On Jun 13, 2014, we issued an updated research report on
) following the company's better-than-expected first-quarter fiscal
Revenues improved on a year-over-year basis attributable to growth
in new product revenues (49.0% of total revenue), which increased
39.0% from the year-ago quarter and offset the 12.0% decline in
mainstream revenues. Altera saw year-over-year growth across both
geography and verticals.
Additionally, Altera's transition to 14-nm FPGAs in association
) is likely to be a competitive differentiator. Intel will be
making chips for Altera using its 14-nm trigate transistor
technology. Hence, it will be difficult for
) to adopt Intel's technology to match its rival's offerings.
Furthermore, Altera is witnessing higher revenues from its FPGA
offerings. FPGAs are widely used in third generation (3G) and
fourth generation long-term evolution (4G LTE) network connections.
A higher percentage of FPGAs per base station allows higher data
bandwidth. We believe Altera is well equipped with FPGA product
suites (Stratix, Arria and Cyclone) to take share in the growing
It is also worth noting that Altera is a fabless company. It does
not own or operate foundries for the production of silicon and
instead works with independent merchant foundries and chip
assemblers for the manufacture of products. This benefits the
company with superior manufacturing capability, scalability, as
well as flexibility to move wafer manufacture, assembly and test of
products to vendors that offer superior technology and services at
Altera is currently manufacturing its chips using 28-nanometer
processes. We believe that this will help Altera to strengthen its
product portfolio and offer more comprehensive and high-value
Apart from this, Altera has solid cash generating abilities. Out of
its total cash flow, 61.3% has been used for dividends and share
buybacks in fiscal 2013. Moreover, during the first three months of
fiscal 2014, Altera paid dividends worth $47.6 million and bought
shares amounting to $161.8 million. These continued share buybacks
are expected to support the company's bottom line going forward.
On the other hand, macroeconomic weakness, competition from Xilinx
Lattice Semiconductor Corporation
), consolidation in the telecom market, declining margins and
volatility in the semiconductor market remain concerns.
Currently, Altera has a Zacks Rank #3 (Hold).
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