Altera Announces Second Quarter Results

EPS Up 43 Percent Year over Year

SAN JOSE, Calif.--(BUSINESS WIRE)--Altera Corporation (NASDAQ:ALTR) today announced second quarter sales of $359.9 million, up 7 percent from the first quarter of 2008 and up 13 percent from the second quarter of 2007. Second quarter net income was $98.0 million, $0.32 per diluted share, up from net income of $83.9 million, $0.27 per diluted share, in the first quarter of 2008. Second quarter net income was up 22 percent and earnings per diluted share were up 43 percent compared with the second quarter of 2007.

First half cash flow from operating activities was $226.8 million. Altera repurchased 65,000 shares of its common stock during the second quarter at a cost of $1.4 million. To date during the third quarter, Altera has repurchased an additional 526,000 shares at a cost of $10.4 million. Altera ended the second quarter with $1.2 billion in cash and investments.

Alteras board of directors has declared a quarterly dividend of $0.05 per share payable on September 2, 2008 to shareholders of record on August 11, 2008.

The second quarter exceeded our expectations for growth and profitability. Our 90-nm FPGAs were the largest growth drivers and 65-nm FPGA sales more than doubled sequentially, leading to FPGA growth of 18 percent year over year. The combination of solid top line growth, continued gross margin improvement, and lower than planned operating expense created significant operating leverage and a very strong operating margin, said John Daane, president, chief executive officer, and chairman of the board. We are on schedule to ship the industrys first 40-nm Stratix IV FPGAs later this year, the result of work we began several years ago to accelerate the availability of 40-nm programmable logic devices. The architectural and process leadership that these products represent will further strengthen our competitive position and growth prospects over the next several years.

Several recent accomplishments mark the companys continuing progress.

--   Altera has announced the industry's first 40-nm FPGAs and HardCopy(R) ASICs, and hundreds of early adopter customers have already begun designs with these devices. Stratix(R) IV FPGAs and HardCopy IV ASICs, both with a transceiver option, provide unprecedented densities, performance and low-power leadership. The Stratix IV family has twice the logic density of Altera's Stratix III family, currently the largest FPGAs on the market. The HardCopy IV ASIC family offers equivalent densities as the Stratix IV devices with up to 13.3 million gates. Manufactured on Taiwan Semiconductor Manufacturing Company's 40-nm process, the Stratix IV FPGA family is comprised of two variants: first, Stratix IV E FPGAs, a set of devices rich with memory and digital signal processing resources, and, in addition, Stratix IV GX FPGAs, an enhanced version with transceivers. To address the low-power demands of customers, the Stratix IV family members feature Altera's Programmable Power Technology.
 

For the first time, Altera offers a transceiver-based ASIC option with the new HardCopy IV ASIC family. Stratix FPGAs deliver the benefits of FPGA-based hardware and software co-design and co-verification -- saving months in time to market -- and the use of HardCopy ASICs delivers the benefits of ASICs in production. Quartus(R) II development software fully supports these devices. First sample silicon for the Stratix IV GX family is expected in the fourth quarter.

 
-- With Altera's re-entry into the military market and benefiting from the company's record of reliability and innovation, military market customers increasingly have selected Altera for their newest designs. Altera now has been recognized as the number-one supplier at Rockwell Collins, a top-tier government electronics contractor. Altera won the 2008 President's Award, making it the top supplier among the more than 10,000 Rockwell Collins suppliers. The award is based on quality, product excellence, delivery schedules, and a team-based partnership. Altera's devices are today used in a variety of military market applications including software defined radio, electronic warfare, secure communications, guidance, radar, and avionics systems.

Business Outlook for the Third Quarter 2008

Sequential Sales Growth   Flat to down 3%
Gross Margin 67% +/- .5%
Research and Development $66 to 68 million
SG&A $63 to 65 million
Other Income Approximately $4 million
Tax Rate 16% to 17%
Diluted Share Count 305 to 310 million

Conference Call and Quarterly Update

A conference call will be held today at 1:45 p.m. Pacific Time to discuss the quarter's results and management's outlook for the third quarter of 2008. The web cast and subsequent replay will be available in the investor relations section of the company's web site at http://www.altera.com. A telephonic replay of the call may be accessed later in the day by calling (719) 457-0820 and referencing confirmation code 258712. The telephonic replay will be available for two weeks following the live call.

Alteras third quarter business update will be issued in a press release available after the market close on September 2, 2008.

Forward-Looking Statements

Statements in this press release that are not historical are "forward-looking statements" as the term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are generally written in the future tense and/or preceded by words such as "will," "expects," "anticipates," or other words that imply or predict a future state. Forward-looking statements include any projection of revenue, gross margin, expense or other financial items discussed in the Business Outlook section of this press release as well as comments describing expected 40-nm shipment timing, future competitive position and sales growth prospects. Investors are cautioned that all forward-looking statements in this release involve risks and uncertainty that can cause actual results to differ from those currently anticipated, due to a number of factors, including without limitation, customer business environment, vertical market mix, market acceptance of the company's products, product introduction schedules, the rate of growth of the company's new products including the Stratix IV, Arria GX, Cyclone® III, Stratix III, MAX II and HardCopy device families, changes in the mix of our business between prototyping and production-based demand, as well as changes in economic conditions, the companys share price, share repurchases, and other risk factors discussed in documents filed by the company with the Securities and Exchange Commission from time to time. Copies of Altera's SEC filings are posted on the company's web site and are available from the company without charge. Forward-looking statements are made as of the date of this release, and, except as required by law, the company does not undertake an obligation to update its forward-looking statements to reflect future events or circumstances.

About Altera

Alteras programmable solutions enable system and semiconductor companies to rapidly and cost-effectively innovate, differentiate and win in their markets. Find out more at www.altera.com.

Altera, The Programmable Solutions Company, the stylized Altera logo, specific device designations and all other words that are identified as trademarks and/or service marks are, unless noted otherwise, the trademarks and service marks of Altera Corporation in the U.S. and other countries. All other product or service names are the property of their respective holder.

ALTERA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
         
 
THREE MONTHS ENDED SIX MONTHS ENDED
June 27, March 28, June 29, June 27, June 29,
  2008     2008     2007     2008     2007  
 
Net sales $ 359,854 $ 336,071 $ 319,682 $ 695,925 $ 624,598
Cost of sales   118,299     117,250     113,093     235,549     217,605  
 
Gross margin   241,555     218,821     206,589     460,376     406,993  
 
Operating expenses (1)
Research and development 64,166 58,261 63,071 122,427 121,526
Selling, general, and administrative   63,952     61,037     67,863     124,989     139,647  
Total operating expenses   128,118     119,298     130,934     247,416     261,173  
 
Income from operations (Operating Margin) 113,437 99,523 75,655 212,960 145,820
Interest and other income (1) 7,814 4,122 18,079 11,936 35,291
Interest expense   (3,907 )   (3,137 )   (94 )   (7,044 )   (193 )
 
Income before income taxes 117,344 100,508 93,640 217,852 180,918
Provision for income taxes   19,362     16,584     13,110     35,946     25,329  
 
Net income $ 97,982   $ 83,924   $ 80,530   $ 181,906   $ 155,589  
 
Net income per share:
Basic $ 0.33   $ 0.27   $ 0.23   $ 0.60   $ 0.44  
Diluted $ 0.32   $ 0.27   $ 0.22   $ 0.59   $ 0.43  
 
Shares used in computing per share amounts:
Basic   300,535     307,418     352,721     304,000     355,157  
Diluted   305,868     310,010     359,542     307,950     361,595  
 
Cash dividends per common share $ 0.05   $ 0.04   $ 0.04   $ 0.09   $ 0.04  
 
Tax rate 16.5 % 16.5 % 14.0 % 16.5 % 14.0 %
% of Net sales:
Gross margin 67.1 % 65.1 % 64.6 % 66.2 % 65.2 %
Research and development 17.8 % 17.3 % 19.7 % 17.6 % 19.5 %
Selling, general, and administrative 17.8 % 18.2 % 21.2 % 18.0 % 22.4 %
Income from operations (Operating Margin) 31.5 % 29.6 % 23.7 % 30.6 % 23.3 %
Net income 27.2 % 25.0 % 25.2 % 26.1 % 24.9 %
 

Notes:

 
(1) Includes expense (benefit) related to the company's non-qualified deferred compensation plan, which were fully offset by income (loss) in interest and other income:
Cost of sales $ (38 ) $ (59 ) $ 41 $ (97 ) $ 59
Research and development 543 (2,876 ) 1,566 (2,333 ) 2,137
Selling, general, and administrative   (221 )   (2,094 )   1,427     (2,315 )   1,995  
Total $ 284   $ (5,029 ) $ 3,034   $ (4,745 ) $ 4,191  
ALTERA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
     
June 27, March 28, December 28,
2008 2008 2007
 
Assets
 
Current assets:
Cash and short-term investments $ 1,231,943 $ 994,632 $ 1,021,379
Accounts receivable, net 257,239 231,370 198,889
Inventories 76,006 71,013 74,110
Deferred compensation plan assets 68,275 67,828 74,768
Deferred income taxes and other current assets   166,477   148,136   164,942
Total current assets 1,799,940 1,512,979 1,534,088
Property and equipment, net 176,997 165,558 169,850
Deferred income taxes and other assets, net   68,998   71,767   65,980
$ 2,045,935 $ 1,750,304 $ 1,769,918
 
Liabilities and Stockholders' Equity
 
Current liabilities:
Accounts payable and current liabilities $ 154,536 $ 134,262 $ 134,450
Deferred compensation plan obligations 68,275 67,828 74,768
Deferred income and allowances on sales to distributors   335,641   349,228   280,440
Total current liabilities 558,452 551,318 489,658
Income taxes payable non-current 162,092 159,093 152,010
Long-term credit facility 500,000 350,000 250,000
Other non-current liabilities 19,569 17,151 16,800
Stockholders' equity   805,822   672,742   861,450
$ 2,045,935 $ 1,750,304 $ 1,769,918
 
 
Key Ratios & Information
 
Current Assets/Current Liabilities 3:1 3:1 3:1
Liabilities/Equity 2:1 2:1 1:1
TTM Return on Equity 31% 26% 21%
Quarterly Depreciation Expense $7,096 $8,005 $7,693
Quarterly Capital Expenditures $7,380 $3,713 $ 9,545
Annualized Net Sales per Employee $523 $509 $ 473
Number of Employees 2,696 2,632 2,651
Inventory MSOH (a): Altera 1.9 1.8 1.9
Inventory MSOH (a): Distribution 1.1 1.2 1.1
Days Sales Outstanding 65 63 56
 
(a) MSOH: Months Supply On Hand
ALTERA CORPORATION
REVENUE SUMMARY
(Unaudited)
           
Three Months Ended
Year-
June 27, March 28, June 29, Sequential Over-Year
2008 2008 2007 Change Change

Geography

North America 24 % 23 % 21 % 13 % 27 %
Asia Pacific 35 % 32 % 33 % 15 % 17 %
Europe 23 % 23 % 25 % 7 % 6 %
Japan 18 % 22 % 21 % -10 % -1 %
International 76 % 77 % 79 % 5 % 9 %
Total 100 % 100 % 100 % 7 % 13 %
 
 

Product Category

New 42 % 40 % 30 % 13 % 58 %
Mainstream 27 % 27 % 32 % 8 % -5 %
Mature & Other 31 % 33 % 38 % -1 % -9 %
Total 100 % 100 % 100 % 7 % 13 %
 
 

Market Segment

Communications 43 % 41 % 40 % 14 % 22 %
Industrial 35 % 35 % 35 % 5 % 11 %
Consumer 14 % 15 % 16 % 2 % 5 %
Computer & Storage 8 % 9 % 9 % -8 % -9 %
Total 100 % 100 % 100 % 7 % 13 %
 
 

FPGAs and CPLDs

FPGA 74 % 72 % 70 % 9 % 18 %
CPLD 18 % 19 % 19 % 1 % 8 %
Other 8 % 9 % 11 % 1 % -15 %
Total 100 % 100 % 100 % 7 % 13 %
 
 
 

Product Category Description

Category Products
New Stratix® II, Stratix II GX, Stratix III, Arria GX, Cyclone® II, Cyclone III, MAX® II, HardCopy, and Hardcopy II devices
Mainstream Stratix, Stratix GX, Cyclone, and MAX 3000A devices
Mature & Other Classic, MAX 7000, MAX 7000A, MAX 7000B, MAX 7000S, MAX 9000, FLEX® series, APEX series, Mercury, Excalibur, configuration and other devices, intellectual property cores, and software and other tools

Contacts

Altera Corporation
Scott Wylie, 408-544-6996 (Investor)
Vice President Investor Relations
swylie@altera.com
James Adams, 408-544-6397 (Media)
Public Relations Manager
newsroom@altera.com

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