Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Altera -- Ignore unavailable to you. Want to Upgrade?

To: Lewis M. Carroll who wrote (2021)	4/26/1999 11:35:00 PM
From: A. Edwards	Respond to of 2389

Altera's current business trends are positive: from Salomon Smith Barney The tone of the conference call(March quarter) was more positive than a quarter ago, and management seemed pleased with the results. Based on the higher backlog and current order trends, the company expects sales to grow 8% again in the June quarter. Distributor inventories fell from 2.4 months in December to 2.1 months in March, so part of the higher backlog is for distributor inventory replenishment (Altera recognizes revenue on shipments out of the distribution channel, not shipments into the channel). All geographic regions and applications markets are expected to grow in the June quarter. New products leading the charge Altera segments its product mix into four categories, predominately based on vintage. New products (FLEX10KE, 10KA, FLEX6000/A, and MAX7000A) represented 22% of the sales mix, growing 34% sequentially and 350% from a year ago. Mainstream products (FLEX10K, MAX9000, and MAX7000S) accounted for 37% of sales, growing 4% sequentially and 62% from a year ago. Mature products (FLEX8000, MAX7000, MAX5000, and Classic families) represent 32% of sales and shrank 1% sequentially. The remaining 9% of sales are made up primarily of configuration devices and has essentially tracked the overall sales trends. The company's MAX7000S 5-Volt, in-system programmable (ISP) family surpassed its predecessor, the MAX7000 for the first time in March. The 3.3-Volt FLEX10KA also surpassed the 5-Volt FLEX10K during the March quarter, and the new FLEX10KE is already above a $1 million monthly revenue run rate. Positive indicators across the board Days of receivables fell from 30 days in December to 26 in March, a record low level and the first time under 30 days since mid 1997. This is one sign that the company had plenty of flexibility in making the quarter (e.g., the quarter was not back-end loaded). Geographic and application market trends (covered shortly) were also encouraging. Average selling prices (ASPs) rose 6% sequentially to $11.79. While ASPs can be distorted by changes in product mix, the raw measures of logic shipped (i.e., 'macrocells' for product-term devices and 'logic elements' for look-up table products) suggest that ASPs are much more stable than 1997 and early 1998. Specifically, the number of macrocells shipped rose 7% sequentially and 29% from a year ago to 905 million. Logic elements shipped rose 9% sequentially and 114% from a year ago to 3.34 billion. The sequential revenue gain of 8% was roughly in-line with the macrocell/logic element increase in March, whereas small sequential revenue gains a year ago required huge boosts in macrocell/logic element shipments. In any case, both numerical and anecdotal evidence supports the case that the painful price attrition of 1997 to mid-1998 has largely abated. APEX and Quartus The first APEX samples (EP20K400) were shipped in the March quarter, along with a beta release of the Quartus software. Another device (the EP20K100 manufactured on a 0.22-micron process) should be available in the June quarter, and Quartus should be broadly released soon. A 0.18-micron version of APEX should be ready later this year. Investment Opinion Three months ago Altera's stock was severely punished after the company reported in-line results with mildly cautionary comments about European order trends. The stock reaction was heightened by the company's relative performance compared to Xilinx, which grew faster in December and gave much more bullish guidance. Now that Altera is upsiding nicely and giving much more reassuring guidance, we expect that the large P/E multiple gap between the two stocks (XLNX is 45x 1999 EPS estimates, ALTR 36x) may have a chance of closing somewhat. We believe our $84 price target (31x 2000 EPS estimates) is fairly conservative since it simply holds the current year's P/E multiple against the out year estimate. Should Altera's sequential sales momentum be maintained, or if lead times begin to lengthen, we believe a stock trading range into the $90-100 neighborhood is possible. We are therefore reiterating our BUY (1H) rating.