Altera has delivered better-than-expected third-quarter 2014
results. The FPGA maker's quarterly results mainly benefited from
new product offerings. However, Altera has provided a tepid revenue
outlook for the fourth quarter. Nonetheless, we remain optimistic
about the company's future prospects due to rapid deployments of 4G
LTE which will increase the demand for FPGAs. Additionally,
continued share buybacks are expected to support the company's
bottom line, going forward. However, macroeconomic weakness,
competition from Xilinx and Lattice Semiconductor Corp.,
consolidation in the telecom market, declining margins and
volatility in the semiconductor market are the concerns. Thus, we
reiterate our Neutral recommendation on Altera.
Founded in 1983, San Jose, CA-based Altera Corporation (ALTR) is
a leading supplier of programmable semiconductors and related
products that enable electronic systems companies to innovate and
differentiate their markets in a cost-effective manner. The company
designs, manufactures, and markets a broad range of
high-performance, high-density programmable logic devices (PLDs)
such as field-programmable gate arrays (FPGAs) and complex
programmable logic devices (CPLDs) and other products (HardCopy
application-specific integrated circuits (ASICs), pre-defined
design building blocks known as intellectual property, or IP cores,
and associated development tools). PLD is an integrated circuit
that can be programmed to perform complex functions. Logic devices
are used to direct signal traffic within a digital system. PLDs are
used by equipment manufacturers in industries such as
communications, computers and consumer devices.
In 2013, sales of FPGAs were 83% of the total revenue, CPLDs
were 9% and Other Products were 8%. By product mix, the PLDs can be
divided into three sub-heads New, Mainstream and Mature and Other.
In 2013, sales from the New category were 43% of the total revenue,
with Mainstream, and Mature and Other categories accounting for 27%
and 30%, respectively.
Geographically, Altera derives its revenues from the Americas,
Asia Pacific, Europe, Middle East & Africa and Japan. The
company generates revenues from four verticals namely, Telecom
& Wireless, Industrial Automation, Military & Automotive,
Networking, Computer & Storage and Others.
Altera is a fabless semiconductor company, which purchases
silicon wafers from Taiwan Semiconductor Manufacturing Company
(TSM), an independent wafer foundry. After the wafer is
manufactured, the majority of the testing procedure is conducted by
the foundry. After this, the wafers are assembled and packed by
independent Asian subcontractors. Altera sells its products through
distributors, independent sales representatives and direct sales
force. It also sells to the original equipment manufacturers (OEMs)
In fiscal year 2013, worldwide sales to distributors accounted
for 77%. The largest distributor was Arrow Electronics Inc. (ARW),
which accounted for 41% of total 2013 sales and Macnica, Inc.,
Currently, the PLD market is duopolistic, dominated by Altera
and Xilinx Inc. It also faces direct competition from Lattice
Semiconductor (LSCC) and other ASIC/ASSP vendors.
Altera Corporation (ALTR): Read the Full Research
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