Fourth quarter sales were $317.4 million, up 13 percent from the fourth quarter of 2005 and down 7 percent from the third quarter of 2006. Fourth quarter net income was $99.9 million, $0.27 per diluted share, up 43 percent compared with net income of $69.7 million, $0.19 per diluted share, in the fourth quarter of 2005. Gross profit margin was 66.3 percent for the fourth quarter of 2006 versus 66.7 percent for the fourth quarter of 2005.
During the fourth quarter, Altera reduced its 2006 effective tax rate from 15 percent to 10 percent resulting in a net income benefit of $18 million or $0.05 per diluted share. The tax benefit in the fourth quarter arose primarily from the reinstatement in December 2006 of the federal R&D tax credit and the favorable impact of a tax audit settlement.
Altera repurchased 7.1 million shares of its common stock during 2006 at a cost of $140.4 million, with 4.4 million shares repurchased during the fourth quarter at a cost of $87.4 million. Altera ended the quarter with $1.6 billion in cash and investments.
"Our 2006 results show an acceleration in top line growth for Altera as we once again outpaced semiconductor industry growth. We aim to capitalize on this momentum and drive for additional sales growth and market share gains. Our overall financial performance remained very strong with profitability that puts us at the top of the programmable logic industry," said John Daane, president, chief executive officer, and chairman of the board. "We are in the final development stage for our high-end Stratix(R) III FPGA devices and are completing work on several new products that we will introduce in 2007, making 2007 a very ambitious year for us. We are confident that we can extend our record of smooth new product roll-outs, and that we will be well positioned to compete for the substantial growth opportunity available to the programmable logic industry."
Several recent accomplishments mark the company's continuing progress.
-- Altera's Stratix III FPGA family has been selected as one of EDN magazine's Hot 100 Products of 2006. This annual list is compiled by the magazine's editors and represents the year's most important products that advanced the state of the art in electronics. The 65-nm Stratix III family, together with our Quartus(R) II development software, uses ground-breaking advancements to deliver devices with 50 percent lower power, 25 percent higher performance, and twice the density of Stratix II devices. The unique Programmable Power Technology found in Stratix III FPGAs responds to customers who increasingly need new ways to reduce power use in their designs. Stratix III devices allow the user's design to automatically establish the optimum balance between performance and power throughout the device, dramatically reducing overall power consumption, making Stratix III FPGAs the lowest-power, high-performance FPGAs available. Customers have already begun designing with this new family which will begin shipping in the third quarter.
-- The range of products that employ Altera's HardCopy(R) structured ASICs continues to expand across all market segments served by Altera. As part of this trend, SANYO Electric Company, Ltd. is using Altera's HardCopy devices in its PLV-Z5 series of home projectors. In this application SANYO is taking advantage of Altera's Nios(R) II embedded processor for image processing and enhancement. Together, the HardCopy device and Nios processor deliver a combination of digital signal processing performance and programming flexibility that efficiently integrates many video functions into a single device. The previous version of this award-winning projector used Altera's Stratix FPGAs. The PLV-Z5 has won several awards including this year's HiVi magazine's Best Buy Award, a Hot Product award from ProjectorReviews.com and five-star ratings across all review categories from Projector Central.
-- Altera's Stratix II GX FPGA family has won EDN China's 2006 Innovation Award in the digital IC and digital logic category. The award results from a pre-selection process by a panel of EDN China technical editors and online voting among the 35,000 EDN China readers. This recognition confirms the widespread appeal of this third generation of Altera FPGAs with embedded transceivers. Stratix II GX FPGAs are the industry's only FPGAs to provide transceiver speeds up to 6.375 Gbps on every channel, operating with the industry's lowest power consumption and best signal integrity. Altera has now completed the rollout of the entire product family and has begun shipping production-qualified parts to customers.
Business Outlook for the First Quarter 2007
The following guidance includes stock-based compensation expense in cost of goods sold, research and development, and SG&A of $0.4 million, $6 million, and $8 million respectively. The tax rate would be 2 percentage points higher excluding stock-based compensation.
Sales Unchanged from fourth quarter to down 4% sequentially Gross Margin 65% to 66% Research and Development Low to mid-$60 million range SG&A Mid-$70 million range Other Income Approximately $16 million Tax Rate 13% to 15%
Conference Call and Quarterly Update:
A conference call will be held today at 2:00 p.m. Pacific Time to discuss the quarter's results and management's outlook for the first quarter of 2007. The web cast and subsequent replay will be available in the investor relations section of the company's web site at http://www.altera.com. A telephonic replay of the call may be accessed later in the day by calling (719) 457-0820 and referencing confirmation code 258712. The telephonic replay will be available for two weeks following the live call.
Statements in this press release that are not historical are "forward-looking statements" as the term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are generally written in the future tense and/or preceded by words such as "will," "expects," "anticipates," or other words that imply or predict a future state. Forward-looking statements include any projection of revenue, gross margin, expense or other financial items discussed in the Business Outlook section of this press release and comments relating to new products and anticipated product rollouts. Investors are cautioned that all forward-looking statements in this release involve risks and uncertainty that can cause actual results to differ from those currently anticipated, due to a number of factors, including without limitation, customer business environment, market acceptance of the company's products, the rate of growth of the company's new products including the Stratix III, Stratix II, Stratix II GX, Cyclone(R) II, MAX(R) II and HardCopy device families, changes in the mix of our business between prototyping and production-based demand, as well as changes in economic conditions and other risk factors discussed in documents filed by the company with the Securities and Exchange Commission from time to time. Copies of Altera's SEC filings are posted on the company's web site and are available from the company without charge. Forward-looking statements are made as of the date of this release, and, except as required by law, the company does not undertake an obligation to update its forward-looking statements to reflect future events or circumstances.