<News Alert> Dimmer 2Q24 guidance on prolonged inventory correction; Industrial to be a long-term driver
- ADI’s 1Q24 revenue declined by 23% y-o-y to US$2.51bn; EPS decreased by 37% y-o-y to US$1.73, in line with consensus
- Management’s 2Q24 guidance for EPS missed the market expectations
- Expect inventory correction to largely subside in 2Q24. Anticipate industrial sector to boost mid-to-long-term growth
1Q24 results in line; dimmer guidance for 2Q24.
ADI’s end market demand takes more time for recovery due to the continued macroeconomic uncertainty and customer inventory destocking persisted. ADI’s 1Q24 revenue declined by 22.8% y-o-y to US$2.51bn. Gross margin further shrank by 6.7ppt y-o-y to 58.7% vs. 60.3% in 4Q23, mainly due to an unfavorable product mix and lower factory utilization. Adjusted EPS decreased to US$ 1.73, down 37.1% y-o-y accordingly, in line with the market’s expectations. ADI declared a DPS of US$0.92. For 2Q24, ADI expects sales to be c.US$2.0bn to US$2.2bn, down 35.6% y-o-y. Adjusted EPS is expected to range from US$1.16 to US$1.36, down 55.5% y-o-y below the market consensus of US$1.56 as the pullback on semiconductor inventory by customers is predicted to extend into the next quarter.
Inventory rationalization continues; industrial automation to be a long-term driver.
Customers’ inventory destocking continues, and the management expects the inventory rationalization to subside in 2Q24. The growth momentum in the automotive segment (accounts for 19% of revenue in 4Q23) remained solid. Meanwhile, ADI’s industry-leading position dominates in several key areas, including the Instrumentation/Tests sector with a market share exceeding 30%, and excels in factory automation. We expect the critical role of sensors in modernizing supply chains highlighted in the ongoing Industry 4.0 campaign, to significantly boost the demand for analog semiconductors in the mid-to-long-run. No change to our BUY call with TP of US$237.3.