Altera slumps on forecast of 4Q revenue decline

NEW YORK -- Altera tumbled in afternoon trading Wednesday after the chipmaker gave a disappointing fourth-quarter revenue forecast.

THE SPARK: The San Jose, Calif., company reported its third-quarter results Tuesday afternoon. Altera's net income sank 3 percent in the quarter ended Sept. 28, to $161.2 million, or 49 cents per share. Revenue fell 5 percent.

THE BIG PICTURE: While the company did better than expected in the most recent quarter, it warned that revenue in the fourth quarter will be 6 percent to 10 percent lower than the third quarter, which suggests $445.5 million to $465.3 million in total revenue. That's well below the $496.7 million that Wall Street was looking for.

THE ANALYSIS: William Blair & Co. analyst Anil Doradla said most of the shortfall came from two customers: he said those customers were responsible for 5 percent of Altera's revenue in the third quarter but won't provide any revenue in the fourth quarter. However Doradla said the company made important gains with a European communications customer had a "solid" third quarter. He kept an "Outperform" rating on the stock.

Citi Investment Research analyst Glen Yeung said that if the reported delays are excluded, Altera's forecast is similar to that of competitor Xilinix Inc., putting its guidance "squarely in the middle of the pack amongst their peers." Yeung maintained a "Neutral" rating on Altera shares.

SHARE ACTION: Altera Corp. slid $2.60 to $30.02. The stock is down 14.5 percent since Sept. 14.