Merrill remains "Neutral" on ALTR:
9/03/03
Altera’s mid-quarter update offered no significant new information relative to the company’s previous outlook. Expected revenue growth for the September quarter still stands at 1% to 4% sequentially.
Analysis
When Altera reported June quarter results, indications for the September quarter were mixed. Book-to-bill was below 1, and turns in the high 60% range as a percentage of revenues were needed to hit the midpoint of the company’s target revenue range. Even if business is improving at this point, it would be more likely to manifest itself as better backlog for the December quarter as opposed to higher revenue. Our own revenue target for the September quarter stands at $211 million, up 3% sequentially, and we are not surprised by Altera’s comments. We do expect Altera to come into the December quarter with improved visibility. Also highlighted in the press release was continuing momentum for Altera’s lower-priced Cyclone lineup of FPGAs, which have been delivered to 1,400 customers as compared to 1,000 customers at the end of the June quarter. At an estimated $3 million in revenue for the September quarter, though, Cyclone revenues are not yet meaningful for Altera.
Recommendation
Our stance on Altera continues to be Neutral, despite the fact that we believe the company is executing well. Valuation is the major factor – according to our estimates, which are close to consensus, Altera is trading on 46x calendar 2004E earnings and 28x enterprise value to 2004E EBITDA. We regard the stock as fully valued. |
