Altera: Earnings Preview

| About: Altera Corporation (ALTR)

Earnings estimates for Altera Corporation (NASDAQ:ALTR) have moved south, ahead of the company's second-quarter results on July 24, 2012.

Altera projects a sequential revenue growth of 14% - 18% in the second quarter of 2012. The reiterated guidance implies a revenue guidance of $437.5 million - $452.9 million.

Management stated that the company will post strong sequential growth from its 40-nm and 28-nm products. Growth is projected to be broad based across the company's vertical markets.

However, estimates continue to maintain a downward trend. Of the twenty-one analysts covering the stock, four have reduced their estimates in the last seven days while seven in the last thirty days.

Altera has missed estimates twice in the last fourth quarters and hence analysts continue to be skeptical about the company's performance.

The decline in Altera's first-quarter revenue was more severe than the company's expectation. This was primarily due to a significant decrease in demand late in the quarter by Telecom and Wireless customers. This end market is the largest vertical market for the company. Consequently, orders did not come in as Altera expected and the company also faced certain product mix issues in its industrial business.

Nevertheless, Altera was encouraged by the strong bookings in March as inventory correction by most customers was almost over. The company has also stocked up buffer inventories to ease supply constraints faced in the March quarter.

Altera has a pipeline of 28 nanometer products, which should help it sustain growth levels. We believe the company has an edge over its competitor Xilinx Inc. (NASDAQ:XLNX) - at the 40nm and 28 nm node. Hence, the company might be able to revive growth earlier than expected.

We expect business to revive in the second half of 2012 and hence maintain our Neutral recommendation. However, the company currently has a Zacks # 4 Rank, which translates into a short-term rating of Sell due to the near-term weakness.