Altera CEO Discusses Q4 2010 Earnings Call Transcript

Altera (ALTR)

Q4 2010 Earnings Call

January 25, 2011 4:45 pm ET

Executives

Scott Wylie - Vice President of Investor Relations

Ronald Pasek - Chief Financial Officer, Principal Accounting Officer and Senior Vice President of Finance

John Daane - Chairman, Chief Executive Officer and President

Analysts

Mark Lipacis - Morgan Stanley

Shawn Webster - Macquarie Research

Ian Ing - Gleacher & Company, Inc.

Patrick Newton - Stifel, Nicolaus & Co., Inc.

Uche Orji - UBS Investment Bank

Hans Mosesmann - Raymond James & Associates

Glen Yeung - Citigroup Inc

Auguste Richard - Piper Jaffray Companies

James Schneider - Goldman Sachs Group Inc.

Christopher Danely - JP Morgan Chase & Co

Adam Benjamin - Jefferies & Company, Inc.

Sumit Dhanda - Citadel Securities, LLC

Ruben Roy - Pacific Crest Securities, Inc.

Srini Pajjuri - Credit Agricole Securities (USA) Inc.

Timothy Luke - Barclays Capital

John Pitzer - Crédit Suisse AG

Sukhi Nagesh - Deutsche Bank AG

Mahesh Sanganeria - RBC Capital Markets, LLC

Presentation

Operator

Good day, everyone, and welcome to the Altera Fourth Quarter 2010 Earnings Results Conference Call. [Operator Instructions] At this time, I would like to turn the call over to Mr. Scott Wylie, Vice President of Investor Relations for Altera Corp. Mr. Wylie, please go ahead.

Scott Wylie

Good afternoon. Thank you for joining this conference call, which will be available for replay telephonically and on Altera's website shortly after we conclude this afternoon. To listen to the webcast replay, please visit Altera's Investor Relations web page where you will find complete instructions. The telephone replay will be available at area code (719) 457-0820 and use code 258712.

During today's prepared remarks, we will be making some forward-looking statements. In addition, management may make additional forward-looking statements in response to questions. In light of the Private Securities Litigation Reform Act, I would like to remind you that these statements must be considered in conjunction with the cautionary warnings that appear on our SEC filings. Investors are cautioned that all forward-looking statements in this call involve risks and uncertainty and that future events may differ from the statements made. For additional information, please refer to the company's Securities and Exchange Commission filings, which are posted on our website or available from the company without charge.

With me today are John Daane, our CEO; and Ron Pasek, our Chief Financial Officer. Ron will open the call with the financial overview before turning the call over to John. After John concludes his remarks, we will take your questions. Prior to the Q&A session, the operator will be giving instructions on how you can access the conference call with your questions.

I would now like to turn the call over to Ron.

Ronald Pasek

Thank you, Scott. Revenue for the fourth quarter 2010 was a record $555 million, representing a sequential increase of 5% and slightly above the midpoint of our guidance. Our large customers were the growth leaders in Q4 with a collective growth rate well above the overall average.

On the products side, we achieved a 26% sequential growth for new products, while our mainstream and mature product categories were down versus Q3. This sequential decrease in mainstream and mature products appears to be customer inventory fine-tuning and is not a surprise. Sequential growth within new products included Stratix IV increasing 25%, Cyclone III up 23%, Arria II up 22%, MAX II down 4%, Stratix III up 34%, Cyclone IV up strongly at $2 million and HardCopy III and IV up 378% at $10 million.

Stepping back, for 2010, we experienced a nearly 200% increase in new products, with most of this dollar increase coming from 65-nm. Mainstream products produced growth of 12% and mature products decreased 7% as one would expect.

In Q4, 40-nm revenue increased sequentially 35% and 65-nm revenues showed sequential growth of 28%. For Q4, 40-nm and 65-nm revenue represented 17% and 31%, respectively, of total revenue. 40-nm revenue on a cumulative basis is over $260 million to date.

Q4 turns were in the mid-20s range consistent with our guidance. Book to bill for the quarter was below one, which is to be expected as our lead times return to normal levels for essentially all products. In Q4, we did not see an unusual number of cancellations.

Gross margin at 71% was up 90 basis points from Q3 and at the high end of guidance. Improved deals and material cost improvements were the big drivers, offset by slightly unfavorable vertical mix. Operating expenses of $131 million were slightly higher than guidance. Some of this increase can be attributed to our recent acquisition of Avalon and an array of individual items that came in slightly over forecast. Operating margin for Q4 was 47.4%, the highest level in 2010.

Our Q4 effective tax rate was 12% after netting the favorable effects of the R&D tax credit with some offsetting fourth quarter discrete item. Net income for the quarter was $232 million or $0.72 per diluted share. On the balance sheet, cash and investment balances increased to $2.8 billion, helped as in the last several quarters by cash received from option exercises. Cash flow from operating activities was $210 million for the quarter and our cash conversion cycle was 85 days.

We ended Q4 with total pipeline Month Supply On Hand of 3.5 consistent with our guidance. Ending Q4 inventory is comprised of 2.7 months for Altera and 0.8 months for distributors.

Moving on to our outlook for the first quarter of 2011, we expect revenue to be down 1% to 5%. First quarter turns look to be in the mid- to high-30s. This sequential increase in our turns is to be expected as our lead times have shortened. Keep in mind that historically, a normal turns number runs in the 50% to 60% range and over time will likely return to that range. Gross margin for Q1 will be 71% to 72% as we anticipate some favorable vertical mix.

Read the rest of this transcript for free on seekingalpha.com

More from Stocks

Market Can't Handle the Wild Ride: Cramer's 'Mad Money' Recap (Thursday 5/24/18)

Market Can't Handle the Wild Ride: Cramer's 'Mad Money' Recap (Thursday 5/24/18)

Replay: Jim Cramer on North Korea, Oil Prices, Apple and Carnival Corporation

Replay: Jim Cramer on North Korea, Oil Prices, Apple and Carnival Corporation

Canopy Growth: First Cannabis Firm on the NYSE Fails to Generate Buzz

Canopy Growth: First Cannabis Firm on the NYSE Fails to Generate Buzz

Video: This Startup Connects Buyers and Sellers of Legal Marijuana

Video: This Startup Connects Buyers and Sellers of Legal Marijuana

Dow, S&P 500 and Nasdaq Tumble After Trump Calls Off North Korea Summit

Dow, S&P 500 and Nasdaq Tumble After Trump Calls Off North Korea Summit