Altera Tops Ests by a Hair - Analyst Blog

Chipmaker Altera Corporation (ALTR) reported sales of $555.4 million in the fourth quarter of 2010, up 5% sequentially and up 52% year over year.

The results beat the Zacks Consensus Estimate of $548.0 million but were within management's revised guidance of $543.3 million – $559.2 million.

New product sales increased 26% sequentially. New product sales, accounting for 44% of the total, increased 24% sequentially. New products include 65-nanometer (nm) and 40-nm 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.

However, mainstream (including 90-nm FPGAs and HardCopy II – products, which are no longer in the design-in phase and tend to grow or decline with the market) and mature product categories were down sequentially. The sequential decline in mainstream and mature products appears was primarily due to inventory adjustments.

As expected, book to bill for the quarter was below one as lead times return to normal levels for essentially all products.

In terms of product mix, 40-nm revenue (accounted for 17% of total revenue) increased 35% sequentially and 65-nm revenues (accounted for 31% of total revenue) grew 28%.

In terms of end-markets, Telecom & Wireless revenue increased 10% sequentially driven by wireless growth in GSM, WCDMA and microwave applications. Telecom decreased due to inventory rebalancing across several customers. Huawei accounted for 16% of revenue in the quarter. Industrial, military, automotive declined 9%. Computer & Storage Networking increased 17%.

Margins

Moving onto margins, gross margin improved to 71% from 70.1% in the previous quarter driven by improved deals and material cost improvements which were partially offset by unfavorable product mix. Operating margin came in at 47.4%, up from 45.2% in the previous quarter.

Net income was $231.6 million or 72 cents per diluted share compared to a net income of compared to a net income of $217.5 million or 69 cents per share in the third quarter of 2010 and a net income of $103.0 million or 34 cents share in the fourth quarter of 2009. The reported figure easily beat the Zacks Consensus Estimate by a penny.

During the quarter, Altera generated $210 million of cash from operating activities and ended the quarter with cash and short-term investments of $2.7 billion.

Guidance

Going forward, Altera expects sales to be down 1% to 5% in the first quarter. The guidance implies a revenue guidance of $527.8 million – $549.9 million. Given Altera's track record of upgrading guidance as the quarter progresses, we can expect an increase in the guidance provided with the earnings results.

In 2010, Altera focused on 28-nm development and the company will introduce more products in 28-nm than any previous process node in the coming years. Revenues from Telecom & Wireless are expected to decline as few customers rebalance inventory.

Altera expects Industrial, military, and automotive should increase on military and automotive. Computer & Storage Networking should be flat to slightly down. Others should decrease.

Gross margin is expected to come around 71% – 72%.

Altera is a leader in the Programmable Logic Devices (PLD) market, which is growing faster than the total semiconductor market. Altera's main rival is Xilinx Inc. (XLNX). Together, they hold nearly 87% of the programmable logic devices (PLD) market.

Shares of Altera were down 2.14% to close at $37.10 in after-hours trading.