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When you buy a suit, then you gain to much weight, you have to take the suit back to the tailor for an alteration. When you sit too long in one position, you have to stand up and pick your seat…yup, you guessed it, another alteration. When I drink to much beer, I’ve been told it alters my behavior.
So today, I bought Altera Corporation (ALTR) at 40.02. I will sell it in 4 to 6 weeks at 46.03. Here’s why I like ALTR:
Take a look at the chart. It just goes up and up and up.
Why? Because the company makes money that’s why.
Altera Corporation is a global semiconductor company, serving over 13,000 customers within the Telecom and Wireless, Industrial Automation, Military and Automotive, Networking, Computer and Storage, and Other market segments.
Altera designs, manufactures, and markets a variety of products:
• Programmable logic devices (“PLDs”), which consist of field-programmable gate arrays (“FPGAs”) and complex programmable logic devices (“CPLDs”), are standard semiconductor integrated circuits, or chips, that Altera’s customers program to perform desired logic functions in their electronic systems.
• HardCopy® application-specific integrated circuits (“ASICs”) transition customer designs from high-density FPGAs to low-cost non-programmable implementations for volume production.
Now you probably have no idea about what a semiconductor chip is. Well, $$$MR. MARKET$$$ will give you Semiconductor 101 right here..right now:
There are three primary types of integrated circuits used in most digital devices:
Logic devices can be further split into two categories, fixed and programmable. Fixed logic devices, such as application specific integrated circuits (ASIC) and application specific standard products (ASSP), define the group of logic devices that are manufactured with a permanent set of instructions or functions. Conversely, programmable logic devices, such as field programmable gate arrays (FPGA) and complex programmable devices (CPLD) are not permanent. They are standard products, shipped blank and are programmed at the customer's PC or workstation, using proprietary software. Since the company's chips are programmed at a desktop and not at a foundry, the customer has the ability to customize designs, an option that is limited in ASICs and ASSPs. Since both fixed and programmable logic devices can be used in the same devices, there is a natural competition between the technologies. Fixed and programmable logic may perform the same job, but they have distinct differences. The fixed logic chip, which requires relatively high capital during the development stage because it is custom made, is generally a cheaper alternative for high-volume production. The chip tends to be smaller in size, and can be cheaper on a per-unit-basis due to economies of scale. However, the programmable logic chip , which require less capital upfront because it uses standard components and inexpensive software tools, can be more beneficial for low-volume applications. Furthermore, programmable customers enjoy the design flexibility during the development stage and can often develop products faster than with fixed logic, improving time-to-market. Because of these factors, it makes sense that programmable chips will grow faster than their fixed logic counterparts.
There is a lot of pent up demand for these chips very recently. Altera has indicated that they have not seen much excess inventory of chips. This is really good for pricing.
China has been a major source of growth for Altera as its versatile chips become more appealing to customers facing spiraling investment costs to develop specialized processors. The programmable logic market is practically a duopoly dominated by Xilinx Inc. and Altera Corporation. Altera is now starting to beat the crap out of its chief rival Xilinx. As Xilinx gets worser and worser, Altera can charge more quatloops for its chips.
The Global Semiconductor Alliance (GSA) has named Altera the "Best Financially Managed Semiconductor Company." With member companies in 25 countries across the world, the GSA's mission is to accelerate the growth and increase the return on invested capital of the semiconductor industry by fostering a more effective fabless ecosystem. Altera received this award based on a number of financial metrics such as revenue, net income, return on investment, return on equity, inventory turns, days sales outstanding, cash per share, cash burn, gross profit margin, operating margin and current ratio.
Over the past 12 months, Altera generated $844.3 million in Free cash flow on net income of $782.9 million. That means it turned 43.2% of its revenue into FCF. Altera returned 35.5% on invested capital, and had revenues of $1.95 billion in 2010. From 2006 to 2010, Altera showed gross margins of 66.7%, 64.5%, 67.1%, 66.8%, and 70.99%, respectively. Also, in those years, respectively, the Company produced EBT margins of 27.98%, 26.7%, 30.66%, 25.56%, and 44.4%. The ROE in 2010 is 45.9%.
Yup these chips might as well be like the chips I get at the Hard Rock Casino, cuz I can turn them into cash right away.
In January, Altera announced fourth quarter sales of $555.4 million, up 5 percent from the third quarter of 2010 and up 52 percent from the fourth quarter of 2009. New product sales increased 26 percent sequentially. Fourth quarter net income was $231.6 million, $0.72 per diluted share, compared with net income of $217.5 million, $0.69 per diluted share, in the third quarter of 2010 and $103.0 million, $0.34 per diluted share, in the fourth quarter of 2009.
Cash flow from operating activities in 2010 was $856.7 million. Altera ended the quarter with $2.8 billion in cash and short-term investments.
ALTR’s revenue outperformance is being driven by structural content growth combined with ASIC replacement, and would highlight estimated Total Addressable Market increases of 40% since 2008 and the potential for another 5x increase over the next 3-5 years ($5bn to $30bn).
ALTR invests heavily in research and development, which primarily focuses on the design of new ICs, the development of new software design automation tools for hardware and embedded software, the design of IP cores of logic, and the adoption of advanced semiconductor manufacturing processes for ongoing cost reductions, performance and signal integrity improvements.
ANAL-ysts see earnings this year of $2.48/share and $2.61/share in 2012. They estimate revenues of 2.14B in 2011 and 2.32B in 2012. WTF? Fish in a tree? How can that be?
ASIC displacement and market share gains will support healthy, above-peer long-term growth. This most excellent profitability and financial leverage from ALTR's capital structure will keep its ROE in great shape.
Sales are going to be bonkers this year. $$$MR. MARKET$$$ sees a 24% increase to $2.42 Billion which will jack up earnings to $3.41 per share.
Remember, this stock has a Return on Equity of 45%. It’s a machine. At these growth rates and earnings, I can calculate the share price to be $3.41 per share x PE of 16 = $3.41 x 16 = $54.56, which is well past my sell target of 46.03. So it is written. Altera will announce its first quarter results on April 26, 2011. I hope to be out by then. Even better, I got it on a dip! Yay me.
Here’s what the boss had to say:
“The fourth quarter delivered a positive note to end a remarkable sales growth year. Our sales were up 64 percent in 2010, significantly outpacing most companies in the semiconductor industry. In the fourth quarter, new products continued to be growth drivers as we saw substantial sales gains from our 65-nm and 40-nm FPGAs,” said John Daane, president, chief executive officer, and chairman of the board. “During the fourth quarter we taped out our first 28-nm FPGAs. We believe Altera’s unique features and performance will extend our technology leadership into this next FPGA generation adding to the momentum we have established at the 40-nm node.”
No alterations required. Just turn those chips into cash.
I am HUGE!!!
$$$MR. MARKET$$$
So today, I bought Altera Corporation (ALTR) at 40.02. I will sell it in 4 to 6 weeks at 46.03. Here’s why I like ALTR:
Take a look at the chart. It just goes up and up and up.
Why? Because the company makes money that’s why.
Altera Corporation is a global semiconductor company, serving over 13,000 customers within the Telecom and Wireless, Industrial Automation, Military and Automotive, Networking, Computer and Storage, and Other market segments.
Altera designs, manufactures, and markets a variety of products:
• Programmable logic devices (“PLDs”), which consist of field-programmable gate arrays (“FPGAs”) and complex programmable logic devices (“CPLDs”), are standard semiconductor integrated circuits, or chips, that Altera’s customers program to perform desired logic functions in their electronic systems.
• HardCopy® application-specific integrated circuits (“ASICs”) transition customer designs from high-density FPGAs to low-cost non-programmable implementations for volume production.
Now you probably have no idea about what a semiconductor chip is. Well, $$$MR. MARKET$$$ will give you Semiconductor 101 right here..right now:
There are three primary types of integrated circuits used in most digital devices:
- processors, which are used for control and computing tasks
- memory products, which are used to store information
- logic devices, which manage the interchange and manipulation of digital signals within a system.
Logic devices can be further split into two categories, fixed and programmable. Fixed logic devices, such as application specific integrated circuits (ASIC) and application specific standard products (ASSP), define the group of logic devices that are manufactured with a permanent set of instructions or functions. Conversely, programmable logic devices, such as field programmable gate arrays (FPGA) and complex programmable devices (CPLD) are not permanent. They are standard products, shipped blank and are programmed at the customer's PC or workstation, using proprietary software. Since the company's chips are programmed at a desktop and not at a foundry, the customer has the ability to customize designs, an option that is limited in ASICs and ASSPs. Since both fixed and programmable logic devices can be used in the same devices, there is a natural competition between the technologies. Fixed and programmable logic may perform the same job, but they have distinct differences. The fixed logic chip, which requires relatively high capital during the development stage because it is custom made, is generally a cheaper alternative for high-volume production. The chip tends to be smaller in size, and can be cheaper on a per-unit-basis due to economies of scale. However, the programmable logic chip , which require less capital upfront because it uses standard components and inexpensive software tools, can be more beneficial for low-volume applications. Furthermore, programmable customers enjoy the design flexibility during the development stage and can often develop products faster than with fixed logic, improving time-to-market. Because of these factors, it makes sense that programmable chips will grow faster than their fixed logic counterparts.
There is a lot of pent up demand for these chips very recently. Altera has indicated that they have not seen much excess inventory of chips. This is really good for pricing.
China has been a major source of growth for Altera as its versatile chips become more appealing to customers facing spiraling investment costs to develop specialized processors. The programmable logic market is practically a duopoly dominated by Xilinx Inc. and Altera Corporation. Altera is now starting to beat the crap out of its chief rival Xilinx. As Xilinx gets worser and worser, Altera can charge more quatloops for its chips.
The Global Semiconductor Alliance (GSA) has named Altera the "Best Financially Managed Semiconductor Company." With member companies in 25 countries across the world, the GSA's mission is to accelerate the growth and increase the return on invested capital of the semiconductor industry by fostering a more effective fabless ecosystem. Altera received this award based on a number of financial metrics such as revenue, net income, return on investment, return on equity, inventory turns, days sales outstanding, cash per share, cash burn, gross profit margin, operating margin and current ratio.
Over the past 12 months, Altera generated $844.3 million in Free cash flow on net income of $782.9 million. That means it turned 43.2% of its revenue into FCF. Altera returned 35.5% on invested capital, and had revenues of $1.95 billion in 2010. From 2006 to 2010, Altera showed gross margins of 66.7%, 64.5%, 67.1%, 66.8%, and 70.99%, respectively. Also, in those years, respectively, the Company produced EBT margins of 27.98%, 26.7%, 30.66%, 25.56%, and 44.4%. The ROE in 2010 is 45.9%.
Yup these chips might as well be like the chips I get at the Hard Rock Casino, cuz I can turn them into cash right away.
In January, Altera announced fourth quarter sales of $555.4 million, up 5 percent from the third quarter of 2010 and up 52 percent from the fourth quarter of 2009. New product sales increased 26 percent sequentially. Fourth quarter net income was $231.6 million, $0.72 per diluted share, compared with net income of $217.5 million, $0.69 per diluted share, in the third quarter of 2010 and $103.0 million, $0.34 per diluted share, in the fourth quarter of 2009.
Cash flow from operating activities in 2010 was $856.7 million. Altera ended the quarter with $2.8 billion in cash and short-term investments.
ALTR’s revenue outperformance is being driven by structural content growth combined with ASIC replacement, and would highlight estimated Total Addressable Market increases of 40% since 2008 and the potential for another 5x increase over the next 3-5 years ($5bn to $30bn).
ALTR invests heavily in research and development, which primarily focuses on the design of new ICs, the development of new software design automation tools for hardware and embedded software, the design of IP cores of logic, and the adoption of advanced semiconductor manufacturing processes for ongoing cost reductions, performance and signal integrity improvements.
ANAL-ysts see earnings this year of $2.48/share and $2.61/share in 2012. They estimate revenues of 2.14B in 2011 and 2.32B in 2012. WTF? Fish in a tree? How can that be?
ASIC displacement and market share gains will support healthy, above-peer long-term growth. This most excellent profitability and financial leverage from ALTR's capital structure will keep its ROE in great shape.
Sales are going to be bonkers this year. $$$MR. MARKET$$$ sees a 24% increase to $2.42 Billion which will jack up earnings to $3.41 per share.
Remember, this stock has a Return on Equity of 45%. It’s a machine. At these growth rates and earnings, I can calculate the share price to be $3.41 per share x PE of 16 = $3.41 x 16 = $54.56, which is well past my sell target of 46.03. So it is written. Altera will announce its first quarter results on April 26, 2011. I hope to be out by then. Even better, I got it on a dip! Yay me.
Here’s what the boss had to say:
“The fourth quarter delivered a positive note to end a remarkable sales growth year. Our sales were up 64 percent in 2010, significantly outpacing most companies in the semiconductor industry. In the fourth quarter, new products continued to be growth drivers as we saw substantial sales gains from our 65-nm and 40-nm FPGAs,” said John Daane, president, chief executive officer, and chairman of the board. “During the fourth quarter we taped out our first 28-nm FPGAs. We believe Altera’s unique features and performance will extend our technology leadership into this next FPGA generation adding to the momentum we have established at the 40-nm node.”
No alterations required. Just turn those chips into cash.
I am HUGE!!!
$$$MR. MARKET$$$
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