On Dec 22, we issued an updated research report on Altera Corporation (ALTR) following the company’s better-than-expected third-quarter 2014 results.
Revenues improved on a year-over-year basis backed by growth in new product revenues (56% of total revenue), up 45% from the year-ago quarter, which offset a respective decline of 13% and 14% in mainstream revenues and Mature and Other markets. New product revenues were primarily driven by robust performance in its 28-nanometer (nm) process node.
Furthermore, Altera is witnessing higher revenues from its field-programmable gate arrays (FPGA) offerings. During the third quarter, FPGA revenues increased 17% on a year-over-year basis and accounted for 85% of total revenue.
Additionally, Altera’s transition to 14-nm FPGAs in association with Intel Corp. (INTC) is likely to be a competitive differentiator. Intel will be making chips for Altera using its 14-nm Tri-gate transistor technology. The agreement between the two companies also states that only Altera will be allowed to have access to this technology. Therefore, this will give Altera a leap of 2-4 years over its rivals. Hence, it will be difficult for Xilinx Inc. (XLNX) to adopt Intel’s technology to match its rival’s offerings.
It is also worth noting that Altera is a fabless company. It does not own or operate foundries for the production of silicon and instead works with independent merchant foundries and chip assemblers for manufacturing its products. This benefits the company with superior manufacturing capability, scalability, as well as flexibility to move wafer manufacture, assembly and test of products to vendors that offer better technology and services at competitive prices.
Apart from this, Altera has a consistent record of returning cash to shareholders through share repurchase and dividend payouts. During the first three quarters of 2014, the company returned approximately $149.8 million as quarterly dividends and $503 million through share buybacks.
During the third-quarter conference call, the company stated that it intends to buy back approximately $700 million worth of its common stock in 2014, which along with dividend payments will be much ahead of its targeted range of returning 60–80% of cash flow from operating activities. These continued share buybacks are expected to support the company’s bottom line, going forward.
However, we are slightly cautious about the company’s future performance due to the persistent softness in the deployment of TD-LTE in China. Over the past few quarters, Chinese telecom companies such as China Mobile, China Unicom and China Telecom have slowed their spending on 4G deployments, affecting Altera’s TD-LTE shipments in the country. This is making it difficult to predict the company’s growth over the next few quarters.
In addition, macroeconomic weakness, competition from Xilinx and Lattice Semiconductor Corporation (LSCC), consolidation in the telecom market, declining margins and volatility in the semiconductor market are the concerns.
Currently, Altera has a Zacks Rank #3 (Hold).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment