Good day, everyone, and welcome to today's Altera Corporation Conference Call. Today’s call is being recorded. At this time, I'd like to turn the conference over to Mr. Scott Wylie, VP of Investor Relations for Altera Corporation. Mr. Wylie, please go ahead.

Good afternoon. Thank you for joining this conference call, which will be available for replay telephonically and on Altera's website shortly after we conclude this afternoon. To listen to the webcast replay, please visit Altera's investor relations web page where you will find complete instructions. The telephone replay will be available at 719-457-0820. Use code 258712. Before we begin this afternoon's call, I want to remind you that as we indicated in our earnings release, we will offer our fourth quarter update on December 5th, after the market closes. This update will be issued via press release and will be available shortly after the market closes. During today's call we will be making some forward-looking statements and, in light of the Private Securities Litigation Reform Act, I would like to remind you that these statements must be considered in conjunction with the cautionary warnings which appear in our SEC filings. Investors are cautioned that all forward-looking statements in this call involve risks and uncertainty and that future events may differ from the statements made. For additional information, please refer to the company's Securities and Exchange Commission filings, which are posted on our website or available from the company without charge. Nate Sarkisian, SVP and CFO, will begin today's call and John Daane, Altera's CEO, will then offer some brief remarks before we open up the call to your questions. Prior to the Q&A session, the operator will be giving instructions on how you can access the conference call with your questions. I would now like to turn the call over to Mr. Sarkisian.

Thank you, Scott. Third quarter revenues of $291.5 million increased 2% sequentially and were consistent with our expectation and guidance. Strong 23% growth in new products offset an 18% decline in mainstream products. CPLDs declined 5%, FPGAs increased 4% and other was up 3%. FPGAs were 70% of revenue and are up 48% versus the third quarter of 2003. Our major accounts were generally down in the quarter, as would be expected given the decline in our communications business. Our guidance called for communications, both wired and wireless, to be down on the seasonal softness in Europe, as well as a pause in some programs which contributed to strong growth in Q2. We anticipated industrial to be about flat and that consumer and broadcast would grow modestly with relative strength in consumer and softness in broadcast. Finally, we expected computer and storage would grow on the strength of new program ramps. That's about how the quarter turned out, though industrial was a bit stronger than we had anticipated, with strength in military, especially. As is typical in Q3, August was soft and September was strong. Now for some specifics on our operating results. Gross margins were a major disappointment. The result, 66.5% was spot on with our mid-quarter update, but down significantly from our original guidance of 68% to 69% and down from last quarter's results of 68.3%. I need to discuss several issues, which admittedly, have not been adequately explained to this point. First, why the decline? Secondly, why didn't we see it coming sooner? Thirdly, what are the implications for future margins? And finally, why couldn't we answer these questions when we revised our guidance? Last question first. The answer is essentially timing. Historically our margins have been very stable and we have usually been able to identify the causes for fluctuations in pretty short order. This, as you will see, was a difficult nut to crack and we did not give ourselves enough time to get the job done. We concluded our internal mid-quarter forecast in the middle of the week before our previously scheduled update. We were able to hone in on the numbers pretty accurately, but we had insufficient time to identify the root cause for the decline in gross margins. So now, why the decline? There are two primary causes. The primary reason for the margin decline and the miss from forecast was a broad-based shortfall in terms of orders on high-margin business. Nowhere is this more evident than our mainstream products, which declined 18% or $80 million. On average, this $80 million of business was running at 80% gross margin and this decrease accounts for about one half of the sequential decline in overall gross margins. We focused on more than 60 high-margin customers which registered a sequential decline of more than $100,000 in mainstream products. Some of these 60 accounts were pretty small, but some were sizable, two, in fact, were multi-million dollar programs running excellent margins. These are older programs which have stepped down in volume, but should be stable from here. I acknowledge we should have comprehended these two accounts in our margin forecast and guidance. For the aggregate of the 60-plus accounts that we analyzed, based on field inputs and discussions with those customers, approximately 40% of the decline is the result of program ends where Altera secured the new socket and about 10% was lost competitively or to an ASIC conversion. The remaining one half was buying-pattern related. We should see some resumption of historical revenue levels on those accounts in Q4. Our margin forecast for the fourth quarter incorporates those assumptions. As I just mentioned, some of the lost mainstream business transitioned to our newer products, helping to drive the strong 23% sequential growth in that category and that growth occurred even though our newer products have a much lower price on a per function basis. So the overall growth of the company speaks, we believe, to greater Altera content on End Systems. We are, of course, very pleased with the new product ramp, but the gross margins on our new product business declined, accounting for the balance of the margin decline. This occurred for two primary reasons. First, some of the growth in new products was driven by the ramp of some more aggressively priced programs that are incremental opportunities and second, in the normal course of business, as customers ramp into volume production they get an ASP production that corresponds with their consumption shifting from prototype quantities to production quantities. In summary, we lost some high-margin business in our mainstream and mature products. Some of the decline was related to normal summer slowness and inventory adjustments and a small portion, as I said 10%, was lost to an ASIC conversion or a competitor. Some of this business was replaced by newer products at lower prices and, in some cases, lower margins and our margins on newer products were further pressured by the ramp of some aggressively priced programs. Other facts, including the decline of benefits and the sale of written-off inventory, other mix shifts and cost reductions were, essentially, a wash. So you now know why there was a decline and, hopefully, have a good sense as to why we were not capable of fully explaining it mid-quarter. As I mentioned above, some of this we should have seen coming, particularly the larger two programs whose volume fell significantly in the quarter. As to why we didn't see more of it, many of the programs that caused the decline are not specifically forecasted but are included in the large portion of smaller accounts that we trend. We were surprised by the business decline in mainstream and, unfortunately, that business carried very high margins. Similarly, we were surprised by some of the new product business that did book in the quarter. I mentioned that new product margins declined in the quarter and I want to point out that, at present, our new product margins are lower than our long-term target of 65%. As you know, our position is that this phenomenon is not systemic. We try to capture prototyping business as prototyping prices early on in the introductory phase of our products. Then we drive down costs as customers ramp into volume and get lower prices, with the model of holding about average corporate margins throughout a product family's life. New products do not necessarily hold lower margins and our history shows no correlation between revenue mix by product maturity and gross margin. Indeed, Stratix II, which just completed rollout earlier this year is today, running above corporate average margins. But as you know, we are driving into higher-volume applications and some of that business is below overall corporate margins. Also, we have been quite explicit in saying that our model for corporate margins is 65% and that we would be aggressive in pricing to secure incremental opportunities as long as we were above 65%. The impact of both volume market penetration and aggressive pursuit of market-expanding opportunities is exclusively impacting our new product margins. Those are the products we are quoting for new business. Our intent is, and has been, to engage in a portfolio of business with varying margins that, in aggregate, average 65%. In infrastructure applications like storage and communications infrastructure and in small volume applications such as medical, military and test, we will enjoy high margins and in volume-oriented applications such as displays, games, set-top boxes and customer-premise communications equipment, we will run at lower margins. That's it on margins for the moment. I will now turn to the other elements of the income statement. Our non-qualified deferred compensation plan experienced a net investment gain, unfavorably impacting R&D by $0.7 million and SG&A by $1.4 million and benefiting other income by $2.1 million. SG&A was $57.3 million and R&D was $49.4 million. After normalizing for the impact of the deferred comp plan, SG&A was about $2 million below our prior guidance, with half of that being a real reduction and the other half pushing into Q4. Again normalizing for the deferred comp plan, R&D was substantially below our prior guidance but $700,000 above the guidance provided in our September update. Other income was $11 million or, after normalizing for the impact of the deferred comp plan, was $9 million, higher than our $8 million guidance due to the short duration of our portfolio and higher interest rates. The Q3 tax provision includes several discrete adjustments, including a charge related to the planned repatriation of $100 million of foreign earnings pursuant to the American Jobs Creation Act of 2004. The total net impact of the tax adjustments was $1 million. The company's core tax rate remains at 20%. Net income for Q3 was $77.8 million or $0.21 per diluted share. Now some comments on the balance sheet. We ended Q3 with $1.3 billion in cash and investments, up slightly, even after repurchasing 4.7 million shares of common stock during the quarter at a cost of $94 million. Cash flow from operations was $123 million for the quarter and $249 million year to date. Altera net inventories increased by $7.1 million to 2.2 months and distribution inventories declined by 1.2 months. The total inventory pipeline stayed constant at 3.4 months. Accounts receivable declined and our DSO was 39 at quarter end. Now for guidance. We have some programs in Q4 that we know are going to be slowing down for a variety of reasons, including transition to newer products, customer build cycles, program end of life and, in a few cases, ASIC conversions and competitive losses. This, then, is going to be a challenging quarter at the top line. Our guidance for Q4 is for a 2% decline to a 2% sequential increase. Orders-to-Resales were just below parity in Q3. Turns required to achieve our Q4 guidance is in the low 70s. We expect that communication and industrial segments will grow and that consumer and computing and storage segments will decline. Gross margins will be in the range of 66%. Guidance on spending is given assuming that the non-qualified deferred compensation plan will have neither a gain, nor loss, that is, no impact. R&D will be approximately $53 million. SG&A will be approximately $58 million. We are guiding to $9 million of interest income, a tax rate of 20% and diluted share count of 371 million shares. Total months of inventory, including both distribution and Altera, are expected to be in the range of 3.3 months, plus or minus 0.2. For 2006 we are guiding gross margins to be in the range of 64% to 66% for the year. We have looked at our current engagements that are significantly above or below our corporate margin average and forecasted volumes for those programs, identified the new opportunities that might affect margins, anticipating routine ASP declines, and projected costs through the year to arrive at that result. There will be virtually no uplift from the sale of previously written-down inventory. We will be completing our financial plan for 2006 this month and will be providing spending guidance at our analysts meetings, which will be held in Boston and New York on December 5th and 6th. These meetings will be webcast. Let me now turn the call over to John.

Thank you, Nate. I am pleased with the continued strong growth in our new products in Q3, while also disappointed in the gross margin decline. Overall, we expect to outgrow the semiconductor industry, as well as our competitors this year on the strength of our new products. New products grew 23% sequentially, 66% year-over-year and, for the second straight quarter, drove 100% of the growth. Each of our new product families grew sequentially with Cyclone 4%, Stratix 40%, Stratix GX 45%, MAX II 56%, HardCopy 8%, Stratix II 25% and Cyclone II over 400%. Many of you have developed product revenue models and then to enable you to trim them up, rounded, Stratix and Stratix GX together were $66 million in the quarter, Cyclone $32 million, Stratix II $13 million, MAX II $2 million, Cyclone II $2 million and HardCopy $12 million. 130-nanometer products are now over 35% of Altera's revenue and 90-nanometer products are over 5%. There are several highlights in the quarter I would like to expand on. First, we continued to take market share in FPGAs, particularly at the high end, which, in turn, is driving our overall market share gains. FPGAs grew 4% sequentially and 12% year-over-year. Second, we have revenue leadership in the new product category. New products, including 130- and 90-nanometer, where Altera has competitive strength, will continue to ramp for the PLD industry. Correspondingly, mainstream, where a majority of our products had limited commercial success, along with mature products, are in decline. Third, we completed the production rollout of the Cyclone II 90-nanometer high-volume FPGA family. And fourth, we announced the Stratix II GX family, our third generation of high performance FPGAs with high-speed transceivers. Of course, there are always lowlights and areas for Altera to improve. CPLDs declined 5% sequentially and 4% year-over-year and while I do not believe we lost much market share in the, we are still a year away from MAX II having an impact in this category. Also, with our focus on growing our new products, we did not foresee the ramp-down of two major mainstream customer programs that affected gross margin. We are in the process of refocusing on the customer forecast process. And finally, the fourth quarter is one of customer program transitions that will result in a growth path for the company. For the fourth quarter, we are projecting flat revenues, plus or minus 2%. By market, computer and storage will decline due to 2 storage programs that are pausing in their production ramp that began in Q3. We expect storage to resume strong growth in Q1. Consumer will decrease as a result of seasonality where builds for the holiday season are ending. We also had one consumer customer reduce their forecast for this quarter due to excess inventory and we have assumed that there might be others. Communications will grow, led by enterprise, with the continuing ramp of new programs. Wireless will also grow in 2G and 3G. And finally, industrial will also grow again, led by military, security and factory automation. Scott?

We would now like to take questions. Please limit your questions to one at a time so that we give as many callers as possible the opportunity to ask questions during the call. Operator, would you please provide instructions and poll for questions?