Altera beats Street, stays upbeat on China

SAN FRANCISCO (Reuters) - Chip maker Altera Corp (ALTR.O) on Tuesday posted stronger-than-expected quarterly results and forecast long-term growth from China as the world's third-largest economy rolls out a high-speed 3G network.

Shares in the programmable chip maker, which serves Cisco Systems Inc (CSCO.O), Huawei Technologies Co Ltd HWT.UL and Texas Instruments Inc (TXN.N), rose 3 percent in after-hours trading, especially after bellwether Intel Corp (INTC.O) smashed expectations with stellar third-quarter revenue and margin projections.

Altera forecast on Tuesday that third quarter sales would fall 1 percent to 5 percent from the previous quarter, walloped mainly by a short-term slowdown in telecommunications spending in China. But CEO John Daane said he was confident the country will continue to underpin revenue in the longer term.

"Communications deployment in China has been and will remain fluid," Daane said. "We're in a very early stage of a massive three year communications spend.

"Overall, I would expect over the next several years for that spend to be healthy. It is, as I mentioned, fluid, very difficult to forecast. We do think this quarter it will be down."

Beijing is building a high-speed, third-generation telecoms network nationwide. Nearly half of Altera's business is based in telecoms and wireless chips, and, geographically, more than 40 percent of the company's business comes from the Asia Pacific region.

Daane said last quarter that he expects China to spend $42 billion on telecoms in the next two years and said on Tuesday that Chinese networking equipment maker Huawei Technologies alone accounted for 12 percent of the company's second quarter revenue.

ROCKY CHINA BOAT

Analysts agreed that demand from China, while volatile and hard to forecast from quarter to quarter, would drive long-term growth.

"It's not really a demand issue, it's more of their planning. It's very lumpy," RBC Capital Markets analyst Mahesh Sanganeria said. "They're not necessarily very organized. That's what drives the volatility."

He added that Altera competitor Xilinx had warned of volatility in third quarter sales to China.

Altera, which competes with Xilinx Inc (XLNX.O) to provide chips to telecommunications and other industries, reported a net income in the second quarter ended June 26 of $58.92 million, or 20 cents a share, excluding certain items, according to Reuters Estimates.

That is down from $97.98 million, or 32 cents a share, a year earlier. Analysts had expected a profit of 16 cents a share, according to analysts polled by Reuters.

Altera was helped by stronger-than-expected demand from the defense and telecommunications industries and Daane said the company had grown its market share in military radios.

Altera saw gross margins rising to 67 percent, plus or minus half a percent from 66.5 percent in the second quarter.

Revenue fell 22 percent from a year ago to $279.2 million from $359.85 million, but was above expectations for $277.51 million.

Analysts expect third-quarter revenue of $279.19 million and earnings per share of 17 cents, according to Reuters Estimates.

The shares of San Jose, California-based Altera spiked as much as 4.2 percent after-hours, after closing up 1.16 percent at $16.56 on the Nasdaq, but then settled about 3 percent higher than close.

(Editing by Edwin Chan and Andre Grenon)