Altera Looks East for Growth

Altera Corp. (ALTR - Analyst Report) is expected to report quarterly financial results on July 14. The San Jose, California-based company designs, manufactures and markets a broad range of high-performance, high-density programmable logic devices (PLDs) such as field-programmable gate arrays (FPGAs) and complex programmable logic devices (CPLDs).

The company earlier updated its guidance for the second quarter of fiscal 2009. As demand from OEMs providing equipment for Asian 2G and 3G wireless networks remains strong, management reiterated its prior guidance for quarterly sales that indicates a 2% – 7% sequential growth.

The main drivers for growth in Q2 are new products. Sales of 65-nanometer devices are up sharply, while sales of the company's 40-nanometer devices are on track to double from first-quarter levels, as projected by the management. Altera expects Stratix IV to continue its revenue ramp and management forecasts $3 million in revenue in Q2 and close to $10 million in revenue for Q3 with much of this already in backlog.

The rollout of third-generation mobile networks across China will play a huge role in designing the growth chart for the company. Altera has a large exposure to the telecommunications industry. The three top communications carriers in China -- China Unicom (CHU - Analyst Report), China Telecom (CHT - Analyst Report) and China Mobile (CHL - Analyst Report) -- are planning to expend around $42 billion in the next two years in both telecom networking and wireless. Hence, China provides a significant opportunity for growth.

The company has already started rolling out the 40nm Stratix IV GX FPGA family with initial shipments of the EP4SGX530. This is ahead of its prime competitor Xilinx (XLNX - Analyst Report). The rollout follows Altera’s first 40nm FPGA, the EP4SGX230, which was introduced in December 2008.

New product introductions and technology migrations will determine Altera’s future. It not only has to be technologically more advanced, but also ahead of Xilinx. During the 65nm transition cycle for the semiconductor industry, Altera trailed Xilinx significantly in terms of timing. We maintain our Buy on Altera.

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