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Analog Devices Earnings Forecast May Be Blunted by Huawei Ban

Analog Devices Earnings Forecast May Be Blunted by Huawei Ban

(Bloomberg) -- Analog Devices Inc. picked a rough time to report earnings.

The chipmaker is due to report fiscal second-quarter results Wednesday morning, and analysts expect the outlook to take a hit from the U.S. ban on sales to one of its biggest customers, Huawei Technologies Co. The only question is when that hit will occur. Analog Devices will be the first large U.S. chipmaker to report results following the Trump administration’s move to blacklist Huawei on Friday, and the Chinese company accounts for 3.3% of its revenue, according to Bloomberg supply-chain data.

Analog Devices Earnings Forecast May Be Blunted by Huawei Ban

Credit Suisse expects Analog Devices’ third-quarter forecasts to miss estimates because of $60 million in lost Huawei revenue, which would cut earnings-per-share by 5 cents. Weaker auto and industrial revenue is also likely to weigh on the outlook, analysts led by John Pitzer wrote in a note. Deutsche Bank, meanwhile, said inventory build-up at Huawei may help results in the second and third quarters before downside from the ban emerges in the fourth quarter.

“Management acknowledged on the last earnings call that order pulls in China have also contributed to growth,” Morgan Stanley analyst Joseph Moore wrote in a note to clients. “We’re not sure how long this strength can sustain and would be bracing for a wider range of outcomes in the segment over the coming quarters. The news last week of a ban of US sales to Huawei injects additional uncertainty.”

“Analog Devices may take a cautious view in its sales outlook” due to heightened trade tensions, Bloomberg Intelligence analyst Woo Jin Ho wrote. Separately, RBC cautioned that the Huawei ban also creates questions around ZTE Corp., another customer for Analog Devices that is a large Chinese player.

Deutsche Bank expects investors to compare Analog Devices’ results with Xilinx Inc. as 4G network upgrades and build out for 5G has led to strength in the communications business over the past few quarters. Xilinx gets about 1.8% of its revenue from Huawei, according to data compiled by Bloomberg. Nomura Instinet analyst David Wong said that the U.S. company may be at risk from the ban even though it’s never identified Huawei as a major customer that is driving its recent strength in wireless.

Xilinx fell as much as 6.8% in New York as semiconductor stocks extended a three-day slump. Analog Devices slid 3.8% to its lowest levels since January.

To contact the reporter on this story: Catherine Larkin in Chicago at clarkin4@bloomberg.net

To contact the editors responsible for this story: Courtney Dentch at cdentch1@bloomberg.net, Jeran Wittenstein, Richard Richtmyer

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