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Bear of the Day

Altera Corporation (ALTR - Analyst Report) designs, manufactures, and markets a broad range of high-performance, high-density Programmable Logic Devices (PLDs) and associated development tools.
 
Headquartered in San Jose, California, Altera combines the programmable logic technology (originally invented in 1983) with software tools and intellectual property to provide high-value programmable solutions to over 13,000 customers through direct sales force and distributors.   
 
The company has been publicly traded since 1988 and employs approximately 2,600 employees worldwide.
 
Altera’s customers are large multi-national corporations as well as small companies in communications, computer and storage, industrial, and consumer market segments.
 
Disappointing Third Quarter Results and Guidance

The company reported its third quarter results on October 23, 2013. Sales for the quarter came in at $445.9 million, up 6% from the second quarter of 2013 but down 10% from the third quarter of 2012.

Net income for the quarter was 
$119.4 million$0.37 per share, compared $0.31 per share, in the previous quarter and $0.49 per share, in the same quarter of 2012.

The EPS number was actually ahead of the Zacks consensus estimate of $0.34 per share, but the revenue number was short of the Zacks Consensus Estimate of $452 million.
Further for the fourth quarter, the management expects revenue in the range of minus 3% to plus 1% and gross margin to be 68.5%, plus or minus half a point.
 
Downward Revisions
 
Due to revenue miss and disappointing guidance, 14 analysts have revised their estimates for the current quarter downwards in the last 60 days. Current estimates for the last quarter of 2013 stand at $0.30 per share, down from $0.37 per share 60 days ago.
 
Similarly estimates for 2013 and 2014 have come down to $1.36 and $1.59 per share respectively, from $1.41 and $1.81 per share.
 
Downward revisions have sent the stock back to Zacks Rank #5 (Strong Sell) earlier this month.
 
The Bottom Line
 
Considering the weakening demand for Altera’s products and increased competition in the industry coupled with soft market and declining margins, we suspect that this stock will remain under pressure in the near-to-medium term.
 
ALTR is currently Zacks Rank # 5 (Strong Sell) stock. Further the Zacks Industry rank of 253 (out of 265) also indicates further weakness in the short term. Investors looking for exposure to Semiconductors/related industries could consider Taiwan Semiconductors (TSM)—a Zacks Rank #1 stock, which also has a longer-term ‘Outperform’ recommendation.

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