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Although fourth-quarter results beat the Zacks Consensus Estimate by $0.04, the guidance was disappointing.
Altera expects sales to be down 5% – 9% sequentially. This implies a revenue guidance of $416.5 million – $434.9 million. Management stated that the program timing in the Military business will account for half of the decline. The company expects revenues from wireless segment to be down across multiple geographies due to continued inventory depletion and softening of demand in the second half of 2011.
Consequently, out of twenty-three analysts covering the stock, eighteen have lowered their estimates in the last seven days leading to a sharp decline in the Zacks Consensus Estimate for 2012.
Most analysts believe that Altera will lose market share to Xilinx in the first half of 2012. As per the analysts, XLNX likely benefited from a higher exposure to Cisco ( CSCO - Analyst Report ) and LTE at Ericsson, while ALTR was disproportionately impacted by weakness in China/wireless.
Altera has a large exposure to the telecommunications industry, in particular China. The recent slowdown in China has adversely impacted the company’s business with no respite, at least in the forthcoming quarter. Moreover, margins have already peaked recently and might not be sustainable in the long run. We expect a decline in margins going forward.
Therefore, we downgrade our recommendation to Underperform from Neutral. Our recommendation is supported by Zacks #5 Rank, which translates into a short-term Sell rating.
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