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

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Altera has delivered better-than-expected third-quarter 2014 results. The FPGA maker's quarterly results mainly benefited from new product offerings. However, Altera has provided a tepid revenue outlook for the fourth quarter. Nonetheless, we remain optimistic about the company's future prospects due to rapid deployments of 4G LTE which will increase the demand for FPGAs. Additionally, continued share buybacks are expected to support the company's bottom line, going forward. However, macroeconomic weakness, competition from Xilinx and Lattice Semiconductor Corp., consolidation in the telecom market, declining margins and volatility in the semiconductor market are the concerns. Thus, we reiterate our Neutral recommendation on Altera.


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 circuits (ASICs), 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% of the total revenue, CPLDs were 9% and Other Products were 8%. By product mix, the PLDs can be divided into three sub-heads New, Mainstream and Mature and Other. In 2013, sales from the New category were 43% of the total revenue, with Mainstream, and Mature and Other categories accounting for 27% and 30%, 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 are 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 fiscal year 2013, 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., contributing 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 Nasdaq, Inc.

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

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