UPDATE: Analog Devices 1Q Net Falls; CEO Calls Market Bottom

Analog Devices Inc. (ADI) said the worst is likely behind the company and boosted its quarterly dividend, but the chip maker still provided light guidance for the current period.

President and Chief Executive Jerald G. Fishman said order rates began to accelerate late in the fiscal first quarter and have remained "solid" so far in the current period.

"This leads us to believe that the first quarter marked the bottom of this industry cycle, and we expect our business will improve beginning in the second quarter," he said.

However, Analog Devices projected fiscal second-quarter earnings of 48 cents to 53 cents a share, below the 54 cents expected by analysts. The company also estimated revenue of $655 million to $675 million, compared with $684 million expected by analysts, according to Thomson Reuters.

The Norwood, Mass.-based company has posted softer results in the past few quarters as customers reduce their inventories amid worries about the economy. But Analog Devices--which specializes in devices that measure information such as temperature or light and convert it into digital data--said in November that the first quarter would likely mark the bottom for revenue, a comment it echoed Wednesday.

The guidance, along with soft first-quarter results, sent shares down 2.4% to $38.85 in after-hours trading. Shares have jumped 20% over the past three months through Wednesday's close, outperforming the Philadelphia Sox Semiconductor Index and the S&P 500.

Investors, who have been expecting a rebound in results, have been scooping up shares in anticipation of an inflection, Bernstein analyst Stacy Rasgon said. But he said Analog Devices' guidance, while calling for an increase in demand, doesn't indicate a high level of inventory restocking by customers.

"There was hope they'd move from undershipping demand to meeting demand," he said. "We were modeling in a channel inventory snapback, but it doesn't look like it's happening this quarter."

Semiconductor companies in general have posted softer results in recent quarters because of weakening demand. Customers, worried about an economic slowdown, have pared orders as they work through their inventory levels, but many companies, including Analog Devices rival Texas Instruments Inc. (TXN), have said the market likely has reached its low point.

For the quarter ended Feb. 4, Analog Devices reported a profit of $139.4 million, or 46 cents a share, down from $222.1 million, or 72 cents a share, a year earlier. The year-earlier quarter included four cents of tax-related gains. Revenue dropped 11%, to $648.1 million.

The company's downbeat guidance in November projected earnings at between 44 cents and 51 cents, with $644.5 million to $680.3 million in revenue.

Gross margin narrowed to 63.2% from 66.2%.

The latest quarter was a week longer than the same period a year earlier, giving the company an extra week of potential sales. But Analog Devices said in November that shutdowns during the Christmas and Lunar New Year seasons would likely offset much or all of the extra revenue it stood to gain from the schedule.

Revenue from the automotive market jumped 26%, but the industrial, consumer and communications sectors all reported double-digit-percentage sales declines.

Fishman said most of the growth in the second quarter will come from industrial customers, with more-modest growth expected from the automotive, consumer and communications infrastructure end markets.

"Importantly, while we see improvement in our business, we are mindful of the uncertain macroeconomic environment and we will continue to aggressively monitor and control expenses in the second quarter," he said.

Analog Devices on Wednesday also boosted its quarterly dividend 20%, to 30 cents a share, signaling confidence in its long-term ability to generate cash.

-By Shara Tibken, Dow Jones Newswires; 212-416-2189;

shara.tibken@dowjones.com

--Drew FitzGerald contributed to this article.

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