Altera Offers Q4 Guidance In-Line With Expectations

| About: Altera Corporation (ALTR)

Altera Corporation (NASDAQ:ALTR) recently updated its guidance for the fourth quarter. Altera expects revenues in the fourth quarter to grow around 3% – 6% sequentially, same as the earlier forecast.

The guidance implies a revenue guidance of $543.3 – $559.2 million, in line with the Zacks consensus of $546 million.

The growth in the fourth quarter will be driven by new products. In particular, Stratix IV and Arria II 40-nanometer (nm) FPGAs are expected to depict strong results.

On the third quarter conference call, Altera stated that the guidance provided assumes an element of inventory accumulation by some customers.

In terms of end-markets, communications should continue to grow as China and India upgrade to 3G and U.S. and Japan deploy 4G networks. Networking, computer and storage should increase driven by networking. The automotive, industrial, military and the other markets are forecasted to be flat to slightly down.

Altera also provided preliminary guidance for 2011. Although the company did not provide guidance for revenues but it stated that gross margin should come around 70%, +/- 1%.

Altera expects R&D expenditure to come around $330 million, up 26% yearover year. The increase in R&D spending is due to incremental 28-nanometer product introduction costs. SG&A is estimated at around $265 million, up 5% year over year.

Growth rates are expected to moderate from the highs of 2010. In the long run, Altera expects its largest vertical – telecom and wireless to continue growing but, industrial, military and automotive will grow faster than other end-markets. Altera expects gross margin to gradually decline to 65% by 2012 – 2015. The company targets an operating margin around 36%.

Longer-term, Altera stated that although design wins at 40-nm node continue to grow, 2011 will be the year of 28-nm. Altera will start to ship 28-nm Stratix V FPGAs in the first quarter of 2011 and introduce other 28-nm families which address a broad range of markets and applications. Altera plans to have more products at 28-nm than in any previous process generation.

However, 40-nm will be a major contributor to the total revenue growth over the next several years and 28-nm revenues will take a while to become meaningful. Altera nudged past prime rival Xilinx Inc. (NASDAQ:XLNX) at the 40-nm node and gained market share in 2010. The company also seems to have an edge over Xilinx for the 28-nm node.

The guidance provided was in line with expectations and did not surprise investors and hence was met with a lukewarm response. Shares of Altera gained 0.06% in after-hours trading to close at $35.49 after having lost 0.06% in regular trading.