Tags: Altera | down | cycle | ALTR

Altera Rides Down Cycle of Chip Industry

By    |   Monday, 12 Dec 2011 08:29 AM

Semiconductor manufacturer Altera (ALTR) is not immune to the cyclical nature of the semiconductor industry. In spite of the current down cycle, which seems to have started in mid-2011, this company may be attractive to investors.

Altera manufactures what are called programmable logic devices (PLDs), semiconductor integrated circuits which can be programmed to meet the specific needs of the buyer. The company's products serve a wide range of industries, including automotive, broadcast, computers, industrial, medical, testing, wireless and wireline telecom.

For the first nine months of 2011, Altera reported revenues of $1.6 billion, up from $1.4 billion in 2010. However, in the third quarter the revenues of $522 million were down 5 percent from $525 million for the same quarter a year earlier.

Net income for the quarter of 57 cents per share was down from 69 cents a year earlier and 65 cents for the 2011 second quarter. For the fourth quarter the consensus earnings estimate is 47 cents per share compared to 72 cents earned in the fourth quarter of 2010.

The 2012 earnings estimate of $2.21 per share is 16 cents below the 2011 forecast.

Highly profitable

One difference in the business operations of Altera compared to many companies is the high level of profitability this company can maintain while waiting for the demand for its products to again turn upwards. Altera reports a gross profit margin of just over 70 percent. After research and development plus SG&A expenses, the company still boasts an operating margin of almost 40 percent in the downturn, and the margin can expand to close to 45 percent when the semiconductor business is in an upswing.

At the end of the 2011 third quarter, Altera was holding almost $3.2 billion in cash on the balance sheet, up from $2.8 billion at the end of 2010.

Recent analyst comments on Altera include reiterated buy ratings from the analysts at Lazard Capital Markets and Jefferies & Company. Piper Jaffray analysts reiterated their overweight rating while increasing their target price by $8 per share.

The company next reports on Jan. 19.

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Semiconductor manufacturer Altera (ALTR) is not immune to the cyclical nature of the semiconductor industry. In spite of the current down cycle, which seems to have started in mid-2011, this company may be attractive to investors. Altera manufactures what are called...
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Monday, 12 Dec 2011 08:29 AM
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