Earnings Preview: Altera Corp. - Analyst Blog

Estimates for chipmaker

(

) have been on the upswing ahead of the second quarter results. The company is scheduled to report results on July 20, 2010.

The stock price has been steadily moving up, driven by strong performance and upbeat guidance. Last month, Altera narrowed its guidance for the second quarter. Altera now expects revenues to grow around 10% – 12% sequentially, at the high-end of the previous guidance of 8% – 12%.

The new guidance implies a revenue guidance of $442.5 million – $450.6 million. The growth in revenues will once again be driven by new products as 65-nm FPGAs and in particular 40-nm FPGAs continue to report solid growth.

New products include 65-nanometer and 40-nanometer field-programmable gate arrays (FPGAs) and HardCopy application-specific integrated circuit (ASIC) and the latest complex programmable logic devices (CPLD) family (all products which are in the design win and production ramp phase of their lifecycle). Revenues from all four vertical market segments (Telecom & Wireless, Industrial Automation, Military & Auto Networking, Computer & Storage and Others) are likely to be up sequentially.

In tandem with management, most analysts have upped their estimates for Altera. For 2010, 3 out of the 23 analysts covering the stock have raised their estimates in the last thirty days. Additionally, 3 analysts out of the total have also increased their estimates in the last 7 days, with no downward revisions.

The recovery in the semiconductor market has been quite strong after going through a weak first half in 2009. Hence, the outlook on most chip-making companies is upbeat. Demand has strengthened in the past several quarters and most customers have more visibility as they place orders in a timely manner.

For the second quarter, one analyst out of the 24 analysts covering the stock has upped his or her estimate in the last 7 and thirty days.

There is positive consensus among analysts covering the stock. The current Zacks Consensus Estimate (ZCE) for 2010 is $1.99, up one cent in the last seven days.

Altera has constantly been exceeding expectations. In the most recently reported quarter, the company’s earnings were 25.0% above the Zacks Consensus Estimate. On an average, Altera has come ahead of the Zacks Consensus Estimate by 21.1% in the last four quarters.

Altera continues to benefit from the growth in 65-nm and 40-nm FPGAs as customer designs moves from prototyping to production. Revenues continue to grow, driven by a combination of new product ramps, improved end-market demand and an increase in the customer take rate due to inventory depletion. Altera has a pipeline of 28 nanometer products, which it believes will maintain the growth momentum of the past two quarters.

We expect the overall revenue growth to pick up in 2010, leading to improvements in both the top and bottom lines. Hence, we upgrade the stock to Outperform from Neutral. Our recommendation is supported by the Zacks #1 Rank (Strong Buy).

Altera’s main rival is

(

). Together, they hold nearly 87% of the programmable logic devices (PLD) market. However, the company has a strategic advantage over Xilinx regarding its HardCopy offering (a new type of high performance application-specific integrated circuit). At current valuations, we prefer Altera to Xilinx.