Altera Corp. (ALTR): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report


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) directly.

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.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Stocks

Referenced Stocks: ALTR , ASIC , TSM , ARW , LSCC

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