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Miller Tabak analyst Brendan Furlong reportedly cut Altera from Neutral to Sell because he expected a slowdown in the programmable logic device (PLD) market. Altera’s 2011 filings provide useful context: the company estimated a $4.9 billion PLD market and reported strong first-quarter sales growth, but also disclosed long customer design cycles and significant telecom exposure. The available report does not provide Furlong’s price target or the size of his estimate revisions, so this is a historical account—not current investment advice.
Why did Miller Tabak downgrade Altera?
Embedded.com reported that Miller Tabak analyst Brendan Furlong cut Altera (then traded as ALTR) to Sell from Neutral and trimmed estimates for both Altera and Xilinx (then XLNX). The stated reason was an expected slowdown in the PLD market. The report summarizes the analyst’s rationale; it does not provide the underlying brokerage note or its detailed forecasts.
The accessible report does not state the date of the call, a price target, or the numerical size of either company’s estimate revision. Those details cannot be inferred from the rating change. Embedded.com’s report is the source for the reported analyst action and rationale.
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In its 2011 Form 10-K, Altera described PLDs as standard semiconductor chips that customers program to perform logic functions. Its PLD products were field-programmable gate arrays (FPGAs) and complex programmable logic devices (CPLDs). Its broader portfolio also included HardCopy ASIC devices, IP cores, and development software.
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Altera’s filing presented the following figures as company estimates or reported company mix—not as independent forecasts:
| Measure | Altera’s 2011 figure | What it describes |
|---|---|---|
| Estimated PLD market | Approximately $4.9 billion | Altera’s estimate based on publicly available data and information derived from Gartner Dataquest; it is not a Gartner-published figure. |
| FPGAs’ share of PLD sales | Approximately 81% | Altera’s estimate of the FPGA share of total PLD sales. |
| PLDs’ share of Altera net sales | 91% | Altera reported that FPGAs contributed approximately 81% of net sales and CPLDs 10%. |
| Telecom and wireless customer exposure | Approximately 43% | Share of Altera net sales from customers participating in telecom and wireless. |
| Addressable ASIC and ASSP market portion | $48 billion | Altera’s estimate of an addressable portion of the combined market; the company cautioned that the entire market was not available for PLD displacement. |
These figures show why PLD market growth mattered to Altera: PLDs made up most of its sales. But the $48 billion opportunity was not a forecast of PLD sales. Altera said the pace of customer adoption was unclear and identified technical concerns—including power, performance, and design methodology—that could hinder adoption. Altera’s 2011 Form 10-K is the source for its market estimates, product descriptions, exposures, and risk disclosures.
How does Altera’s reported growth fit with the slowdown concern?
Altera reported $535.8 million in net sales for the quarter ended April 1, 2011, up 33% from the comparable quarter in 2010. The company said growth was broad-based and primarily driven by new products. That result is a counterpoint to a slowdown concern, but it does not establish that the analyst’s forward-looking view was wrong: one quarter’s reported growth and an analyst’s expectations for a later period are different measures.
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Why could market conditions and Altera’s revenue move at different times?
Design wins took time to become sales
Altera said the process from product design-in to volume production could take six months to three years or longer. Customer program timing, cancellations, end-market demand, and shipping schedules could all affect when a design win generated revenue. As a result, a shift in market expectations would not necessarily appear immediately or uniformly in reported sales.
Telecom and wireless were a material exposure
Customers participating in telecom and wireless accounted for about 43% of Altera’s 2011 net sales, according to the company. Changes in demand in that end market therefore mattered to Altera’s results, even though the filing’s figure does not establish what demand would do next.
Competition involved more than chip performance
Altera identified Xilinx, Lattice Semiconductor, Microsemi, and other semiconductor vendors as competitors. Its filing listed performance, power, features, software and IP capability, pricing, availability, reliability, support, manufacturing competence, and customers’ familiarity with existing suppliers as competitive factors. These disclosures help explain why a broad market estimate alone could not determine Altera’s future revenue or share.
What can—and cannot—be concluded about the call
The reported action was a downgrade from Neutral to Sell, tied to an expected PLD-market slowdown. Altera’s filings add company-reported context: a large estimated market, dependence on PLDs, strong year-over-year growth in one quarter, and risks that could affect the timing and level of future sales.
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The accessible Embedded.com report does not supply enough detail to evaluate Furlong’s numerical assumptions or compare them with a specific company forecast. Altera’s market-size and addressable-market figures are management estimates, while its quarterly sales are historical results. None of these facts, on its own, establishes whether the downgrade was correct.
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