Analog Devices retains revenue target despite 5G slowdown

Chipmaker Analog Devices (ADI) forecasts fiscal fourth-quarter revenue of $1.44 billion, plus or minus 10 percent – despite its client Huawei facing turbulent business conditions.
Analog Devices at CES 2020
The Massachusetts-based company makes chips that go into 5G networking gear. ADI said it expects sales to a company believed to be Huawei Technologies to drop to zero in the current fiscal fourth quarter because of new rules issued by the U.S. government.

Analysts believe that if Huawei is banned from the 5G network business, deployment of 5G network may face slow down.

Bank of America Securities analyst Vivek Arya, during an analyst call with ADI, doubts whether global 5G deployments can stay on track if Huawei doesn’t get access to U.S. technology. Huawei is still the #1 telecom network supplier ahead of Nokia, Ericsson, ZTE and Samsung despite US sanctions.

ADI’s chief financial officer Prashanth Mahendra-Rajah said the 5G chip slowdown stemmed from “normal operating lumpiness of the communications business” in which carriers buy up chips and deploy equipment in spurts and was unrelated to Huawei, Reuters reported.

ADI chief executive officer Vincent Roche told Reuters in an interview that revenue from a formerly large Chinese customer dropped into the “very low single” digits as a percentage of ADI’s revenue in recent quarters and was expected to drop to zero.

Roche said that the new rules issued Monday mean that any U.S. chip company, or any non-U.S. chip company using U.S. technology to create chips, can no longer sell to the Chinese company

“We support all our customers with great equality, but we stay on the right side of the regulations,” Roche said.

The rules allow companies to apply for licenses to sell to Huawei. Roche said the company intends to seek those licenses for its formerly large Chinese customer.

Analog Devices said its Communications business, which accounted for 25 percent of total revenue, achieved a record quarter with revenue growing at 14 percent, driven by double-digit increases across both wireless and wireline.

“This strength came from our leadership position in 5G wireless systems and solid position in optical connectivity used in carrier networks and data centers,” Vincent Roche said.

Analog Devices said Automotive business, which accounts for 11 percent of total revenue, fell 29 percent with all applications declining due to factory shutdowns and lower vehicle sales A2B revenue has increased over 70 percent year-to-date despite lower vehicle sales.

Analog Devices noticed double-digit declines in Europe and Japan, while the decline in North America was less pronounced. The rest of Asia increased and China increased double digits driven by the robust growth in communications given our solid position as well as strength in industrial.