Earnings Preview: Altera Corporation

Altera Corp. (ALTR) is expected to report first quarter results on April 26, 2011.

In March, Altera reiterated its sales guidance for the first quarter of 2011. Altera expects a sequential revenue decline of 1% to 5% in the first quarter. The decline in sales implies a sales guidance of $527.8 million – $549.9 million.

Management expects that the Industrial, Automation, Military and Automotive vertical will be up sequentially driven by an increase in demand from military and automotive markets. Sales in other verticals are estimated to be flat to down.

Revenues from Telecom & Wireless are expected to decline as few customers have rebalanced their inventories as the fourth round of TD-SCDMA deployment was completed in the fourth quarter. This should be partially offset by growth in WCDMA and LTE. Computer and Storage Networking is projected to be flat or down slightly.

Gross margin is expected to come around 71% – 72%.

Altera stated that design wins in 40-nanometer are well ahead of any previous generation products. Altera continues to benefit from the growth in 65-nm and 40-nm FPGAs as customer designs move from prototyping to production. We believe the company gained market share in 2010 vis-à-vis its rival Xilinx Corporation (XLNX).

In 2010, Altera focused on 28-nm development and will introduce more products in 28-nm than any previous process node in the coming years. Altera has taped out its first Stratix V 28-nm family member in December and plans the sample in the first quarter.

The current Zacks Consensus Estimate for the first quarter is $0.65, up by a cent in the last seven days. We expect another strong quarter from Altera. Altera has consistently beaten estimates. On an average, Altera beat estimates by 10.50% in the last four quarters.

We maintain a Neutral recommendation on Altera supported by a Zacks #3 Rank which implies a short-term rating of Hold.

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