SAN FRANCISCO—Programmable logic vendor Altera Corp. Thursday (Oct. 20) reported third quarter sales that came in below analysts' expectations and the company's own revised guidance, with CEO John Daane saying customers are burning through existing inventories in a manner reminiscent of the downturn of 2008.
John Daane, who is also Altera's president, said in a conference call with analysts following the third quarter report that customers are holding back on purchases, burning inventories below normal levels in anticipation of potential business changes.
Daane drew parallels to the sharp industry downturn that began in 2008, when, he said, the semiconductor industry under-shipped its customer base for a while because customers chose to burn through existing inventory. In the foundry industry it was even worse, with customers cutting back "very aggressively, very quickly," he said.
"I think that phenomenon is going on right now," Daane said. How long it will last, and when business will bounce back depends on when customers see business conditions improving, he said. "That's very difficult for us to know at this period of time," Daane added.
Daane said if customers see demand for their products improving they will "be in a panic" to buy product quickly. But he said it is difficult to know when that will occur "because we're in the early cycles of this process."
Analysts have generally predicted that the current inventory correction and industry downturn will be far less severe than in 2008, the first of two consecutive down years for the industry. Earlier this month, Jim Feldhan, president of Semico Research Corp., said nervous OEMs would likely to continue burning inventory through the end of 2011 and into 2012, but that the downturn would likely reach its bottom around February of next year.
Altera (San Jose, Calif.) reported third quarter sales of $522.5 million, down percent compared to the second quarter and down 1 percent compared to the third quarter of 2010. Third quarter net income was $185.4 million, or 57 cents per diluted share, down 14 percent from the previous quarter and down 15 percent compared with the year-ago quarter, the company said.
Altera's sales came in below consensus analysts' expectations of about $541.6 million, according to Yahoo Finance.
Daane said softening of demand late in the third quarter among communications customers in Asia caused Altera to miss its updated sales target, which Altera cut last month to a range of $566.9 million to $590.2 million, citing weakening demand.
"We had expected broad-based end market growth for the third quarter, but instead saw customers aggressively reduce inventory due to concerns of the global economy, along with the downturn in some end businesses," Daane said Thursday.
For the current quarter, Altera said it expects sales to be between$465 million and $485.9 million, a decline of 7 to 11 percent sequentially. The guidance was well below consensus analysts' expectations, which pegged fourth quarter sales at about $532.8 million, according to Yahoo Finance. Altera executives said they intended to provide conservative guidance for the quarter because they lowered estimates of large customer purchases because some of those estimates turned out to be inflated in the third quarter.
Altera executives also claimed Thursday that the company has about 70 percent market share in 28-nm FPGAs. Both Altera and rival Xilinx began shipping 28-nm FPGAs earlier this year.