Altera Revises Sales Outlook to 6% Growth
Updated from 4:32 p.m. EST
Following
Xilinx's
(XLNX) - Get Report
lead,
Altera
(ALTR) - Get Report
boosted its first-quarter sales targets due to stronger-than-expected demand from customers in the communications industry.
Altera now expects first-quarter sales to grow sequentially by 6% to $254.3 million. Altera had previously pegged sales between $242.3 million and $247.1 million, meaning growth of 1% to 3%.
Analysts were expecting earnings of 13 cents a share and sales of $245 million, on average, according to Thomson First Call.
Altera shares recently rose 1.7% to $20.72 during the late-trading session on Wednesday, after ending the regular session down 2.2% to $20.37. Xilinx shares also ticked higher in the late session, after succumbing to widespread selling during the regular session.
Altera and Xilinx both make programmable microchips, also known as PLDs, or programmable logic devices, which are used in a wide variety of end markets, such as communications, storage and servers, and consumer and industrial. PLDs carry basic levels of functionality that customers can then overlay with their own proprietary software and technology to suit their needs.
On Tuesday, Xilinx
boosted its sales targets, citing strong demand across all geographies.
Analyst Tim Kellis with Stanford Group said inventories are shaping up and demand has remained strong for both Xilinx and Altera. Speaking before Altera's midquarter update, Kellis said sequential revenue increases are occurring and this is a good sign for both stocks.
He said the recent stock run-up has been healthy and indicative of expectations that inventories were getting under control. He said the shares rightfully pulled back in December through January as the inventory picture muddied the demand picture for the fourth and first quarters.
"The difference this time is that industry fundamentals appear to be improving in the March quarter as compared to the December quarter," Kellis said. (His firm has done no investment banking with Xilinx or Altera).
Bloated inventories have become a concern in the PLD space in the past six months.
Altera's inventory expanded to 4.2 months, or around 126 days, in the fourth quarter from 3.5 months in the third quarter. Altera targeted cutting its inventory to four months or less during the current quarter. It did not address its inventory during its midquarter update.
On Tuesday, Xilinx said its inventory will fall to below 150 days -- as expected -- from 174 days in the previous quarter. The company's long-term goal is around 120 days.
For both Altera and Xilinx, efforts to work down their inventories, despite the higher sales forecasts, can be seen in weak monthly sales figures announced by the foundries.
Altera gets its chips made by
Taiwan Semiconductor
(TSM) - Get Report
, the world's largest chip foundry, and Xilinx gets its chips made by
United Microelectronics
(UMC) - Get Report
, the world's second largest chip foundry. UMC is also based in Taiwan. Both Altera and Xilinx rank among the largest customers at Taiwan Semi and UMC, respectively.
UMC said Tuesday that February sales dropped 14% sequentially. Fewer new Xilinx wafers pushed through UMC's factories mean lower sales and lower factory utilization for UMC.
This situation isn't completely unexpected: UMC predicted at February's start that capacity utilization would fall to 60% in the first quarter from 72% in the fourth quarter. Similarly, February sales at Taiwan Semiconductor dropped 18% from January.
Stanford Group's Kellis said the month-on-month declines in the foundries sales are indicative of how much of a concern the inventory situation has become, but he maintained that underlying demand for chips from Altera and Xilinx remains healthy.
And this is what could bode well for the stocks of Taiwan Semi and UMC.
Current financial estimates for Altera and Xilinx reflect sequential increases in sales for the second quarter. What's more, the second half of the year is expected to be stronger than the first half of the year for both companies. Once the inventory flush clears, those increased sales will start to translate into better utilization and sales at the foundries.
Taiwan Semi shares closed Wednesday up 0.1% to $8.85, up 4.2% for the year. UMC shares ended down 0.6% to $3.59, up 1/7% for the year.