What drove ADI's revenue growth in fiscal 1999?

Growth was led by demand for analog, mixed-signal and DSP ICs in broadband and wireless communications (DSL modems, cellular base stations, handsets), as well as PCs and consumer electronics. A broader semiconductor recovery also contributed, partly offset by weaker automatic test equipment sales.

Is ADI's balance sheet healthy after the convertible note conversion?

Yes. Most of the $230 million 3.5% convertible notes converted into about 11 million common shares, and cash and short-term investments reached $762 million. The remaining $80 million of 6 5/8% notes due March 2000 is well covered by cash, and the company's $60 million credit line was essentially unused.

What are the main risks to ADI's outlook?

The semiconductor market is cyclical, and the company expanded capacity significantly, so overcapacity could pressure prices. It also relies on third-party foundries and subcontractors, including facilities in earthquake-prone Taiwan, and 54% of revenue comes from international markets. Litigation is an ongoing risk, including the Linear Technology patent suit, a French ruling against its accelerometer, and a newly disclosed Silicon Labs suit.

Why did reported fiscal 1998 earnings differ from the restated figures?

In fiscal 1998 ADI changed how it recognizes revenue on distributor shipments, deferring recognition until resale to end users. The cumulative effect was a $37 million after-tax charge ($0.21 per diluted share). Before that charge, fiscal 1998 net income was $119 million, or $0.71 per diluted share, which is the better basis for comparing with fiscal 1999.

What does the spending outlook look like for fiscal 2000?

Management plans capital expenditures of $200-250 million, up from $78 million in fiscal 1999, and expects depreciation to rise to about $150 million. Investors should weigh whether the revenue growth can absorb this higher fixed cost base, particularly if demand weakens after the cyclical upturn.

ADI 10-K FY1999 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed January 28, 2000. Cited figures are marked; the original filing is the authoritative source.

Analog Devices' fiscal 1999 (year ended October 30, 1999) was a strong rebound year.

Net sales rose 18% to $1.45 billion^a from $1.23 billion, driven mainly by broadband and wireless communications (about 40% of revenue, the largest and fastest-growing served market), along with computer and consumer demand. Gross margin improved to 49.3% from 47.8%, and operating income reached $243 million, or about 16.7% of sales, even after a $5.1 million in-process R&D write-off. Net income more than doubled to $197 million, and diluted EPS rose to $1.10 from $0.50 (or $0.71 before the prior-year accounting change).

The results reflect both an industry upturn and tight cost control, with SMG&A falling to 14.5% of sales. The balance sheet strengthened considerably. Cash, equivalents and short-term investments reached $762 million^b, up from $305 million, supported by $427 million of operating cash flow and the $105 million WaferTech stake sale.

Long-term debt was largely eliminated: the 3.5% convertible notes were converted into about 11 million shares, and only $80 million^c of 6 5/8% notes remain, due March 2000. Debt-to-equity fell to roughly 7% from 31%. Backlog nearly tripled to $446 million, which management cautions should not be read as a reliable indicator of future revenue.

Key risks include the semiconductor industry's cyclicality, overcapacity risk from expanded fabs, reliance on third-party foundries and subcontractors (including earthquake exposure in Taiwan), 54% of revenue from international markets, and ongoing patent litigation, including the Linear Technology suit and a French court ruling against the company's accelerometer, plus a newly disclosed Silicon Labs lawsuit. Capital spending is planned to rise to $200^d-250 million in fiscal 2000, which will increase depreciation toward $150 million.

02—Key points

Key Highlights

Net sales grew 18% to $1,450 million in fiscal 1999, with communications representing about 40% of revenue.
Net income rose to $196.8 million, and diluted EPS increased to $1.10 from $0.50 a year earlier.
Gross margin improved to 49.3% from 47.8%, and SMG&A fell to 14.5% of sales from 16.9%.
Cash and short-term investments rose to $762 million, and operating cash flow was $427 million.
Debt was largely retired: convertible notes were converted into equity, leaving $80 million due in March 2000 and a debt-to-equity ratio of about 7%.
Backlog nearly tripled to $446 million, though management says it is not a reliable forecast of revenue.
Capital spending is expected to rise to $200-250 million in fiscal 2000, up from $78 million in fiscal 1999.

03—Questions

Frequently Asked Questions

What drove ADI's revenue growth in fiscal 1999?
Growth was led by demand for analog, mixed-signal and DSP ICs in broadband and wireless communications (DSL modems, cellular base stations, handsets), as well as PCs and consumer electronics. A broader semiconductor recovery also contributed, partly offset by weaker automatic test equipment sales.
Is ADI's balance sheet healthy after the convertible note conversion?
Yes. Most of the $230 million 3.5% convertible notes converted into about 11 million common shares, and cash and short-term investments reached $762 million. The remaining $80 million of 6 5/8% notes due March 2000 is well covered by cash, and the company's $60 million credit line was essentially unused.
What are the main risks to ADI's outlook?
The semiconductor market is cyclical, and the company expanded capacity significantly, so overcapacity could pressure prices. It also relies on third-party foundries and subcontractors, including facilities in earthquake-prone Taiwan, and 54% of revenue comes from international markets. Litigation is an ongoing risk, including the Linear Technology patent suit, a French ruling against its accelerometer, and a newly disclosed Silicon Labs suit.
Why did reported fiscal 1998 earnings differ from the restated figures?
In fiscal 1998 ADI changed how it recognizes revenue on distributor shipments, deferring recognition until resale to end users. The cumulative effect was a $37 million after-tax charge ($0.21 per diluted share). Before that charge, fiscal 1998 net income was $119 million, or $0.71 per diluted share, which is the better basis for comparing with fiscal 1999.
What does the spending outlook look like for fiscal 2000?
Management plans capital expenditures of $200-250 million, up from $78 million in fiscal 1999, and expects depreciation to rise to about $150 million. Investors should weigh whether the revenue growth can absorb this higher fixed cost base, particularly if demand weakens after the cyclical upturn.

04—Continue

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