Altera's Q1 Earnings & Revs Beat Estimates - Analyst Blog

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Altera Corporation ( ALTR ) reported earnings of 37 cents per share in the first quarter of 2014, which beat the Zacks Consensus Estimate of 32 cents. Earnings remained relatively flat on a year-over-year basis, primarily due to lower-than-expected operating expenses.

Revenues

Altera's first-quarter revenues not only increased 12.3% on a year-over-year basis to $461.1 million, but also came ahead of the Zacks Consensus Estimate of $439.0 million.

The year-over-year increase was mainly attributable to growth in new product revenues (49.0% of total revenue), which increased 39.0% year over year and offset the 12.0% decline in mainstream revenues.

By verticals, all except the Networking, Computer & Storage (15.0% of total revenue) increased on a year-over-year basis. The Networking, Computer & Storage segment witnessed a decline of 7.0%, primarily due to weaker-than-expected demand for computers and tepid demand from vendors of flash-based storage systems. Telecom & Wireless (45.0% of total revenue) increased 23.0% from the year-ago quarter, primarily due to LTE deployment in China. Industrial Automation and Military & Automotive markets, which comprised of 22% of first quarter revenues, increased 13.0% from the year-ago quarter. Other segments (18% of total revenue) increased in single-digit from the year-ago period.

By geography, Asia Pacific grew 24.0% on a year-over-year basis, whereas revenues from Japan and EMEA increased 18.0% and 11.0%, respectively. However, revenues from Americas declined 13.0%.

Operating Results

Altera reported gross margin of 67.1%, which was down 223 basis points (bps) from the year-ago quarter primarily due to an unfavorable product mix.

Operating margin came in at 29.2%, up from 28.7% in the year-ago quarter. Total operating expenses increased 4.9% year over year, reflecting an 11.3% rise in research and development expenses. As a percentage of revenues, operating expenses contracted 270 bps to 37.9% from the year-ago quarter, which favorably impacted margins.

Reported net income was $116.5 million or 37 cents per share compared with $120.2 million or 37 cents per share in the first quarter of 2013. Including gain on securities and gain from the reclassification, net income was $129.0 million compared with $120.1 in the year-ago quarter.

Balance Sheet & Cash Flow

Altera exited the quarter with cash and short-term investments balance of $2.91 billion compared with $3.01 billion in the previous quarter. The company generated cash flow from operating activities of $130.4 million.

Guidance

Altera expects sales to increase in the range of 2% to 6% sequentially ($470.3 million to $488.8 million) in the second quarter. The Zacks Consensus Estimate is pegged at $463.0 million. Management expects revenues from Telecom & Wireless to be up with wireless revenues increasing sharply, primarily due to China LTE shipments. Industrial Automation, Military & Automotive revenues are expected to be down, sequentially. However, Networking, Computer & Storage revenues are expected to increase quarter over quarter.

Management projects gross margin of roughly 67.0% in the second quarter. Research and development expenses are expected in the range of $104.0 million to $106.0 million, while selling, general and administrative expenses will likely range between $78.0 million and $80.0 million. Tax rate is expected in a range of 12.0% to 13.0%.

Our Take

Altera has delivered 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 relatively flat. The company provided a modest guidance for the upcoming quarter.

Nonetheless, growth in 4G/LTE deployments in particular will increase demand for FPGAs, which will be beneficial for Altera. Additionally, Altera's transition to 14nm FPGAs in association with Intel Corp. ( INTC ) is likely to be a competitive differentiator.

Altera is currently manufacturing its chips using 28-nanometer nodes. We believe that the deployment will help Altera to strengthen its product portfolio and offer more comprehensive and high-value programmable solutions.

However, macroeconomic weakness, competition from Xilinx Inc. ( XLNX ) and Lattice Semiconductor Corporation ( LSCC ), consolidation in the telecom market, declining margins and volatility in the semiconductor market are concerns

Currently, Altera holds a Zacks Rank #3 (Hold).



ALTERA CORP (ALTR): Free Stock Analysis Report

INTEL CORP (INTC): Free Stock Analysis Report

LATTICE SEMICON (LSCC): Free Stock Analysis Report

XILINX INC (XLNX): Free Stock Analysis Report

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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 , Business , Earnings , Stocks

Referenced Stocks: ALTR , INTC , LSCC , XLNX

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