Guidance Boosts Altera

Higher expectations reverses an after-hours slump.
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Updated from 4:48 p.m. EDT

Altera

(ALTR) - Get Report

beat its earnings and sales targets for the first quarter and predicted higher-than-expected growth for the second quarter.

Altera shares rose 2.3% to $19.70 during the late-trading session Monday after the growth targets were issued during a conference call.

Shares had dropped as much as 4% in late trading prior to the call, as investors focused on the company's first-quarter gross margins of 68.3% vs. an expected range of 68.5% to 69.5%. Chief Financial Officer Nate Sarkisian soothed investors by saying margins for the year will be between 68% and 69% -- in the top half of the company's original margin goal.

For the quarter ended April 1, Altera reported net income of $63.8 million, or 17 cents a share, on sales of $264.8 million. During the same quarter last year, the company earned $58.8 million, or 15 cents a share, on sales of $242.9 million.

Altera cited strong demand for its new products and strong sales into its communications customers. Altera makes microchips that can be programmed for various purposes by a broad range of customers.

Analysts had expected earnings of 15 cents a share and sales of $254 million, on average, according to Thomson First Call. In early March, Altera said it expected sales of $254.3 million, more than its original target range of $242.3 million to $247.1 million.

Gross margin was 68.3% vs. 69.8% in the fourth quarter and 68.8% during the same quarter last year. Sarkisian characterized the margin miss as "more statistical noise than real signal."

Altera said its new-product sales increased 16% sequentially, to make up 34% of total sales. In the fourth quarter, new-product sales declined 6% sequentially.

Inventory held by Altera and its distributors declined to 3.3 months vs. 4.2 months at the end of the fourth quarter. For the second quarter, total inventory was predicted between 3.3 and 3.6 months.

For the second quarter, Altera predicted sales growth of 4% to 5% sequentially, for a range of $275.4 million to $278 million. Analysts had expected growth of 3.9% to $264 million prior to Monday.

The company expects growth across communications, industrial and consumer segments, and flat sales from its computer and storage unit during the current quarter.

Also, Altera said its tax rate will likely be significantly reduced in the second quarter due to the completion of federal and state tax audits that will result in "a large and favorable impact on our second quarter results," said Sarkisian.

Without the audit results, Altera had modeled a 20% tax rate for the second quarter and the full year. Sarkisian said more details would be provided during the company's midquarter update on May 31.