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Fiscal 3Q15 Update: Altera Misses Analyst Estimates

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Earnings update

On October 22, 2015, two semiconductor companies—Altera (ALTR) and Maxim Integrated Products (MXIM)—and one hardware company—Juniper Networks (JNPR)—announced their results for the July-September 2015 quarter. While the semiconductor companies posted declining revenues, hardware firm Juniper posted strong quarterly results. This series will provide a quick look at all three companies’ performance during the quarter.

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Altera’s fiscal 3Q15 highlights

Altera, a semiconductor manufacturer that is being acquired by Intel (INTC), announced weak fiscal 3Q15 results that missed analysts’ estimates. The company’s revenue fell 20% YoY (year-over-year) to $399.6 million, and EPS (earnings per share) fell from $0.38 in fiscal 3Q14 to $0.20 in fiscal 3Q15. This was below analysts’ estimates of $429 million in revenue and EPS of $0.30. Revenue fell mainly due to weak demand from the industrial market.

Profitability

On a YoY basis, Altera’s gross margin fell from 66.8% in fiscal 3Q14 to 66.5% in fiscal 3Q15 due to unfavorable changes in the vertical market mix. The firm’s operating margin fell from 28.3% in fiscal 3Q14 to 19.6% in fiscal 3Q15. This is because sales fell 20% YoY while R&D (research and development) and SG&A (selling, general, and administrative) expenses fell marginally by only 5.5% YoY.

A merger expense of $10.4 million was an addition to the fiscal 3Q15 results. This expense was absent in fiscal 3Q14 and was added in fiscal 2Q15 after the acquisition with Intel was announced. Altera’s net income fell 48% YoY to $61.5 million in fiscal 3Q15.

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Cash position

The company generated $167 million in cash from operations in fiscal 3Q15. As of September 25, 2015, the company had total cash reserves of $2.1 billion.

Altera did not release fiscal 4Q15 guidance due to its pending acquisition by Intel.

Acquisition by Intel

On June 1, 2015, Intel agreed to acquire Altera for about $16.7 billion in cash. Intel is a partner of Altera and manufactures products designed by the latter. With this acquisition, Intel looks to expand in the data center and Internet of Things sectors.

You can gain exposure in the semiconductor space through the VanEck Vectors Semiconductor ETF (SMH). It has 18.8% exposure in Intel and 1.6% exposure in Maxim Integrated Products.

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