This post is part of a report entitled "Six-pack of technology favorites." You can read about the other top tech stock picks here.
"The semiconductor industry has been under pressure now for sometime, but one of the fastest growing businesses within semiconductors has been in programmable logic devices (PLDs)," notes wireless sector specialist Nikhil Hutheesing.
In The Forbes Wireless Stock Watch, he explains, "One of the top companies in this business is San Jose, California-based Altera (NASDAQ: ALTR). Here's his bullish review.
"These PLDs are chips that allow software developers to use inexpensive software tools to quickly develop, simulate, and test their designs. Then, a design can be quickly programmed into the chip and immediately tested in a live circuit.
"Unlike other chips, PLDs are based on re-writable memory technology. That means that if a designer wants to change the design on the chip, the device can be easily reprogrammed.
"Once the design is final, customers can go into immediate production by simply programming as many PLDs as they need with the final software design file. The result is that a final design can be completed much faster and less expensively than that of a custom, fixed logic device.
"While Altera also manufacturers other kinds of chips, it's the PLD business that could really boost the company's business. Eventually, Altera plans to replace the ASIC business entirely with PLDs.
"One area where PLDs can play an important role is in wireless. The chips allow data to be transferred and processed at high-speed by wireless networks, yet they require low power.
"This, of course, is critical as demand for fast processing power is rising quickly because people want -- and increasingly expect -- to be able to access the Internet anytime, from anywhere at high speeds.
"As wireless networks evolve from the old analog systems to the 3G networks in place today and 4G networks coming soon, demand for Altera's products should rise as well.
"Another potentially big area of growth for Altera is in base stations for WiMax networks. WiMax is increasingly gaining popularity as a broadband wireless access technology with significant market potential.
"But for service providers to deploy WiMax, the system needs to be flexible, highly scalable, and offer a way for costs to keep coming down. So Altera has come up with an 'ecosystem' that offers a comprehensive portfolio of devices and WiMax-compliant, off-the-shelf RF card solutions that allows service providers to quickly get a network up and running.
"Altera announced in July that during the second quarter it racked up sales of $359.9 million, up 13% from the second quarter of 2007. Second quarter net income was $98.0 million, up 43% compared with the second quarter of 2007.
"As the company develops new products and sells into new markets, I think the profitability outlook will improve further. I expect operating EPS of $1.29 in 2009, compared to an estimated $1.19 in 2008.
"The company has done a great job of keeping costs down while focusing on its faster growing businesses. Sales continue to rise, margins are strong, there is very little debt and management is buying back stock.
"This is a fast growing chip company in a fast growing segment the industry. I think shares should do very well-especially if a market rebound is ahead. I recommend buying shares of ALTR at current levels."
Steven Halpern's TheStockAdvisors.com offers a daily look at the latest market commentary and favorite stock picks and investment ideas from the nation's leading financial newsletter advisors.
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