Earnings estimates for chipmaker
) have declined significantly after the company provided soft
guidance for the fourth quarter of 2012 despite reporting
better-than-expected results in the third quarter.
Altera reported a net income of $157.5 million or 49 cents per
share in the third quarter of 2012, easily beating the Zacks
Consensus Estimate of 46 cents per share.
Altera reported sales of $495.0 million in the third quarter
of 2012, down 5% year over year but up 6% sequentially.
Guidance in Detail
However, Altera expects sales to be down 6% - 10% sequentially
in the fourth quarter of 2012. This implies a revenue guidance of
$445.5 million - $465.3 million.
The weak guidance prompted the majority of the analysts
covering the stock to lower their estimates for 2012 and
For 2012, as many as 20 out of 21 analysts have reduced their
forecast leading to a 5 cent decline in earnings
For 2013, the decline is steeper as 19 out of the 21 analysts
have lowered their projections, leading to a 24 cent decline in
the earnings estimates.
For the fourth quarter of 2012, 19 out of the 21 analysts cut
their estimates, leading to an 8 cent decline in earnings
Management attributed the weakness in guidance to lower demand
from two prime customers. One customer in the mainstream category
products converted a high-volume design last year to an ASIC but
recently discovered a technical limitation in the device, which
required the customer to fill the gap with product from Altera in
the third quarter.
The second customer has converted 2 high-volume designs, one
in networking and one in wireless, both mainstream products from
Altera to ASICs, amounting to approximately 4% of revenue in the
Excluding these conversions, Altera projected a sequential
decline of 1% to 5%, driven by the overall weak economic
environment impacting all major market segments. Management
projects gross margin of 69% - 70% in the fourth quarter, roughly
in line with the third quarter.
Altera and its prime rival
) together hold nearly 87% of the PLD market. However, Xilinx
seems to have gained traction and has won back its lost market
share over the past few months. This does not bode well for
Altera in the coming quarters.
Margins have already peaked and it might not be sustainable in
the long run. Hence, owing to the macroeconomic weakness, we
downgrade our recommendation to Underperform from
Our Underperform recommendation is supported by a Zacks #4
Rank, which translates into a short-term rating of
ALTERA CORP (ALTR): Free Stock Analysis
XILINX INC (XLNX): Free Stock Analysis Report
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