Last week, Altera Corp. (ALTR) announced that it will eliminate approximately 3% of its workforce in order to streamline its cost structure. The company’s headcount currently stands at 2700. The eliminations will take effect in the third quarter and result in severance charges of approximately $4 million – $5 million. Altera expects to realize annualized savings of about $9 million from the restructuring.
Altera designs, manufactures and markets a broad range of high-performance, high-density programmable logic devices (PLDs), such as field-programmable gate arrays (FPGAs) and complex programmable logic devices (CPLDs).
Management seems to be taking steps to improve profitability after the slump in second-quarter earnings. Last month, the company reported quarterly sales of $279.2 million, which were up 6% sequentially, but down 22% year over year.
Operating margin came in at 24%, down from 31.6% in the last quarter. Net income slumped to $47.4 million from $98 million in the year-ago period. Results included a tax expense of $11.5 million related to a court ruling on worldwide equity compensation cost sharing. Quarterly profit of 16 cents a share was in line with the Zacks Consensus Estimate.
Going forward, management forecast sales declining by 1% – 5% sequentially in the third quarter driven by a slowdown in communications equipment deployment in China and seasonality in telecom and wireless markets. Gross margin is expected around 67%, +/- 0.5%, up from 66.5% in the second quarter.
In the long run, Altera targets an operating margin of 30% or above. Margins have been under pressure in the past two quarters. Weak revenue amid the ongoing economic downturn is forcing management to take steps for maintaining profitability.
The primary theme to watch at Altera over the next 6–12 months is new product introductions and technology migrations. Altera remains a good bet in the long run and we maintain our Buy on the stock.
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