Other analysts see no evidence of inventory buildup. Ian Ing, an analyst with Broadpoint Amtech, said necessary over-shipment remains a possibility for Altera for the next two to three quarters. But Ing said warning signs are not yet apparent as visibility increases. He noted that Altera guided for turns orders to be in the mid 30 percent range on higher backlog, down from the mid 40 percent range, below Altera's historical high 50 percent range for turns orders.
There are no signs of buffer stock building at OEMs, and back-end packaging and testing is increasingly tightening, Ing wrote.
McWilliams of Next Inning Research appears even more bullish on Altera. "The short story here is the analysts from Morgan Stanley and Merrill Lynch have been dead wrong for more months than I can count," McWilliams wrote in a report for subscribers.
Next Inning Technology Research
McWilliams, who acknowledges owning shares in Altera as well as Xilinx Inc. and several other chip companies, characterized Altera's first quarter results as "amazing."
Altera's first quarter revenue of $402.3 million was an all-time record for the company, 12 percent above the company's previous revenue peak, set during the second quarter of 2008, according to McWilliams.
Altera also reported an operational expense leverage ratio of 2.56, which is only 0.02 below its all-time record of 2.58 that was reported during the second quarter peak of the 2000 bubble, according to McWilliams.
"The mantra of the Merrill Lynch analyst is that Altera's success is being driven by the building of an inventory bubble in its forward supply channel," McWilliams wrote. "Had he written that in 2000, he would have been right. However, according to Altera, there is no inventory bubble building today."
As McWilliams wrote in his report, John Daane, Altera's president, chairman and CEO, alluded to the issue of inventory buildup during an analyst call after the company's first quarter report. Daane said Altera's growth is being driven almost entirely by new products, which he said speaks to new product success as opposed to inventory accumulation.
"Nevertheless, we do assume that there is a component of inventory accumulation and have taken this into account in our forecast, even though it is not apparent in our product or market analysis," Daane said.
Richard Wawrzyniak, a market analyst with Semico Research Corp., said the drivers of the strong growth now being seen in programmable logic are much more sustainable than they were in 2000, when the dot com bubble drove infrastructure build outs that collapsed spectacularly. Overall programmable logic revenue has still not achieved its 2000 peak of $4 billion, though it is projected to do so this year.
Wawrzyniak said carriers today are moving quickly to support an explosion in bandwidth required to support increased data transmission brought about from the rise in smart phone use and video. This is a long-term trend that will drive revenue growth for the foreseeable future, Wawrzyniak said. "This is not something they can solve over night."
McWilliams counters that the peak analysts commonly refer to in 2000 was driven by a massive inventory build as depicted in the chart below and not by actual product consumption in manufacturing. Therefore, according to McWilliams, using 2000 as the basis for comparison is invalid. "The consumption of programmable logic has increased sharply and at 40-nm we're seeing a meaningful trend of end customers using it versus ASIC technology," he said.
Source: Next Inning Technology Research. (Click on image to enlarge).