Estimates Decline for Altera


Earnings estimates for Altera Corporation (ALTR) have declined quite a bit after the company reported disappointing first-quarter results. 

Altera reported a net income of $115.8 million or $0.35 per share in the first quarter of 2012, which missed the Zacks Consensus Estimate by a penny.

Management stated that the decline in Altera’s first-quarter revenue was more severe than the company expected. This was primarily due to a significant decrease in demand late in the quarter by Telecom and Wireless customers. Consequently, orders did not come in as the company expected and Altera also faced product mix issues in its industrial business.

Altera continues to grapple the slowing of demand as economy weakens.  The sequential decline in revenues was due to a continued inventory reduction across most markets along with weakness in the communications end market.

Consequently, seventeen out of the twenty-two analysts covering the stock decreased their estimates for 2012, leading to a decline in the Zacks Consensus Estimate.

The current Zacks Consensus Estimate for 2012 is $1.69, down by $0.06 in the last thirty days and by $0.10 in the last sixty days.

For 2013 as well, ten out of the twenty-one analysts covering the stock have decreased their estimates, leading to a $0.05 decline in the Zacks Consensus Estimate in the last thirty days.

Nevertheless, book-to-bill was positive at the beginning of the quarter and strengthened as the quarter progressed, and remains positive for the second quarter as well.Altera stated that the inventory correction by its customers is mostly completed as evident from bookings in March. Hence, the company expects double-digit growth from all end markets -- Telecom, Wireless, Industrial, Computer Storage and Networking.

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

Although results missed the estimates, guidance provided by Altera Corporation was in line. We expect business to revive in the second half of 2012 and hence upgrade our recommendation to Neutral from Underperform.

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