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Altera Shy on Revenue, Stock Slips

The chipmaker delivered on EPS and revenue rose 20% year over year. Still, sales disappointed.

Updated from 9:48 a.m. EST

Investors knocked down shares of



Tuesday after the chipmakerfailed to deliver the same upside as rival



did last week .

In late morning trading, shares were off $1.57 or6.5% to $22.57.

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After the bell Monday, Altera delivered a penny upside onfourth-quarter earnings, though sales were just shyof Wall Street expectations.

At Pacific Growth Equities, Jim Liang noted Alterais simply growing slower than Xilinx, which has astronger customer base in the now-recoveringcommunications market. "Given our positive outlook forthe telecom/networking markets this year, we expectXilinx to maintain its growth leadership in PLDs

programmable logic devices thisyear," he wrote.

Monday, Altera forecast first-quarter sequentialsales growth of 6% to 8%. Last week Xilinx projected7% to 10% growth, in addition to beating Wall Streetrevenue estimates for the fourth quarter.

Another problem for analysts: Altera trades at 43times calendar 2004 EPS estimates, a premium toXilinx, which trades at 40 times the 2004 outlook. "Inlight of the stronger growth momentum at Xilinx andits relatively more modest valuation, we currentlyprefer the shares of Xilinx to the shares of Altera,on a relative basis," Liang said. His firm hasn't doneinvestment banking for either company.

Likewise, David Wu of Wedbush Morgan said heexpects Altera's growth to lag that of Xilinx thisyear, though the company could close the gap in 2005if last year's design wins go into volume production. At current levels, Altera doesn't look like a goodbuy, he said, though his opinion could change if itsvaluation drops below that of Xilinx. He has a holdrating on Altera; Wedbush hasn't done recent bankingfor the company but Wu has a long position in theshares.

Altera's fourth-quarter sales of $217.4 million were up 20% year on year, on target with the firm's own projections but a hair below Wall Street expectations of $218.6 million.

On Dec. 10, Altera had affirmed prior guidance for fourth-quarter sales to rise 2% to 5%, implying a revenue range of $214 million to $220 million.

Quarterly net income reached $45.1 million or 12 cents a share, up 66% from year-ago levels and a penny above consensus expectations. The company said pretax earnings included a $3.1 million benefit in the fourth quarter of 2003 and an $11.2 million benefit in the fourth quarter of 2002, both resulting from the sale of inventory previously written down in 2001.

Altera draws about half its sales from the communications market, pulling in the remainder from the industrial, automotive, consumer and computer industries.