Analog Devices forecasts solid quarterly revenue as the chip market recovers

(Reuters) – Analog Devices forecast third-quarter revenue above Wall Street expectations on Wednesday, helped by a surge in demand for the company’s industrial chips after a long decline, sending its shares up more than 8%.

The optimistic forecasts signal that the chipmaker’s customers are using existing inventories to place new orders amid signs of improving economic conditions.

“We believe that inventory rationalization across our broad customer base is stabilizing, paving the way for us to return to sequential growth in the third quarter,” said CEO Vincent Roche, adding that the company is at the beginning of a cyclical recovery.

The company expects revenue of $2.27 billion plus or minus $100 million in the third quarter, compared with estimates of $2.16 billion, according to LSEG data.

Analog Devices also touted its artificial intelligence efforts during its post-earnings conference call and expects to achieve “record revenues” in its chip testing segment in the near and medium term due to strong demand for high-bandwidth memory chips.

The company’s results are in line with solid forecasts from chipmaker Texas Instruments, fueling optimism about growth in demand for analog chips.

Analog Devices reported revenue of $2.16 billion in the second quarter ended May 4, topping analysts’ average estimate of $2.11 billion.

Revenue in the company’s industrial segment was $1.01 billion, topping analyst expectations of $952.2 million, helped by strong performance in the aerospace and defense industries.

Automotive revenue of $658.2 million missed the $666.5 million estimate as the electric vehicle industry grapples with a slowdown in purchases that has prompted automakers to hold back spending on new chips.

The Wilmington, Massachusetts-based company expects third-quarter adjusted earnings per share to be $1.50, plus or minus 10 cents, compared with estimates of $1.34 per share.

Adjusted second-quarter earnings were $1.40 per share, compared with estimates of $1.26 per share.

(Reporting by Zaheer Kachwala in Bengaluru; Editing by Vijay Kishore and Shailesh Kuber)