Avago Looks Like A Relative Bargain

It looks like semiconductor slowdown worries are mostly in the past. Looking across the chip space, particularly the analog sector, most of the major players are either at or very near 52-week highs. While Avago (Nasdaq:AVGO) is likewise near its high for the year, investors may nevertheless want to look a little further and see whether this name might offer a relative bargain in this sector. 

An Okay Quarter To Close The Year
Avago's fiscal fourth quarter earnings showed a familiar theme in the chip sector - good year-over-year growth, okay sequential growth and a warning of sequential contraction early in 2011. More specifically, the company reported that total revenue grew 4% on a sequential basis (up 34% from last year), as sales into the wired segment grew 15% from the Q3 while consumer and computing sales dropped 22%.

Profitability fared better, though. Gross margin improved whether an investor looks at the GAAP, non-GAAP or adjusted non-GAAP numbers. The GAAP numbers show a 50 basis point sequential improvement and a substantially better jump from the year-ago level. Avago also reported more positive leverage through the operating and net income lines.

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Is Linear A Canary Or A Duck?

Linear Technology (Nasdaq:LLTC) has long suffered from a decided lack of analyst support and enthusiasm. Despite an extensive record of strong financial performance, the company has never put to rest the doubts that its high margins will be whittled away by the likes of Analog Devices (NYSE:ADI), Texas Instruments (NYSE:TXN), Maxim (Nasdaq:MXIM) and a host of foreign and smaller competitors. 

Now, another worry comes into play - whether or not Linear can maintain its business, and whether customers over-ordered during the early stages of this economic recovery. With Linear looking for a sequential drop in revenue into the last calendar quarter of this year, the question is whether Linear is the canary in the coal mine for broad-based analog chip demand, or simply an odd duck with its own unique ship-ahead problems.

The Quarter That WasAll in all, Linear did more or less as expected in its fiscal first quarter. Revenue rose 6% on a sequential basis, and 65% on an annual basis. Gross margins ticked up sequentially by about 60 basis points, and while reported operating margin fell a bit, adjusted operating margin (excluding a legal charge) would have increased sequentially.


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