Analog Devices: Another China 3G Beneficiary

EVENT: ALTR, XLNX Guide Higher; ADI Has “Very High” Cellular Base Station Market Share
CAUSE: Companies Seeing Strength From China 3G Infrastructure Buildout
IMPACT: Positive For ADI
ACTION: Taking Positive Stance On ADI; Adding To List Of US Beneficiaries Of China 3G

SUPPLY CHAIN EVENT TRACKER

• 1.22.09 Customer AVT guides Q1 revenues -1.0% below Street expectations
• 1.26.09 Competitor TXN guides Q1 revenues -10.9% below Street expectations
• 1.27.09 Competitor STM guides Q1 revenues -18.5% below Street expectations
• 1.29.09 Competitor MXIM guides FQ3 revenues -15.6% below Street expectations
• 2.4.09 Competitor SLAB guides Q1 revenues -15.3% below Street expectations
• 2.4.09 Customer CSCO guides FQ3 revenues -7.3% below Street expectations
• 2.5.09 Customer PWAV declines to issue formal Q1 guidance due to macroeconomic uncertainty
• 2.6.09 Competitor LLTC guides FQ3 revenues -13.5% below Street expectations
• 2.10.09 Customer ARW guides Q1 revenues -9.5% below Street expectations
• 2.12.09 Supplier AMKR guides Q1 revenues -14.9% below Street expectations
• 2.28.09 Company ADI guides FQ2 revenues -0.3% below Street expectations
• 2.26.09 Customer CTV guides Q1 revenues -9.5% below Street expectations
• 3.2.09 Industry ALTR guides Q1 revenues +2.2% above Street expectations on China 3G strength
• 3.3.09 Industry XLNX guides FQ4 revenues +5.9% above Street expectations on China 3G strength

EVENT: IN LINE AND UPSIDE GUIDANCE. Earlier this week (3.2.09), ALTR updated its Q1 (Mar) guidance, seeing revenues down 15-20% Q/Q vs 15-25% previously. The midpoint ($259.5M) is +2.2% above Street expectations of $253.8M. The next morning, major competitor XLNX announced that it sees FQ4 (Mar) revenues down 13-18% Q/Q vs 15-25% previously. The midpoint ($387.4M) is +5.9% above Street expectations of $365.7M. In mid-Feb (2.18.09), ADI guided FQ2 (Apr) revenues of $428.9M, -0.3% below Street expectations of $430.2M.

CAUSE: CHINA 3G INFRASTRUCTURE STRENGTH. We were a bit surprised when ADI guided in line with the Street in mid-Feb. But after the upside guidance from ALTR and XLNX, ADI’s conference call commentary became more clear. Managemet stated that ADI has a “very high” market share in the cellular base station market; we estimate that wireless infrastructure accounts for ~16% of ADI’s revenues. We view China’s 3G infrastructure buildout as one of the very few positive trends right now in tech. China Mobile (CHL; China’s largest wireless carrier with ~463.9M subscribers) is slated to add an additional 60K 3G base stations this year on top of the 20K it already has, rolling out its TD-SCDMA technology to 238 cities by year-end. China Unicom (CHU; ~134.2M subscribers) plans to roll out its WCDMA technology to 280 cities by year-end. China Telecom (CHA; ~28.9M subscribers) plans to roll out its CDMA2000 network to 100 cities by year-end. Overall, Chinese service providers are expected to spend ~$58B in 3G infrastructure over the next three years, according to China’s Ministry of Industry and Information Technology.

IMPACT/ACTION: TAKING POSITIVE STANCE ON ADI. We went negative on ADI in mid-October, when competitor LLTC guided revenues -15.8% below then-Street expectations. But given ADI’s own in-line guidance, as well as the upside guidance from ALTR and XLNX, we are now taking a positive stance, and see upside to Street revenue expectations. Other beneficiaries of this same trend include ALU, ALTR, COGO, CTV, ERIC, PMCS, PWAV, SMI, TQNT, and XLNX (see our note earlier this week). For more information, see our BizMaps at www.connexiti.com.