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We continue to maintain a Neutral recommendation on Altera Corporation (ALTR - Analyst Report) ahead of its third quarter 2012 results, expected on October 23, 2012.
Last month, Altera updated its guidance for the third quarter of 2012. Altera expects revenue growth of 2% – 6% on a sequential basis, in line with the guidance provided during the second quarter results. This implies a revenue guidance of $437.5 million – $452.9 million.
Altera continues to see traction in the 28-nanometer node and expects revenue from this node to exceed $20 million in the third quarter. Revenue from 40-nanometer node is also expected to grow sequentially. 
New products are expected to be the growth drivers for the third quarter with sales of both 40nm and 28nm products estimated to rise substantially. 
End-market wise, Telecom and Wireless markets are expected to witness growth. Industrial Automation, Military and Automotive segment is also expected to increase, driven primarily by Military and Automotive. Networking, Computer and Storage is expected to be down. 
Earnings estimates for fiscal 2012 have been static over the last few days as the company reiterated its guidance for the third quarter. 
In July, Altera reported better-than-expected second quarter results.  Altera reported a net income of $162.7 million or 50 cents per diluted share, which easily beat the Zacks Consensus Estimate of 39 cents per share. 
Altera returned to sequential quarterly growth after three quarters of pullback in customer inventory. Most customers ended their inventory destocking programs and returned to their normal purchase levels. 
On an average, Altera has surpassed the Zacks Consensus Estimate by 7.95% in the last four quarters. We expect the company to report in line results for the third quarter. The current Zacks Consensus Estimate for third quarter 2012 is 46 cents with no movement in either direction in the last sixty days. 
Altera has a robust pipeline of 28 nanometer products, which it believes will maintain the growth momentum in the upcoming quarters. Meanwhile, Altera increased its quarterly dividend by 2 cents to 10 cents per share. 
Altera’s prime rival, Xilinx Inc. (XLNX - Analyst Report) recently reported better-than-expected results for the second quarter of fiscal 2013 but provided a weak guidance for the December quarter due to continued macroeconomic uncertainty. 
Nevertheless, we expect the company’s business to revive in the second half of 2012. Our long-term recommendation is supported by a Zacks #3 Rank, which translates into a short-term rating of Hold. 

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