Altera hits 3Q estimates, sees good growth ahead

(Updated: 6:01 EDT) -- Altera met analysts' estimates in its third quarter Monday, raking in $118 million, or 28 cents a share, on sales of $395.4 million. But the outlook may be a problem for nit-picky investors.

First Call Corp. consensus expected the programmable logic device maker to earn 28 cents a share in the quarter.

Altera (Nasdaq: ALTR) shares closed off 50 cents to $32.44 ahead of the earnings report. In after-hours trading, shares slumped 10 percent to $29.68.

The $395.4 million in sales marks an 84 percent improvement from the year-ago quarter when it earned $55.6 million, or 13 cents a share, on sales of $215.1 million.

"Following an extraordinary June quarter, the strong 16 percent sequential growth we posted in this typically seasonally slow period reflects the very solid business conditions we see in our end markets," said CEO Rodney Smith in a prepared release. "Growth continues to be led by customers in the communications market, where the benefits of Altera devices that deliver greater design flexibility and faster time-to-market are particularly appealing."

Earlier this month, Altera shares went into a nosedive after a pair of brokerage firms downgraded the stock and lowered their fiscal 2000 sales estimates. Analysts also cut rival Xilinx. Altera executives said the company would continue to buy back shares at the current prices.

On a conference call with analysts, Smith was upbeat about the fourth quarter and fiscal 2001. The big question was whether Smith was upbeat enough to please Wall Street. Smith projected sequential growth of 12 percent to 15 percent in the fourth quarter "broadly distributed across products worldwide."

Smith said Altera expects to post "another strong growth quarter." Regarding Europe, Altera said business remains strong with five consecutive double-digit growth quarters.

For the fiscal year, Smith said Altera should grow about 75 percent for the year. For 2001, Altera should grow at about 50 percent, a growth rate still well above industry growth rates. Gross margins will be down about 75 basis points to 65.5 percent to 66 percent in the fourth quarter because of increased wafer manufacturing costs. For 2001, Altera's margins will be in the 65 percent to 66 percent range.

In other news, Smith, who has announced plans to step down earlier this year, said he was pleased with the search for a new CEO and added that an announcement would come before the end of the year.

In addition, Altera said it didn't have much new to report regarding numerous lawsuits between the company and rival Xilinx (Nasdaq: XLNX). Officials said updates would be coming as the lawsuits develop.

Last quarter, Altera hurdled analysts' estimates when it returned a profit of $107.6 million, or 49 cents a share, on sales of $340.7 million.

It also set a 2-for-1 stock split.

Its shares moved as high as $67.13 in August after falling to a low of $20.63 last October.

Eighteen of the 22 analysts following the stock rate it either a "buy" or "strong buy."

Analysts expect it to earn $1.03 a share in the fiscal year.

Larry Dignan contributed to this report.