Altera delivered encouraging fourth-quarter 2013 results with both
earnings and revenues beating the Zacks Consensus Estimate.
Although revenues increased year over year, earnings dropped
sharply due to higher operating expenses. Guidance for the upcoming
quarter was also tepid. Nonetheless, China LTE shipments are
expected to aid wireless revenues and more than offset a decline in
telecom revenues. However, macroeconomic weakness, competition from
Xilinx Inc. and Lattice Semiconductor Corp., consolidation in the
telecom market, declining margins and volatility in the
semiconductor market are concerns. Thus, we reiterate our Neutral
recommendation on Altera and set a target price of $34.00.
Founded in 1983, San Jose, Calif.-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 2012, sales of FPGAs were 84.0% of total revenue, CPLDs were
9.0% and Other Products were 7.0%. By product category, the PLDs
can be divided into three sub-heads, namely New, Mainstream and
Mature and Other. In 2012, sales from the New category were 32.0%
of the total, with Mainstream and Mature and Other categories
accounting for 30.0% and 38.0%, respectively.
Geographically, Altera receives highest contribution from the
Asia Pacific, followed by Europe, Middle East & Africa (EMEA),
Americas and Japan. In 2012, the Asia Pacific region contributed
43.0% of total revenue (41.0% in 2011), EMEA contributed 25.0%
(25.0% in 2011), Americas contributed 18.0% (19.0% in 2011) and
Japan contributed 14.0% (15.0% in 2011).
Altera serves over 12,500 customers within the Telecom and
Wireless (largest vertical market), Industrial Automation, Military
and Automotive, Networking, Computer and Storage, and Other
vertical markets. The Other vertical market includes sub-markets
such as broadcast, consumer, medical and test.
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
salesforce. It also sells to the original equipment manufacturers
In 2012, worldwide sales to distributors accounted for 71%. The
largest distributor was Arrow Electronics (ARW), which accounted
for 40% of total 2012 sales.
Currently, the PLD market is duopolistic, dominated by Altera
and Xilinx Inc. (XLNX). 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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