Yesterday, Altera Corporation (ALTR) raised its revenue guidance for the third quarter, driven by improving market conditions. The company now expects third quarter sales to be flat-to-up 3% on a sequential basis compared to the previous guidance of sales being down 1% – 5% sequentially.

Management expects a broad-based improvement across all market segments except telecom and wireless. Management had earlier expected a slowdown in communications equipment deployment in China and seasonality in the telecom and wireless markets.

Nevertheless, the decline in telecom and wireless now appears to have moderated in contrast to management’s anticipation as a result of better-than-forecast demand from OEMs supplying to Asian wireless networks. Additionally, design wins for the company’s newly launched 40-nm products continue to be very strong. Management expects third quarter sales of 40-nm products to come around $10 million, more than double from the second quarter.

The upgraded forecast implies revenue guidance between $279 million and $287 million. The third quarter results will include approximately $4.5 million in severance costs resulting from a 3% reduction in workforce. Management now estimates operating expenses to come between $126 million and $128 million, up from the previous guidance of $122 million – $126 million.

Altera is a leading supplier of programmable chips and related products to communications and other industries. The company primarily competes with Xilinx Inc (XLNX) in this space.

Last month, the world’s largest technology company, Intel Corp. (INTC) raised its third quarter revenue forecast driven by strong demand for programmable chips and microprocessors.

We think the company is well positioned to capitalize on the eventual recovery of the markets. Business sentiment has improved significantly among the semiconductor companies after six months of inventory correction. Most companies see a strong second half amidst reviving demand. We maintain our NEUTRAL rating on the stock.
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