Chipmaker Altera Corporation (ALTR) reported sales of $548.4 million, up 17% from a year-ago and up 2% sequentially.
The company saw a sequential growth in Telecom& Wireless, which was somewhat offset by an anticipated decline in the Industrial, Military & Automotive vertical. Revenue from other verticals decreased 9% while Networking, Computer & Storage increased 4%. Revenues from New products grew 1% while revenues from mainstream products grew 14% and revenues from mature products declined.
40nm revenues increased 7% sequentially and accounted for 19% of the total. Altera returned to sequential growth in the second quarter after a one-quarter inventory correction in the first quarter combined with a pause in the wireless market.
In the second quarter, Telecom & Wireless revenue increased 13% sequentially with growth in each but wireless being strong. The recovery in Wireless in turn fueled the growth in 65-nm products. Huawei accounted of 14% of revenue in the quarter.
Moving onto margins, gross margin came in at 70.9%, compared to 72.6% in the previous quarter and 71.7% in the year-ago quarter. The sequential decline was primarily due to vertical market mix. Operating margin came in at 43.4%, compared to 45.8% in the previous quarter and 43.9% in the year-ago quarter.
Altera reported a net income of $214.6 million or $0.65 per diluted share in the quarter, compared with a net income of $224.1 million or $0.68 per share in the first quarter of 2011 and a net income of $180.6 million or $0.58 per diluted share in the second quarter of 2010. The reported figure beat the Zacks Consensus Estimate by a penny.
Meanwhile, the Board increased the quarterly dividend to $0.08 per share, up from $0.06 per share.
During the quarter, Altera generated $159.4 million of cash from operations and used $3.2 million in capital expenditures. Altera ended the quarter with $3.2 billion in cash and short-term investments, up from $3.1 billion at the end of the previous quarter.
Going forward, Altera expects sales to grow around 2% – 6% in the second quarter with fairly broad-based growth across all markets. This implies a revenue guidance of $559.3 million–$581.3 million, much better than the Zacks Consensus Estimate of $548.0 million. Wireless continues to grow driven by network build in China and the United States. Management stated a portion of the growth in the third quarter is from short-term ASIC replacement due to supply disruptions from the earthquake in Japan.
Altera expects to continue to see significant 40-nanometer growth throughout FY11. 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. We believe the company gained market share in 2010 from its rival Xilinx Corporation (XLNX).
Given Altera’s track record of upgrading guidance as the quarter progresses, we expect an increase in the guidance provided with the earnings results. Gross margin is projected around 69% – 70%, down from the second quarter due to vertical market mix. On a positive note, management expects gross margin to recover in the fourth quarter due to an improving mix fueled by military business.
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