Altera
2Q
| Altera
2Q
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| (FOOL
CONFERENCE
CALL
SYNOPSIS)* By Prem Kumar (MF Prem) ALTERA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ALTR)") else Response.Write("(NASDAQ: ALTR)") end if %> ALEXANDRIA, Va., July 17, 1996/FOOLWIRE/ --- ALTERA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ALTR)") else Response.Write("(NASDAQ: ALTR)") end if %> today reported net income of $0.52 per share for the just-completed fiscal second quarter, beating First Call consensus estimates of $0.49 per share. These results were $0.09 better than the year-ago period but down $0.14 sequentially.
Sales in the second quarter were $116.3 million, up 26% over the same period last year, but down 15% from the previous quarter. Gross margins as a percentage of sales for the second quarter were 61.4%, up 2.1% over the same period last year and 0.1% over the prior quarter. Gross margin improvements were attributed to improved manufacturing yields which are a result of newer and more advanced processes.
Quarterly cash activity included an initial payment of $42.1 million as part of the company's $140 million investment in Wafertech, a joint venture with Taiwan Semiconductor Manufacturing Corporation (TSMC) and other partners to manufacture wafers in a state-of-the-art facility in Camas, Washington. Capital expenditures for the quarter were $9.6 million.
BACKLOG & INVENTORY
Rodney Smith, President & CEO stated, "Revenues declined in the second quarter due to the build-up of inventory at end customers and their subcontract manufacturers. This inventory build up was caused by the tight supply conditions on our mainstream products (MAX 7000, FLEX 8000) as demand grew rapidly in 1995 and Q1 1996. The dramatic improvement in availability of these products recently has driven the decline in end customer demand. We indicated on June 4 that end consumption would decline sequentially in North America, Europe, and Japan. As a result, we expected a drop in revenues of approximately 15% from the prior quarter. Our financial results for this quarter are consistent with this statement. While the present transition to off-the-shelf availability on both mainstream (MAX 7000, FLEX 8000) and new product families (MAX 9000, FLEX 10K) is disruptive in the short-term, it responds to customers' time-to-market requirements and we feel will enhance design wins over the longer term."
Mr. Smith concluded, "Backlog in the June quarter declined to the early 1995 levels. We expect some further reduction in backlog for the September quarter. Shorter lead times have caused the business to be more dependent on turns (turns are orders that are received and shipped in the same quarter). However, we believe that most of the cancellation activity is now behind us and that any future backlog reduction will be modest."
Mr. Smith continued, "The FLEX 10K family continues to be well received in the marketplace. Second quarter revenue growth for this product family doubled sequentially and the book-to-bill ratio was positive. The density, price, and speed advantages of this product family are unmatched by any other competitive product shipping in the marketplace today."
The company stated that it thought that too much emphasis was placed on the book-to-bill ratio, and in the second quarter, the company thought it that the ratio was "totally meaningless." Instead, the company said that it has been driving its revenue reporting from the resale activities for the past eighteen months.
Worldwide resale activity was down 13% from the first quarter. Domestic resale was down 18% sequentially, while the international channel declined 7%. Europe declined 15%, after a strong 18% increase in Q1. Japan declined 10% on top of a 13% decline in Q1. Asia-Pacific increased 29% on top of a 36% increase in Q1. The Asia-Pacific channel only accounts for 9% of the total number, however.
The company broke down its revenue into the following groups: Communications were 53%, computers made up 15%, industrial was 14%, military 5%, consumer 2%, and other 1%. This information is also available on page 6 of press release.
In terms of a product breakdown, mature products were down 28%, mainstream products were up 49%. With new products, the percentage comparison is not as meaningful, so the company provided dollar revenue figures. Max 9000 had sales of $4 million, Flex 10K had sales of $2 million. The tools business increased 15% over last year.
Sequentially, mature products were down 20%, mainstream products were down 17%. New products were up 16%, and the tools business was flat.
In terms of a revenue breakdown, mature products were 18%, mainstream 68%, new products 5%, tools 6%, and others 3%. So, the company said that 93% of business came from proprietary products.
By channel breakout, domestic was 53%, and international 47%. Europe was 21%, Japan was 18%, and Asia-Pacific was 2%.
Growth by channel (or lack thereof) domestic was down 21% sequentially, and international was down 8% sequentially. Europe declined by 16%, Japan declined by 10%, and Asia-Pacific was up by 31%.
The Average Selling Price (ASP) declined by 4% to $11.47, and units were down by 12%. In terms of a worldwide shipment picture, 89% went to distribution, and 11% was direct.
The company said that orders were meaningless in addition to the book-to-bill being meaningless because the company forced the cancellation of a significant amount of backlog. In fact, the company said that the backlog ending Q1 was $195 million, and the company ended up Q2 with $89 million.
The company said that it had cut its back-end manufacturing because it has too much inventory of particular items. In addition, the company also said that it had canceled $65 million worth of promissory notes from TSMC, and converted the notes into an investment in the joint wafer project.
The company said that the inventory risk in its business was low -- because its products are programmable, they don't become obsolete very quickly. It further said that it uses inventory as a strategic weapon in its business.
The company also said that it sees revenue flat until the fourth quarter of 1996.
QUESTION & ANSWER SESSION
The company was asked if it sees any inventory write-downs in the near future, and it said "no."
The company was asked what it saw for gross margins going forward, and its response was that it sees some price cuts from major vendors coming in the near-term. Since its contracts are fixed from the beginning of the quarter, it has not seen an increase in Cost of Goods Sold (COGS) yet.
When asked about its design win activity, the company responded by saying that the number of design sites installed was up 25% -- over 1,400 for the first time. It added that response to its new Flex product has been tremendous, and it has seen a good response on mainstream products. * A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. | |
Copyright 1996,
The Motley Fool |