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conference date: April 23, 2007 @ 2 PM Pacific Time
for quarter ending: March 31, 2007 (1st quarter)
Overview: Stalled revenues at low end of guidance, but nice EPS growth. Revised spending plan for 2007.
Basic data:
Revenues were $304.9 million, down 4% sequentially but up 4% from from Q1 2006.
Net income was $75.1, down 24% sequentially but up 28% from $58.7 million in Q1 2006.
Earnings were $0.21 per share, down 22% sequentially but up 31% from Q1 2006.
Ended with $1.5 billion in cash and investments.
Guidance:
For Q2 2007 revenues will grow 1% to 4% sequentially. Gross margins to be 65 to 66%. R&D and SG&A expense to be $70 million each. Tax rate at 13 to 15%.
Full year 2007 R&D and SG&A costs will be reduced $50 million each, to $275 million each.
Conference Highlights:
First quarterly dividend in company history, $0.04 per share to shareholders of record on May 10, 2007.
7.2 millon shares were repurchased for $145 million.
Communications market slowdown and continued inventory corrections were responsible for sequential decrease. Anticipates improving conditions in Q2. Industrial segment grew 3% sequentially and 15% over year-earlier.
Cyclone III family of FPGAs deliveries began. Stratix III FPGAs to ship in Q3. Nios embedded PLD processor remains popular.
Cost of sales was $104.5 million; R&D $58.5 million; SG&A $71 million; total operating expense $130.2 million. Capital expenditure was $13.9 million. 14% tax provision.
Interest income was $17.1 million.
Invnetories ended at $83.2 million. Inventory increase was in anticipation of increased Q2 demand. Accounts receivable is way up, and accounts payable way down, from year-earlier.
New products had sequential growth of 1%. FPGAs declined 3% sequentially, but up 5% over Q1 2006. CPLD revenue down 4% sequentially, but up 3% year-over-year.
Cyclone II grew 28% sequentially. Hardcopy decreased 35%, tied to inventory reductions in computer and storage space; should rebound in Q2.
Mainstream products were down 4% sequentially. Mature products were down 7% sequentially.
65.7% gross margins.
Lower than expected Q1 expenses are beginning of 2007 plan to reduce cost structure.
9.4 million shares repurchased year-to-date.
No delay in new product roll outs due to expense reduction program.
Still working off last summer's inventory overbuild; computer and storage demand also declined; Japan was weak.
65 nm yields are ahead of schedule, which helps reduce expenses.
Record sales of IP cores and development kits in Q1.
Communications declined 4%. Consumer decreased 8%. Computer and storage 20% decrease. Industrial grew 3%.
Expects communications to be up in Q2, consumer flatish, computer up, industrial up. Expects overall gradual recovery in Q2.
Book to bill was above 1.
Q&A:
Guidance color? Seeing a slow rebound. Some end markets are still a bit weak. Some have depleted inventory.
Lead times? At normal levels.
R&D expense sequence? Bump from 1Q to 2Q, then another bump in Q3, then flat.
Long term model is 65% model.
Dividends versus buy-backs? Will continue to evaluate. Has cash in excess of what they need for operations.
Inventory end of Q2? Build was mostly in plain vanilla products. Well within their target range, which is lower than competitors.
Japan companies had worked hard to reduce inventories. Expect them to pick up. Companies are across spectrum of Altera products.
Wireless? Expects it to grow in Q2. Customers want to minimize their inventory, so want Altera to hold it ready.
Turns rate will trend higher because of reluctance of customers to hold inventory or forecast demand, but wanting immediate shipment when they do order.
Networking color? Have seen move to lean vendor-managed inventory programs. One major customer in Q2 changed to this; so expect networking down in Q2, which is included in guidance. In wireless the customers are wireline companies too; confusion while merging purchasing patterns. But only a 4% sequential decline, which was stronger than we had anticipated.
Accounts receivable increase? Sold more to distributors in March than in December. Fluctuates a lot quarter to quarter. Not a useful indicator.
Head count? Does not expect reduced head count to be part of expense reduction.
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Disclaimer: Our analyst summaries may include both our condensations of statements made by company representatives and our own analysis. They are not covered by any warranty. We cannot guarantee anything said by company representatives is true. We try not to make errors, but it's possible. Before making or terminating an investment you should always verify any factual basis of your decision.
Copyright 2007 William P. Meyers