Altera Management Discusses Q2 2012 Results - Earnings Call Transcript

Altera (ALTR)

Q2 2012 Earnings Call

July 24, 2012 4:45 pm ET

Executives

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

Analysts

Ambrish Srivastava - BMO Capital Markets U.S.

James Schneider - Goldman Sachs Group Inc., Research Division

David Wu

Adeline Lee

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

Aashish Rao - BofA Merrill Lynch, Research Division

Ian Ing - Lazard Capital Markets LLC, Research Division

Hans C. Mosesmann - Raymond James & Associates, Inc., Research Division

Ryan Goodman - CLSA Asia-Pacific Markets, Research Division

Deepon Nag - Macquarie Research

Shawn R. Webster - Macquarie Research

Steven Eliscu - UBS Investment Bank, Research Division

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

Jason Jones - ISI Group Inc., Research Division

Christopher J. Muse - Barclays Capital, Research Division

Sujeeva De Silva - ThinkEquity LLC, Research Division

Presentation

Operator

Good day, everyone, and welcome to the Altera Second Quarter 2012 Earnings Conference Call. As a reminder, this call is being recorded. At this time, I would like to turn the call over to Mr. Scott Wylie, Vice President, Investor Relations. 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 webpage 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'll 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 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 with a few brief remarks 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 J. Pasek

Thank you, Scott. In Q2, we returned to sequential quarterly growth following 3 quarters of customer inventory drawdown. There are a few observations I'd like to make in addition to the many pieces of good news embedded in this quarter's results. Both 28- and 40-nanometer did extremely well. On the back of the 166% 28-nanometer sequential growth, we now have cumulative revenue of $16.6 million at the 28-nanometer node. This result establishes Altera as the 28-nanometer market share leader. We see 28-nanometer revenue growing to over $20 million in Q3 '12.

40-nanometer also performed extremely well, increasing 42% sequentially. The 40-nanometer node at 28% of revenue was the single largest revenue node in Q2.

As anticipated, our lead time shortened in the quarter. As often happens when customer orders don't need to cover longer lead times, book-to-bill dropped slightly below 1 for the quarter. Having said this, we are off to a very strong start this quarter, and therefore don't think the book-to-bill ratio carries a great deal of meaning.

SG&A for the quarter was $72 million and the guidance for Q3 is $72 million to $74 million. We are reducing our previous full year SG&A guidance from $293 million to $288 million mainly as a result of a reduction in variable compensation.

With respect to income taxes, during the quarter, we recognized a net tax benefit of $24.4 million relating to the release of federal tax liabilities and interest. This amount relates primarily to the close of federal statutes for 2002 and 2003, and as a discrete benefit in the quarter.

Moving to the balance sheet. Accounts receivable increased, as there were significant shipments to distributors in the final weeks of the quarter. Given this timing, these shipments were not yet due to be collected when we completed the quarter, which is why our AR aging is unchanged from prior quarters. If the size of the increase is surprising to you, remember that our distributors purchase product at list price, which amplifies the AR swing. In addition, we had several -- we had a large sequential revenue increase which exacerbates the list price dynamic.

Inventory for the quarter ended at 3.7 months supply on hand, and the guidance for Q3 is approximately 4 months supply on hand. As you will recall, we intentionally increased inventory in Q2 in order to secure 40-nanometer supply and to support the 28-nanometer product ramp. At this point, we do not see a need to have inventory of higher than 4 months supply on hand.

Next, you can see we have completed a substantial share repurchase in the quarter, 3.5 million shares. In addition, since the end of Q2, we have repurchased an additional 1.6 million shares. We continue to view share repurchase opportunistically. And as much as we would wish for a higher share price, we are very happy to take advantage of this great opportunity.

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