ALTR Altair Engineering Inc

Earnings estimates for Altera Corporation (ALTR) have declined significantly in the last three months, driven by weak macroeconomic conditions.

All the twenty-two firms covering the stock have lowered their estimates in the last thirty days pulling down the Zacks Consensus Estimate for 2011. This was prompted by the company’s cut in outlook for the fourth quarter.

Last month, the company slashed its revenue guidance. Altera now expects revenues in the fourth quarter to decline by 13% to 16% on a sequential basis, compared to the previous guidance of 7% – 11%. The new guidance implies revenues in the range of $438.9 million – $454.6 million, significantly lower than the previous guidance of $465.0 million – $485.9 million.

Altera stated that the revenue outlook has deteriorated across all major vertical markets, including both large and small customers. Only North America is expected to benefit from rising military sales. All other geographies are expected to be weak. Most customers reduced demand due to economic uncertainty, macroeconomic concerns, and lower than planned sales.

This is the second instance where Altera lowered its revenue guidance in the past few quarters against its usual practice of upgrading guidance as the quarter progresses.

The reduction in guidance was driven by industry-wide inventory correction and weak demand, which continue to plague companies in the semiconductor industry.

The same sentiment was echoed by key rival Xilinx, Inc. (XLNX) as well, which also trimmed its forecast for the December quarter.

The firms pulled back their estimates for Altera citing weak demand in China and the European wireless segment and believe that it is highly unlikely that the company will bounce back before 2Q12. A significant cause of concern is Altera’s higher exposure to China and service provider segments. The macroeconomic slowdown in China is hurting Altera more than Xilinx as Altera has more exposure to China than Xilinx.

Given the turbulent economic environment, we continue to be on the sidelines and await better clarity on business development as the year progresses. Hence, we maintain our Neutral recommendation on Altera. Our recommendation is supported by a Zacks #3 Rank, which translates into a short-term rating of Hold.

 
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