end demand and should see a “robust” 2025. And even if the uptick in the analog part of the processor market — which touches everything from automotive to industrial to communications to consumer devices — isn’t real, Analog Devices is better positioned than its peers to drive the market going forward.
Gerra has an Outperform rating and a $250 price target on Analog Devices.
Analog, which announced its third-quarter results earlier this week, has begun to see some light at the end of the tunnel, albeit unevenly. Bookings for the industrial, communications and consumer sectors grew in each vertical for the fourth consecutive quarter, though bookings related to the automotive sector declined.
Bookings were also mixed by region, with Europe being the weakest. By contrast, Asia saw growth, while the Americas fell in the middle.
Digging deeper, the industrial segment saw growth across all major applications except automation. In communications, both wireless and non-wireless applications saw growth, while the consumer segment saw notable strength in wearables and gaming.
The automotive segment still has to deal with customers working with inventory.
However, Analog management said 2025 will see “solid growth,” aided by secular tailwinds that have helped the company build a record pipeline of winning projects. In addition, the company has also reduced channel inventory and worked to improve its balance sheet, which positions it “well” to return to revenue growth, Gerra said.
Looking ahead to the fourth quarter, Analog Devices expects revenue of $2.3 billion to $2.5 billion, with the midpoint above the consensus estimate of $2.38 billion. It expects fourth-quarter adjusted earnings per share of $1.53 to $1.73, with the midpoint in line with the estimate of $1.63.
