Tuesday, January 25, 2011

Altera Corp. (NASDAQ: ALTR): Q4 Earnings Preview

Altera Corp. (NASDAQ: ALTR) is scheduled to release its fourth-quarter financial results after the closing bell on Tuesday, January 25, 2011. Analysts, on average, expect the company to report earnings of 71 cents per share on revenue of $547.63 million. In the year ago quarter, the company reported earnings of 34 cents per share on revenue of $365.00 million.

Altera Corporation designs, manufactures, and markets programmable logic devices (PLD), HardCopy application-specific integrated circuit (ASIC) devices, pre-defined design building blocks, and associated development tools.

In the preceding third quarter, the San Jose, California-based  company's net income was $217.49 million or $0.69 per share from $56.70 million or $0.19 per share in the previous year. Net sales for the quarter were $527.45 million, up 84% from $286.61 million a year ago.  Analysts, on average, expected the company to report earnings of $0.65 per share on revenue of $525.98 million.

Late in November, the company reaffirmed that it expects sequential sales growth in the range of 3% to 6% and gross margin in the range of 70% to 71% for the fourth quarter. The guidance implies a revenue guidance of $543.3 – $559.2 million. The company said its new products have been the company's growth drivers with both Stratix IV and Arria II 40-nm FPGAs posting particularly strong quarterly comparisons. In terms of end-markets, communications should continue to grow as China and India upgrade to 3G and U.S. and Japan deploy 4G networks. Networking, computer and storage should increase driven by networking. The automotive, industrial, military and the other markets are forecasted to be flat to slightly down.

Altera also provided preliminary guidance for 2011. Although the company did not provide guidance for revenues but it stated that gross margin should come around 70%, +/- 1%. Altera expects R&D expenditure to come around $330 million, up 26% yearover year. The increase in R&D spending is due to incremental 28-nanometer product introduction costs. SG&A is estimated at around $265 million, up 5% year over year.

Growth rates are expected to moderate from the highs of 2010. In the long run, Altera expects its largest vertical – telecom and wireless to continue growing but, industrial, military and automotive will grow faster than other end-markets. Altera expects gross margin to gradually decline to 65% by 2012 – 2015. The company targets an operating margin around 36%.

Longer-term, Altera stated that although design wins at 40-nm node continue to grow, 2011 will be the year of 28-nm. Altera will start to ship 28-nm Stratix V FPGAs in the first quarter of 2011 and introduce other 28-nm families which address a broad range of markets and applications. Altera plans to have more products at 28-nm than in any previous process generation.

However, 40-nm will be a major contributor to the total revenue growth over the next several years and 28-nm revenues will take a while to become meaningful. Altera nudged past prime rival Xilinx Inc. (NASDAQ: XLNX) at the 40-nm node and gained market share in 2010. The company also seems to have an edge over Xilinx for the 28-nm node.

The company continues to benefit from big trends in the build-out of next-generation wireless networks. It is also grabing share from competitors while maintaining its focused strategy to lead in speed, density, low-power consumption, time-to-market and high-value features.

In terms of stock performance, Altera shares have gained nearly 75 percent over the past year.

Full Disclosure: None.
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