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Recently, Altera Corporation (ALTR - Analyst Report) and ARM Holdings plc (ARMH - Snapshot Report) have entered into a contract for jointly creating an embedded software development toolkit, Development Studio 5 (DS-5). The latest toolkit, which has a facility of FPGA-adaptive debug system, is designed particularly for Altera SoC tools.

The ARM DS-5 Altera Edition toolkit has been introduced particularly for eliminating any kind of debugging difficulty and enhancing the visibility of debugging process within integrated dual-core CPU subsystem and FPGA processes. The kit will be added to the company’s Altera SoC Embedded Design Suite profile.

The latest kit is expected to offer a unique integration platform for Altera 28 nm Cyclone V, Arria V SoC tools and Altera 20 nm SoC devices. Altera and ARM have developed this toolkit in order to enhance the efficacy of its clients through easy integration of CPU as well as FPGA debugging.

Management was highly enthusiastic regarding its venture with ARM. Now, with the introduction of this toolkit, the software engineers can easily access a highly developed debugging tool for augmenting the productivity of SoC devices.

Earlier, Altera reported a net income of 49 cents per share in the third quarter of 2012, easily beating the Zacks Consensus Estimate of 46 cents per share. However, the reported net income compares unfavorably with 50 cents per diluted share in the second quarter of 2012 and 57 cents per share in the third quarter of 2011. The company has posted sales of $495.0 million in the third quarter of 2012, down 5% year over year but up 6% sequentially.

Recently, the company trimmed its revenue guidance for fourth quarter 2012 and updated its financial guidance for 2013. Altera now expects revenue to be 8% to 10% lower than the third-quarter levels, compared to the previous guidance of down 6% to 10%. The solid growth in new products will be more than offset by lower sales of the company’s existing products.

Meanwhile, for 2013, gross margin is targeted around 69% – 70%. Research and development expense is estimated at approximately $104 million, driven by increased variable compensation expense and stock-based compensation. SG&A is likely to come around $315 million on the back of variable compensation for bonus, sales commission and stock-based compensation.

In a different story, the company’s prime rival, Xilinx Inc. (XLNX - Analyst Report), seems to have gained traction and has won back its lost market share over the past few months. This does not bode well for Altera in the coming quarters.

The current Zacks Consensus Estimates for Altera are 39 cents and $1.73 for the fourth quarter of 2012 and for the full year of 2012, respectively. The estimates represent year-over-year growth of (13.0%) for the fourth quarter of 2012 and (26.3%) for 2012.

As the macroeconomic conditions continue to be challenging, we prefer to have a Zacks #4 Rank on the stock, which translates into a short-term rating of ‘Sell’. In the long run, we have an ‘Underperform’ recommendation on the stock.

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