Altera reported better-than-expected first-quarter 2014 results
with both earnings and revenues beating the Zacks Consensus
Estimate. Although revenues increased year over year, earnings
remained almost flat. The company provided modest guidance for the
upcoming quarter. Nonetheless, growth in 4G/LTE deployments, in
particular, will increase the demand for FPGAs, which will be
beneficial for Altera. Additionally, the company's transition to
14-nm FPGAs in association with Intel is likely to be a competitive
differentiator. However, macroeconomic weakness, competition from
Xilinx and Lattice Semiconductor, consolidation in the telecom
market and volatility in the semiconductor market are the concerns.
Thus, we reiterate our Neutral recommendation on Altera and set a
target price of $36.00.
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 circuit (ASIC), 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 83.0% of the total revenue, CPLDs
were 9.0% and Other Products were 8.0%. By product category, the
PLDs can be divided into three sub-heads New, Mainstream and Mature
and Other. In 2013, sales from the New category were 43.0% of the
total revenue, with Mainstream, and Mature and Other categories
accounting for 27.0% and 30.0%, 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 get 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 FY13, 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., which
accounted for 23%.
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 Corp. (ALTR): Read the Full Research
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