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Analog Devices forecasts sales above estimates despite 5G slowdown

Aug 19 (Reuters) - Chipmaker Analog Devices Inc on Wednesday forecasted fiscal fourth quarter revenue above analysts’ prior expectations despite an anticipated slowdown in sales of chips for 5G networks.

ADI forecast fiscal fourth-quarter revenue of $1.44 billion, plus or minus 10%, and adjusted earnings per share of $1.32 per share, plus or minus 10 cents. Both forecasts beat analyst expectations of $1.41 billion in revenue and adjusted earnings per share of $1.24, according to IBES data from Refinitiv.

The Massachusetts company makes a variety of chips that go into 5G networking gear. ADI said it expects sales to a company believed to be Huawei Technologies Co Ltd to drop to zero in the current fiscal fourth quarter because of new rules issued by U.S. government officials.

On a conference call with investors, however, ADI’s Chief Financial Officer Prashanth Mahendra-Rajah said the 5G chip slowdown stemmed from “normal operating lumpiness of the communications business” in which carriers buy up chips and deploy equipment in spurts and was unrelated to Huawei.

ADI Chief Executive Vincent Roche told Reuters in an interview that revenue from “a formerly large Chinese customer” had dropped into the “very low single” digits as a percentage of ADI’s revenue in recent quarters and was expected to drop to zero.

Roche said that the new rules issued Monday mean that any U.S. chip company, or any non-U.S. chip company using U.S. technology to create chips, can no longer sell to the Chinese company, which ADI officials have not named but analysts say is Huawei.

“We support all our customers with great equality, but we stay on the right side of the regulations,” Roche said.

The new rules allow companies to apply for licenses to sell to Huawei. Roche said the company intends to seek those licenses for its formerly large Chinese customer. (Reporting by Stephen Nellis in San Francisco; Editing by Cynthia Osterman)

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