Altera's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Altera (ALTR)

Q1 2012 Earnings Call

April 19, 2012 4:45 pm ET


Scott Wylie - Vice President of Investor Relations

Ronald J. Pasek - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

John P. Daane - Chairman, Chief Executive Officer and President


James Schneider - Goldman Sachs Group Inc., Research Division

Ambrish Srivastava - BMO Capital Markets U.S.

Ian Ing - Lazard Capital Markets LLC, Research Division

Romit J. Shah - Nomura Securities Co. Ltd., Research Division

Uche X. Orji - UBS Investment Bank, Research Division

Tristan Gerra - Robert W. Baird & Co. Incorporated, Research Division

Christopher B. Danely - JP Morgan Chase & Co, Research Division

Shawn R. Webster - Macquarie Research

Christopher J. Muse - Barclays Capital, Research Division

Brian C. Peterson - Raymond James & Associates, Inc., Research Division

Sumit Dhanda - ISI Group Inc., Research Division

Delos Elder

Ryan Carver - Crédit Suisse AG, Research Division

Brendan Oliver Furlong - Miller Tabak + Co., LLC, Research Division

Vivek Arya - BofA Merrill Lynch, Research Division

Sanjay Devgan - Morgan Stanley, Research Division

Richard Ong



Good day, everyone, and welcome to the Altera Q1 2012 Earnings Conference. As a reminder, this call is being recorded. At this time, I would like to turn things over to Mr. Scott Wylie, Vice President, Investor Relations. Please go ahead, sir.

Scott Wylie

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 (719) 457-0820. Be sure to 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 in 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, Chief Financial Officer. Ron will open the call and John will follow. 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 J. Pasek

Thank you, Scott. The decline in Q1 revenue was more pronounced than our mid-quarter update for several reasons. First, there was a decrease in demand relatively late in the quarter for some of our Telecom & Wireless customers. As best we can tell, it was caused by changes in their own demand. As a result, they did not place forecasted orders with us for Q1 business. Second, our turns [ph] business was back-end loaded. As we attempted to fill those orders in the final weeks of the quarter, we had demand for products without the corresponding supply, or said differently, product mix issues. In particular, the unexpected sequential decline in Industrial was due to product mix issues.

Both of these factors contributed to a surprisingly weak final 2 weeks. Stepping back a bit, nearly half of the underperformance against guidance was the Telecom & Wireless shortfall. On a positive note, book-to-bill was positive at the beginning of the quarter and strengthened as the quarter progressed, and remains positive Q2 quarter to date.

Operating expenses for the quarter were lower than guidance, mainly in R&D. Most of the underspend is a result of mask and wafer pushouts, and to a lesser extent, slower than anticipated hiring. We are revising our full year R&D spend to $368 million or $10 million less than our November guidance. Finally, we had 2 discrete items in the tax provision, which brought the effective tax rate down to 1.7%.

You will notice that Altera inventory decreased during Q1, although the month's supply in hand grew due to the lower COGS number. For Q2 '12, we see sequential revenue increasing 14% to 18%. Our turns number for Q2 is in the high 30s, which is down from Q1. As we exited Q1, we experienced lengthening of foundry lead times mainly for 28 and 40-nanometer product. In anticipation of tightening foundry capacity, we have secured more Altera inventory, and as a result, we are forecasting an inventory increase for Q2, but still within our desired 3 to 4 months’ supply in hand.

With that, let me turn the call over to John.

John P. Daane

Thank you, Ron. Overall, the first quarter sequential revenue decline was caused by continued inventory reduction across most of our verticals, coupled with weakness in the communications end market. Military decreased as expected due to program timing. Wireless & Telecom were lower than expected as forecasted turns orders did not materialize in the last month of the quarter. Industrial decreased due to the turns mix issues that Ron highlighted, and Computer and Storage decreased due to inventory reduction and program timing.

For second quarter revenue, we are forecasting 14% to 18% sequential increase, with end customer inventory reduction largely complete as demonstrated by the strong bookings in March; and thus far in April, Telecom, Wireless, Industrial, Computer Storage and Networking should all see double-digit sequential growth.

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