Analog Devices Inc said Wednesday that the turbulent economy will weigh on its third-quarter results, causing the chipmaker's shares to fall nearly 8 percent. The company expects third-quarter revenue of $3.1 billion, up or down $100 million, with the midpoint below analyst estimates of $3.16 billion, according to Refinitiv.

Analog Devices also said it expects adjusted earnings per share of $2.52 for the quarter, a range of 10 cents up or down, below estimates of $2.65 per share.

The pessimistic forecast reflects the weak performance of peer Texas Instruments last month, as the chip industry struggles to emerge from a downturn that has led to a buildup of inventories. "Looking ahead to the second half of the year, we expect revenue to slow given continued economic uncertainty and supply chain normalization," Analog Devices Chief Executive Officer Vincent Roche said Wednesday.

Vincent Roche, ADI's chief executive officer and chairman, said. "Looking ahead to the second half of the year, we expect revenue to slow in light of continued economic uncertainty and supply chain normalization. However, I am confident in ADI's ability to navigate short-term business cycles due to the strength and diversity of our franchises, our hybrid manufacturing model and alignment with long-term growth trends."

Roche continued, "In the long term, the focus of data processing is shifting from the cloud to the edge, thanks to emerging applications including Industry 4.0, smart energy systems, electric vehicles, advanced connectivity and the immersive consumer.ADI is aligned with these applications, where the increasing semiconductor content per dollar of capital expenditure presents a tremendous growth opportunity. I am excited about our future as we continue to deliver breakthrough solutions for our customers at the smart edge."

It is important to highlight that ADI continued to perform well in the second quarter with its 13th consecutive quarter of revenue growth and record earnings per share. Resilient demand from the industrial and automotive industries helped the company beat expectations with second quarter revenue growth of 10 percent to $3.26 billion. Revenue from the company's industrial division, which accounts for more than half of Analog Devices' revenue, rose 16 percent, while revenue from the automotive division rose 24 percent.

The company said in early May that it would invest 630 million euros ($678.8 million) in a new research and development and manufacturing facility in Ireland to increase its production capacity in Europe.

KeyBanc analysts noted that a limited recovery in China and a slowdown in the industrial and automotive sectors are expected to weigh on second-half results.

"ADI expects 2H to revise as customers destock excess inventory, largely due to limited signs of post-RMB China recovery, but also notes a slowdown in North America/Europe. B2B is lower than Q1 in all segments, and backlog coverage in F3Q is now at a normal 80-85%. Normal seasonal trends are expected for F1Q24 and a return to YoY growth in F2Q24," analysts said.

For the quarter, Analog Devices expects adjusted earnings per share of $2.52 on sales of $3.1 billion. This is based on the midpoint of their outlook. Wall Street had been looking for fiscal third-quarter sales of $3.16 billion and earnings of $2.65 per share. In the same quarter last year, Analog Devices reported adjusted earnings of $2.52 per share on sales of $3.11 billion.

TI analog chip revenue plunges, executives: nervous, but not deterred

Texas Instruments Inc. issued a disappointing latest quarterly sales forecast Tuesday, but broader optimism about the expected rebound in the technology industry helped boost the stock.

Although the company is careful to avoid revealing whether the current chip slump has reached a low point, investors and analysts have been betting on a recovery this year. They stuck to their optimistic view after Texas Instruments issued a mixed report, sending shares up 2.3 percent after an initial plunge.

Alphabet Inc. and Microsoft Corp. both reported upbeat quarterly reports Tuesday afternoon, which helped remove some of the gloom surrounding chip demand.

"Long-term, we're very bullish on the industry and the end market and Texas Instruments," Rafael Lizardi, the company's chief financial officer, said in an interview. However, he said, the company will not be "involved" in the exact state of the market - and when it might improve. "No one really knows. People can have models, they can speculate, but at the end of the day, they don't really know."

Texas Instruments (TI) has one of the chip industry's most diverse customer lists, making it a leader in the broader semiconductor market. Its latest outlook (at least in the short term) suggests demand remains sluggish. The company says second-quarter revenue will be $4.17 billion to $4.53 billion. The midpoint of that range is down 16.5 percent from a year earlier - worse than the 15 percent drop estimated by analysts.

The implication: even bright spots in the chip industry, such as the industrial market, were swept up in the broader slowdown. Texas Instruments (TI) derives most of its revenue from factory equipment, which has helped the company avoid sales declines in personal computers and smartphones. The automotive industry, which has seen a never-ending demand for chips in recent years, remains a strong market for the company. But Chief Executive Haviv Ilan said everything else is suffering. "During the quarter, our end markets were weak, with the exception of automobiles," he said in a statement. The stock closed earlier in regular trading in New York at $169.39, up 2.5 percent for the year. On a conference call, executives said predicting a rebound has become more difficult today because individual markets behave in different ways.

While the personal electronics market began to decline four quarters ago, that hasn't been the case in the automotive industry. About two quarters ago, other major divisions of Texas Instruments began to show weakness. In general, customers are cutting orders to reduce inventories of unused parts. Executives said this will continue in the current period. For TI, customers with inventory backlogs are still clearing excess inventory, which marks trouble because it derives about 70 percent of its revenue from those markets, with industrial accounting for about 40 percent.

The company has also reduced the number of products sold through distributors to help better control inventory. Texas Instruments' (TI) internal inventory increased during the quarter and is expected to continue to do so.

Earnings per share for the second quarter were $1.62 to $1.88, compared with analysts' forecasts of $1.83. First quarter revenue declined 11 percent to $4.38 billion, in line with analyst forecasts of $4.36 billion. Analog chip sales declined 14 percent, while Texas Instruments' embedded processors grew 6.4 percent. Other revenue declined 16 percent.

Earnings per share for the same period were $1.85, down from $2.35 a year earlier. The company said the results included a 3-cent gain, which was not in Texas Instruments' original guidance.

Texas Instruments (TI) executives are generally reluctant to make broad forecasts about where demand is headed. Instead, they focus on telling investors that their products have a long shelf life and that they will still have value when the chip industry emerges from its cyclical downturn cycle.

Texas Instruments' chips typically perform simple but important functions, such as recording button presses, detecting temperature changes and controlling motors in everything from space hardware to home appliances. Such chips typically do not require advanced production compared to digital products.

That focus has allowed the company to invest less in expensive factories and equipment than its peers, boosting margins and enabling it to offer attractive dividends and buybacks. But executives warned investors that they will be investing more money in factories in the coming years to build more in-house capacity.

"We're nervous," Lizardi said in an interview. "We're not going to be spooked by short-term volatility."