FPGA or field programmable gate arrays are chips that can be programmed on-the-fly, an important feature in equipment that is either produced in low volumes (where it’s not cost-efficient to produce the chip in volume) or in applications where the functionality of the hardware needs to change frequently. As only 1 or 2 major FPGA makers, Altera’s results provide insight into a number of end markets, in particular telecom equipment.
Altera’s Q2 sales of $360M beat consensus of $347M, and EPS beat by $0.05 at $0.32, while Q3 sales are expected to be flat to down 3%, above expectations of $350.7M.
Why are Altera’s results and guidance above analyst expectations? Demand appears to be quite good now (with a book to bill entering Q3 fractionally below 1), with “stronger-than-expected communications and industrial growth with business accelerating in June for both markets”, and due to market share growth. Strong products for Altera currently include its high-performance Stratix III (up 135% YoY) and low-cost Cyclone III (up 88% YoY), with a 40nm Stratix IV starting to ship this year. By end-market, broadcast surprised to the upside offsetting declines in high-end flat-panel TVs, industrial did very well at +5% QoQ, and communications was the real star in the quarter, increasing 14% on “strong growth in telecom, wireless and networking in Europe, North America, and Asia.”
Looking ahead to Q3, Altera expects telecom to be down somewhat QoQ with strength in Japan offsetting seasonal weakness in other geographies, and includes Altera discounting any impact of China 3G equipment growth. Altera did note that quarter-to-date, business is tracking at the high-end with a book-to-bill significantly above 1 with a turns rate in the high 50’s. And looking ahead to Q4, Altera expects better times ahead, with “revenue growth with communications, broadcast, military, automotive and servers” leading the way.
In summary, Altera’s results are certainly much better than expected, and point to an improving telecom picture in Q4 – a welcome shot in the arm for telecom stocks in light of a warning from Cisco CEO John Chambers that spending might not recover until 2009.
