Altera Announces Third Quarter Results; Revenue Up 26%, Income Up 90%

SAN JOSE, Calif.—(BUSINESS WIRE)—Oct. 20, 2004— Altera Corporation (Nasdaq: ALTR) today announced third quarter sales of $264.6 million, up 26% from the third quarter of 2003 and down 2% from the second quarter of 2004. Sales of the company's new products grew 25% sequentially and were up 212% versus the prior year's third quarter.

Third quarter net income was $83.1 million, $0.22 per diluted share, up 90%, versus net income of $43.8 million, $0.11 per diluted share, in the third quarter of 2003. Gross profit margin was 69.4% for the third quarter of 2004 versus 68.7% for the third quarter of 2003. Net income was favorably impacted by a one-time tax benefit of $17.1 million, $0.05 per diluted share, primarily related to a settlement with Hong Kong's Inland Revenue Department for the tax years 1997 to 2003.

Altera repurchased 1.2 million shares of its common stock during the quarter at a cost of $23.2 million and ended the quarter with $1.1 billion in cash and short-term investments.

"Despite this quarter's challenges, our new 0.13-micron products remain on a fast track, with very strong sequential growth. While we continue to see increasing production-driven demand for the Stratix(R) and Cyclone(TM) families, we are still early in the transition from customer prototype volumes to large scale production-based orders. The peak of demand for these families is still ahead of us," said John Daane, president and CEO. "Available since June, and the only FPGAs to use a 90-nanometer process with high-performance, low-k dielectric materials, our Stratix II family rollout is progressing smoothly. The combination of this proven 90-nanometer manufacturing process, the new Stratix II architecture, and our Quartus(R) II development software delivers benchmarking comparisons that confirm the Stratix II family's performance superiority in the PLD industry."

Altera continued to advance its leadership position in system-on-a-programmable-chip (SOPC) solutions.

-- Current design-win activity indicates that the Stratix II family is continuing the momentum set by the original Stratix family. Thousands of units of the EP2S60 device, the first member of the Stratix II family, available since June, have now shipped. The Stratix II family leverages a well thought out design methodology and uses a highly reliable mainstream 90-nanometer process. As a result, Stratix II customers can be confident of on-time delivery of the critical first parts needed to complete their prototype hardware design. In addition, Altera's unique redundancy-based silicon design helps drive higher and more predictable yields. With redundancy, Altera can rapidly roll out new devices to supply customers with leading-edge technology for their development requirements. The next two Stratix II family members will begin shipping in the fourth quarter. The EP2S130 device is expected to ship at the end of December and will provide Altera customers with logic density well beyond any FPGAs available today, giving Altera both density and performance leadership. Also shipping in the quarter will be the EP2S30, which will be delivered as a fully production-qualified device, demonstrating the manufacturing stability of the Stratix II family and the fast rollout of this leading-edge FPGA family.

-- Altera has now shipped more than five million low-cost Cyclone FPGA devices. Introduced only 21 months ago, the Cyclone family has reached this milestone faster than any other Altera FPGA family. Cyclone devices have proven to be a compelling ASIC and ASSP alternative for designers of price-sensitive, high-volume products. The Cyclone family was the industry's first to be developed from the ground up to deliver a dramatically lower cost FPGA, allowing Altera to compete for business previously beyond the reach of any FPGA vendor. The Cyclone family also delivers best-in-class performance -- significantly faster than Xilinx's competing low-cost device, the 90-nanometer-based Spartan-3 family. In the hands of 3,800 customers worldwide, Cyclone devices have broadened the company's presence in all of its served markets and in a wide range of applications including video displays, cameras, telematics, home networking, and office automation equipment.

Conference Call and Quarterly Update:

A conference call will be held today at 1:45 p.m. Pacific Time to discuss the quarter's results and management's outlook for the fourth quarter. The webcast 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.

Altera's fourth quarter business update will be made available on December 8 after the market close and will be posted on the company's web site. Those who do not have access to the Internet may contact Altera's investor relations department directly at (408) 544-7707.

Forward-Looking Statements

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", or words that imply or predict a future state. Investors are cautioned that all forward-looking statements in this release involve risks and uncertainty which can cause actual results to differ from those currently anticipated, due to a number of factors, including without limitation, customer business environment, Altera's ability to meet product introduction schedules, market acceptance of the company's products, the rate of growth of the company's new products and in particular the Stratix, Stratix GX, and Cyclone device families, the rate at which our customers new platforms enter production, the rollout of the company's Stratix II, Cyclone II, and MAX(R) II families, as well as changing 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.

About Altera

Altera Corporation (Nasdaq: ALTR) is the world's pioneer of system-on-a-programmable-chip (SOPC) solutions. Combining programmable logic technology with software tools, intellectual property, and technical services, Altera provides high-value programmable solutions to approximately 14,000 customers worldwide. More information is available at http://www.altera.com.

Altera, The Programmable Solutions Company, the stylized Altera logo, specific device designations and all other words that are identified as trademarks and/or service marks are, unless noted otherwise, the trademarks and service marks of Altera Corporation in the U.S. and other countries. All other product or service names are the property of their respective holder.
                          ALTERA CORPORATION
             CONDENSED CONSOLIDATED STATEMENTS OF INCOME
            (In thousands, except per share data and note)
                             (Unaudited)

                                            THREE  MONTHS  ENDED                NINE  MONTHS  ENDED
                                        -----------------------------    -------------------
                                            Oct.  1        Jul.  2        Oct.  3          Oct.  1        Oct.  3
                                                2004            2004            2003              2004            2003
                                        ---------  ---------  ---------    ---------  ---------

Net  sales                      $264,599    $268,972    $209,446      $776,479    $609,781

Costs  and  expenses:
Cost  of  sales                  80,966        81,026        65,578        237,833      195,260
Research  and
  development                    48,259        42,738        40,976        133,579      137,269
Selling,  general,
  and  administrative      53,577        52,712        46,943        156,167      136,740
                                        ---------  ---------  ---------    ---------  ---------
Total  costs  and
  expenses                        182,802      176,476      153,497        527,579      469,269
                                        ---------  ---------  ---------    ---------  ---------

Income  from
  operations                      81,797        92,496        55,949        248,900      140,512
Interest  and  other
  income,  net                      3,892          3,272          4,002          10,900        10,152
                                        ---------  ---------  ---------    ---------  ---------

Income  before  income
  taxes                                85,689        95,768        59,951        259,800      150,664
Provision  for  income
  taxes                                (2,608)    (20,459)    (16,188)      (42,653)    (40,681)
                                        ---------  ---------  ---------    ---------  ---------

Net  income                      $83,081      $75,309      $43,763      $217,147    $109,983
                                        =========  =========  =========    =========  =========

Income  per  share:
      Basic                              $0.22          $0.20          $0.11            $0.58          $0.29
                                        =========  =========  =========    =========  =========
      Diluted                          $0.22          $0.20          $0.11            $0.57          $0.28
                                        =========  =========  =========    =========  =========
Shares  used  in
  computation:
      Basic                          372,137      373,696      381,366        373,873      382,290
                                        =========  =========  =========    =========  =========
      Diluted                      379,785      382,819      391,013        382,810      390,104
                                        =========  =========  =========    =========  =========


Tax  rate                                  3.0%          21.4%          27.0%            16.4%          27.0%
%  of  Sales:
          Gross  margin              69.4%          69.9%          68.7%            69.4%          68.0%
          Research  and
            development              18.2%          15.9%          19.6%            17.2%          22.5%
          Selling,
            general,  and
            administrative        20.3%          19.6%          22.4%            20.1%          22.5%
          Income  from
            operations                30.9%          34.4%          26.7%            32.1%          23.0%
          Net  income                  31.4%          28.0%          20.9%            28.0%          18.0%


Note:  Statements  of  income  for  the  three  and  nine  month  periods  ended
October  1,  2004  included  a  one-time  tax  benefit  of  $17.1  million
primarily  related  to  a  settlement  with  Hong  Kong's  Inland  Revenue
Department  for  the  tax  years  1997  to  2003.



                                                    ALTERA  CORPORATION
                                CONDENSED  CONSOLIDATED  BALANCE  SHEETS
                                                (Dollars  in  thousands)
                                                          (Unaudited)

                                                                        Oct.  1            Jul.  2            Jan.  2
                                                                            2004                2004                2004
                                                                      -----------  -----------  -----------
Assets

Current  assets:
    Cash  and  short-term  investments    $1,148,525    $1,079,042    $1,031,890
    Accounts  receivable,  net                          61,593          132,554            87,204
    Inventories                                                    59,707            50,245            44,583
    Other  current  assets                                179,177          154,884          136,938
                                                                      -----------  -----------  -----------
Total  current  assets                                1,449,002      1,416,725      1,300,615
Long-term  investments                                              -                      -            14,451
Property  and  equipment,  net                      156,970          157,283          160,924
Deferred  income  taxes  and  other
  assets,  net                                                      47,317            41,157            42,199
                                                                      -----------  -----------  -----------
                                                                      $1,653,289    $1,615,165    $1,518,189
                                                                      ===========  ===========  ===========

Liabilities  and  Stockholders'
  Equity

Current  liabilities:
    Accounts  payable  and  current
      liabilities                                              $214,952        $212,082        $170,364
    Deferred  income  and  allowances  on
      sales  to  distributors                            235,076          269,257          245,421
                                                                      -----------  -----------  -----------
Total  current  liabilities                          450,028          481,339          415,785
Stockholders'  equity                                1,203,261      1,133,826      1,102,404
                                                                      -----------  -----------  -----------
                                                                      $1,653,289    $1,615,165    $1,518,189
                                                                      ===========  ===========  ===========


Key  Ratios  &  Information

Current  Assets/Current  Liabilities                3:1                  3:1                  3:1
Liabilities/Equity                                                1:3                  1:2                  1:3
Annualized  Return  on  Equity                                25%                  24%                  14%
Quarterly  Depreciation  Expense                  $6,184            $6,637          $10,875
Quarterly  Capital  Expenditures                  $5,871            $5,548            $4,615
Annualized  Sales  per  Employee                        $504                $504                $426
Number  of  Employees                                          2,132              2,069              1,995
Inventory  MSOH(a):  Altera                                  2.2                  1.9                  1.9
Inventory  MSOH(a):  Distribution                      1.3                  1.5                  1.7
Days  Sales  Outstanding                                          21                    45                    36

(a)  MSOH:  Months  Supply  On  Hand

Note:  Certain  reclassifications  have  been  made  to  prior  period
balances  in  order  to  conform  to  the  current  period's  presentation.



                                                    ALTERA  CORPORATION
                                                      REVENUE  SUMMARY
                                                          (Unaudited)

                                                                                                                      Q-Q          Y-Y
                                                              Q3'04          Q2'04      Q3'03    Growth    Growth
                                                      -------------------------------------------
Geography
---------
North  America                                          28%            27%          33%            -1%          5%
                                                      ---------------------------
Europe                                                        22%            24%          22%          -12%        25%
Japan                                                          26%            26%          24%              4%        39%
Asia  Pacific                                            24%            23%          21%              2%        46%
                                                      ---------------------------
International                                          72%            73%          67%            -2%        37%
                                                      ---------------------------
Total                                                        100%          100%        100%            -2%        26%
                                                      ===========================


Product  Category
----------------
New                                                              32%            25%          13%            25%      212%
Mainstream                                                39%            43%          50%          -10%          0%
Mature  &  Other                                        29%            32%          37%          -11%        -2%
                                                      ---------------------------
Total                                                        100%          100%        100%            -2%        26%
                                                      ===========================


Market  Segment
--------------
Communications                                        48%            47%          43%              1%        42%
Industrial                                                27%            29%          30%            -8%        13%
Computer  &  Storage                                11%            10%          11%              3%        22%
Consumer                                                    14%            14%          16%            -2%        11%
                                                      ---------------------------
Total                                                        100%          100%        100%            -2%        26%
                                                      ===========================



Product  Category  Description
----------------------------
Category                                      Products
New                                                Stratix,  Stratix  II,  Stratix  GX,  Cyclone,
                                                        MAX  3000A,  MAX  II,  and  HardCopy  devices
Mainstream                                  APEX  20K,  APEX  20KC,  APEX  20KE,    APEX  II,
                                                        FLEX  10KE,  ACEX  1K,  Excalibur,  Mercury,  
                                                        MAX  7000A,  and  MAX  7000B  devices
Mature  &  Other                          FLEX  6000,  FLEX  8000,  FLEX  10K,  FLEX  10KA,
                                                        MAX  7000,  MAX  7000S,  MAX  9000,  Classic,
                                                        configuration  and  other  devices,  software
                                                        and  other  tools,  and  intellectual  property
                                                        cores
 


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