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Altera Corporation (ALTR - Analyst Report) reported earnings of 31 cents per share in the second quarter of 2013, in line with the Zacks Consensus Estimate.

Revenues

Altera reported total revenue of $421.8 million in the second quarter, down 9.3% year over but up 2.7% sequentially. The quarter’s revenues came below the Zacks Consensus Estimate of $425.0 million and were within management’s guidance range of flat to up 4.0% sequentially. The year-over-year decline was mainly due to weakness in mainstream and matured products, almost all the end-markets (barring auto, industrial & military) and the Americas and Asia-Pacific regions.

Sales of new products grew 20.0% from the year-ago quarter, while revenues from mainstream and mature products declined 14.0% and 28.0%, respectively.

Geographically, revenues from Americas and Asia-Pacific declined 12.0% and 22.0%, respectively on a year-over-year basis. Revenues from Europe, Middle East and Africa (EMEA) and Japan grew 11.0% and 2.0%, respectively. On an end-market basis; telecom and wireless declined 16.0%, networking, computer & storage decreased 6.0%  and the Other category declined 8%. However, the automotive, broadcast, military end market posted 2.0% growth.

Sequentially, Altera witnessed solid performances from all the geographical regions (except Americas), product category and end markets.

Operating Results

Gross margin came in at 68.0%, down from 69.6% in the year-ago quarter and within management’s expected range. Operating margin came in at 26.6%, down from 34.3% in the year-ago quarter. Total operating expenses grew 6.2% year over year, reflecting 8.5% growth in sales and marketing expenses and 3.6% increase in research and development expenses.

Reported net income was $101.5 million or 31 cents per share compared with $162.7 million or 50 cents per share in the second quarter of 2012.

Balance Sheet & Cash Flow

Altera exited the quarter with a cash and short-term investment balance of $2.95 billion and operating cash of $64.5 million. Capital expenditure was $8.7 million.

Altera spent $54.9 million for repurchasing shares and roughly $32.0 million for paying dividend.

Guidance

Altera expects sales to grow 5.0%–9.0% sequentially in the third quarter of 2013. The revenue improvement could be due to an expected turnaround in telecom & wireless, auto, industrial & military and networking & storage end markets. The Others category is expected to remain flat sequentially.

Management projects gross margin of roughly 68.0% in the third quarter, in line with the second quarter. Research and development expenses are expected in the range of $99.0 million to $101.0 million, while selling, general and administrative (SG&A) expenses will range between $80.0 million and $82.0 million. Tax rate is expected in the range of 12.0%–13.0%.

Conclusion

Altera has delivered mixed second quarter 2013 results with earnings beating the Zacks Consensus Estimate and revenues missing the same. Overall year-over-year performances were weak while sequential performances provided some hope. Guidance for the upcoming quarter was encouraging, citing some turnaround in the end markets.

Last week, Altera’s archrival Xilinx Inc. (XLNX - Analyst Report) reported impressive first quarter 2014 results and provided a better sequential expectation for the second quarter citing higher revenues from all geographic regions, better demand situation for its 28nm node products and expected traction in its 20nm products, which are ready to be shipped. Xilinx also announced its extended partnership with foundry partner Taiwan Semiconductor Manufacturing Ltd. (TSM - Snapshot Report) for transition into 16nm nodes by 2014.

Though Altera’s association with chip maker Intel Corp. (INTC - Analyst Report) will keep it ahead of its peers, synergies from the partnership is not likely to boost fundamentals in the near term. But Altera’s solid book-to-bill ratio and backlog position are positive.

Currently, Altera holds a Zacks Rank #2 (Buy).

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