Shares of Altera (Nasdaq: ALTR ) hit a 52-week low on Monday. Let's take a look at how it got there and see if cloudy skies are still in the forecast.
How it got here
The slowdown in wireless spending claims another victim; this time in the semiconductor space. Just yesterday I took a look at Finisar and other fiber optic companies and noted how spending weakness is pressuring the entire sector. Today, we can extend that pressure out to Altera, which makes specialized programmable logic devices for the telecom, automotive, and networking/storage sectors.
Our first hint that trouble could be brewing came last week when Applied Materials (Nasdaq: AMAT ) , the world's largest manufacturer of semiconductor equipment, lowered its earnings forecast on weakened demand for its products. Those fears were further enhanced when Advanced Micro Devices (NYSE: AMD ) , a chipmaker that, along with Intel, gives us good insight into global PC demand and economic cycles, warned that profits in its upcoming quarter would fall short of Wall Street's forecasts as well.
Not surprisingly, Altera's most recent quarter also gave us tangible warnings that global growth was slowing. In spite of deriving 43% of its revenue from Asia, a high-growth region, its heavy reliance on the telecom sector (which supplies 40% of its revenue) and a slowdown in European and U.S. spending resulted in a 28% year-on-year sales decline. What's more troubling is that sales of four of its five newer products fell by double digits sequentially from the fourth quarter.
Still, Altera offers value-seeking investors a pretty good deal with nearly $3 billion in net cash, a 1% yield, and the prospect of strong growth with much of its operations tied to Asia. When telecom spending does rebound, Altera should be set for rapid growth.
How it stacks up
Let's see how Altera stacks up next to its peers:
ALTR data by YCharts
Despite trading at a 52-week low, don't feel too bad for Altera shareholders, who have enjoyed a better run than rivals Xilinx (Nasdaq: XLNX ) and Lattice Semiconductor (Nasdaq: LSCC ) .
||$3.48 billion / $500 million
||$1.92 billion / $906.6 million
||$196.2 million / $0
Source: Morningstar, Yahoo! Finance.
This first thing that stands out among this group is the mountain of cash each company possesses. Nearly half off Lattice's market value is derived from its cash while Xilinx and Altera boast net cash positions around $1 billion and $3 billion, respectively.
I profiled Lattice one month ago as a company near its lows worth buying after it too fell under the earnings warning wagon. Weak European sales led the company to guide toward a flat to 3% decline in revenue from its previous indications of growth of as much as 4%, and the stock lost roughly one-quarter of its value. Trading near its book value, and with ample cash, it appears to offer the best value in the sector.
Xilinx has been a completely different story than Altera. Its 28 nanometer, 40nm, and 45nm products are selling so well that Wall Street was forced to up Xilinx's profit expectations after its most recent quarter. Xilinx also trades at a slight discount to Altera in terms of cash flow, book value, and forward P/E ratio.
Now for the $64,000 question: What's next for Altera? That question depends on whether spending in the telecom sector rebounds, whether its new products can gain traction, and if it incentivizes shareholders to buy the stock by boosting its dividend payout.
Our very own CAPS community gives the company a three-star rating (out of five), with 91.8% of members expecting it to outperform. I've yet to personally make a CAPScall on Altera, and you won't be getting one out of me today either.
Although Altera could be a major benefactor of the coming boom in mobile data, our analysts have another company singled out as a big winner of this trillion-dollar revolution. Find out the identity of this game-changer for free by clicking here to get your copy of this latest special report.
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