Altera ( ALTR) lent credence to the theory of drained inventories but didn't predict quite the advance of rival Xilinx ( XLNX).

The communications chipmaker issued its midquarter report for the first quarter of 2002 after the market closed Wednesday, reporting that it would see revenue climb 3% to 5%. Back on Jan. 22, the company predicted it would reach low-single-digit revenue growth from the fourth quarter's $162 million finish, for a range of $164 million to $171 million. At that time, Altera had $66 million in backlog, leaving the remainder of the first quarter to the whims of short-lead-time orders. Wall Street analyst consensus called for $168 million in revenue on Wednesday, already reflecting the optimism of the raised range.

Investors may be slightly disappointed that Altera didn't provide a more compelling reinforcement of the positive outlook delivered by competitor Xilinx. Xilinx changed its own single-digit revenue growth projection to 10% on Feb. 21, leading to a flurry of upgrades and positive notes from Wall Street analysts.

Many onlookers thought the December quarter results showed that communications equipment makers were finally restocking inventories that bulged throughout 2001, but analysts remained unsure. Xilinx's announcement that two of its products were selling confirmed that indeed customers could well have emptied their shelves and could be looking to buy again. Of course, depleted inventories do not necessarily indicate revived end-market demand, but shipments are a relief after what 2001 inflicted upon communications component companies.

Altera shares fell 4% ahead of the announcement to $19.99, while Xilinx lost 3% in Wednesday trading.

CFO Nathan Sarkisian spoke at the Robertson Stephens conference Tuesday. While he would not speak about earnings prior to the quarterly update, he did describe the current business climate as a "heavy turns environment," which signifies that customers are able to order and receive products on short notice. So even though he believes Altera's biggest customers hit the bottom of their business cycles in the third quarter, Altera has limited visibility on how much business will surface in the near future.

Sarkisian explained that 80% of the orders coming in to Altera in the quarter are slated to be shipped within 30 days. "We're not in a position where customers are concerned about scarcity," Sarkisian said. "You go to Safeway and you can buy whatever you want. That's what buying semiconductors is like today."

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