Altera Corp. (ALTR) reported sales of $402.3 million in the first quarter of 2010, an increase of 52% year over year and 10% sequentially. Results were at the high end of management’s guidance of $390.5 – $401.5 million for the quarter.

The growth in sales was driven by new products, which increased 29% sequentially. New products include 65-nanometer and 40-nanometer field-programmable gate arrays (FPGAs) and HardCopy application-specific integrated circuit (ASIC) and the latest complex programmable logic devices (CPLD) family (all products which are in the design win and production ramp phase of their lifecycle).

The sequential growth was broad-based as both large and small customers categories expanded. New and mainstream products (includes 90-nanometer FPGAs and HardCopy ASICs, products which are no longer in the design-in phase and tend to grow or decline with the market) were up. Revenues increased in all geographies except Japan.

Altera continues to benefit from growth in 65-nm and 40-nm FPGAs as customer designs moves from prototyping to production. Altera continues to benefit from a combination of new product ramps, improved end market demand, and increase in customer take rate due to inventory depletion.

Incoming orders were strong throughout the quarter driving a book-to-bill ratio of more than 1 and leading to a significant increase in ending backlog.

Gross margin came in at 71.4%, up from 68.4% in the previous quarter and 64.5% in the year-ago quarter. The sequential improvement in gross margin was primarily due to cost reductions and yield improvements, which were partially offset by slight price decreases.

Operating margin came in at 40%, compared to 32.7% in the previous quarter and 19.5% in the year-ago quarter.

Net income was $153.2 million or 50 cents per share, compared to a net income of $103 million or 34 cents per share in the fourth quarter of 2009 and a net income of $44 million or 15 cents in the first quarter of 2009. The reported figure easily beat the Zacks Consensus Estimate of 40 cents per share.

During the quarter, Altera generated $132.7 million of cash from operating activities. Altera ended the quarter with $1.7 billion in cash and short-term investments.

Going forward, management expects sales to be up 8% to 12% in the second quarter. Management indicated that demand has strengthened in the past several quarters and most customers have more visibility as they place orders in a timelier manner. The company has a pipeline of 28 nanometer products, which it believes will maintain the growth momentum of the past 2 quarters.

The guidance implies a revenue guidance of $434.5 – $450.6 million. Gross margin is projected around 71% – 72%. However, management indicated that this level of margins will not be sustained in the long-term. The average gross margin for the company is 65% in the long run.

Altera is a leading supplier of programmable chips and related products to the communications and other industries. The company primarily competes with Xilinx Inc. (XLNX) in this space.
 
Results did not have much impact on the share price. Shares of Altera increased 0.11% to close at $26.78 in after-market trading. In regular trading, shares dipped 2.61% to close at $26.75.

Read the full analyst report on “ALTR”
Read the full analyst report on “XLNX”
Zacks Investment Research