The company told analysts it now expects its first-quarter sales to fall 20 percent from the $368 million it recorded in the fourth quarter.
Altera shares closed down $2.06 at $23.38 ahead of the warning, before falling to $21.81 in after-hours trading.
First Call consensus was expecting first-quarter sales of $412.6 million and earnings of 22 cents a share, meaning the company will miss analysts' top-line estimates by more than $110 million this quarter.
Altera, based in San Jose, Calif., develops programmable logic devices (PLDs) and development software. Its PLDs--semiconductor chips that can be programmed for a variety of uses--are used in communications, electronic data processing, industrial and consumer markets, among others. Telecommunications and network-equipment makers generally prefer PLDs to custom logic semiconductors because they can be manufactured faster and at a substantially lower price.
Altera executives said resale rates, though improved from the end of last year, haven't accelerated and that new orders in February were slower than expected.
The company did not provide any guidance on earnings for the quarter.
"An industry-wide inventory correction began in the fourth quarter and now reduced end market consumption is exacerbating the impact of that correction," Chief Executive Officer John Daane said in a statement. "We are seeing the effects of reduced capital spending by service providers and other communications market end-customers impact our customers' business, and hence their purchases."
Daane also said the company expects "moderate" sequential sales growth in the second half of this year.
Last quarter, Altera missed analysts' revised estimates when it posted a profit of $102.7 million, or 25 cents a share, on sales of $368 million.
Analysts lowered their estimate to 26 cents a share, following the company's profit warning back in November.
Other PLD makers were roughed up in Tuesday trading, as Xilinx fell $3.13 to $38.75, well off its 52-week high of $98.31 set in June. Atmel lost 50 cents to close at $11.50, down from its peak of $30.69 in April.
Altera, which is rated either a "buy" or "strong buy" by 16 of the 20 analysts following the stock, hit a 52-week high of $67.13 in August before falling to a low of $19.63 in November.