Altera Earnings Call Nuggets: CapEx Trends, Communications Customers

On Tuesday, Altera Corp. (NASDAQ:ALTR) reported its third quarter earnings and discussed the following topics in its earnings conference call. Take a look.

CapEx Trends

Romit Shah – Nomura: On the second customer that are living from a PLD to an ASIC, I was wondering if you could give a little bit more color as to which vertical and why specifically they made the conversion.

John P. Daane – Chairman, President and CEO: So customer is in communications one of the designs was in wireless one of the designs was in networking. The design that was in wireless was a Cyclone class product from Altera that we’re shipping in the low millions of units per year economically make sense that, that volume to convert to ASICs. The other design was a Stratix class design was in the hundreds of thousands of units per year. Again economically, if that point makes sense to convert to ASICs, we do see this is still high volume as we’ve talked about many, many times, on occasion we will see conversions; both of those products were in our mainstream product category.

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Romit Shah – Nomura: John, I just wanted to ask you a broader question on CapEx trends. You had a good quarter in telecom, but looking at it on a year-to-year basis, it’s only up 2%. I guess just given the strong growth we’re seeing in mobile Internet devices, particularly LTE. Why aren’t we seeing that flow back to you in a more significant way? One would think that carriers would have to spend more to support the higher data usage.

John P. Daane – Chairman, President and CEO: I think what we are seeing is, first of all last year – in the first half of last year, particularly North America was in aggressive spend in wireless, it since has slowed to an extent in the U.S. We’ve also seen really no activity out of India. China has ultimately slowed, particularly for GSM deployments, and where telecom has done okay for us. I think spend in telecom has been slower as CapEx has been shifted overall to the wireless space. I would say in general though, the good news is longer-term one will expect it carriers in multiple geographies will have to spend simply because their networks will be saturated both from viewers at home, downloading movies, which is clogging the Wireline segment, or Telecom segment as well as the upgrades to LTE devices in North America, Japan, Korea, and ultimately we’ll see that I think in China, as well as at some point India really starting to spend on 3G, we’re just not seeing it this year. So, good news is I think it’s in the future, obviously we believe we’re going to benefit very well from that because our programmable content on a dollars basis is much higher than the newer generations of equipment. We just need to see the spending actually go forward from the carriers.

Communications Customers

James Schneider – Goldman Sachs & Co: John I was wondering if you can comment. In terms of the communications customers, your largest customers, can you talk about where their inventories are today? Are they still lean as you mentioned they were last quarter or are they destocking further from the levels you saw last quarter, maybe just talk about inventory broadly beyond comm as well.

John P. Daane – Chairman, President and CEO: So I think we have a couple of customers that are working down inventory. It is not broad, I would say it’s limited to probably a couple of customers and I think mostly in those most cases it’s because the direction of their business has slowed and therefore they ended up with inventory because they expected their business was going to be stronger. Ultimately, I would expect those few customers to adjust fairly quickly, I again do not see a broad amount of inventory out there, particularly since we went through a heavy destocking period of Altera product in the first half of this year. So we think it’s fairly lean at this point, and the business direction will really be dependent on the overall economy and how these end markets and customers do, as well as the growth of new products obviously.

James Schneider – Goldman Sachs & Co: There is a follow-up, could you maybe talk a little bit more about the European communications customer where you talked about gaining share. You talked about there being a 10% customer either in Q4 or Q1, maybe give us some color on how long that customer has already been ramping up until this point and then once that reaches 10%, could it go significantly higher there or it kind of reach the plateau as of that Q4, Q1 point?

John P. Daane – Chairman, President and CEO: Well, I think what’s happening in the communications industry is there is a few companies that have much higher market share today then there were five years ago. So based on the fact that telecom and wireless is about half of the company’s revenues about 45% based on the fact that there’s very heavy account concentration in that area I think is very natural to see a couple accounts be over 10%, this is something that we talked about a while ago. Last quarter that customer was just under 10% so it’s been growing over a period of time. They’ve told us we’ll be the number one vendor next year and we’re very happy to see that growth and continued success within telecom and wireless and that is a segment that overall on the industry today we are the number one vendor.

A Closer Look: Altera Earnings Cheat Sheet>>