Good day everyone and welcome to the Altera second quarter 2009 earnings call. (Operator Instructions) At this time for opening remarks, I would like to turn the conference over to the Vice President of Investor Relations for Altera Corporation, Mr. Scott Wylie. Please go ahead, sir.

Good afternoon. We appreciate 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 web cast 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, and use code 258712. Before we jump into the call today, I want to announce that we will host a meeting for the investment community this November in New York, on the 18th in the afternoon. Please save the date. We will forward more details as we get closer to November. 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 that 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. With me today are John Daane, our CEO and James Callas, our Corporate Controller and Acting CFO. James will open the call with a financial overview, before turning the call over to John. After John concludes his remarks, we will take 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 James Callas.

Thank you Scott, my commentary today will cover second quarter results, third quarter guidance, and an updated view of 2009 gross profit percentage, operating expenses, other income, and our effective tax rate. Beginning with our typical headline metrics, second quarter revenue of $279 million increased 6% sequentially at the higher end of our guidance, but declined 22% year over year. Operating margin increased to 24% driven by higher sales volumes and gross profit percentage as well as operating expense leverage flowing from the higher sales volumes. Lastly return on equity registered 32% for the trailing 12 month period remaining above our target of greater than 30%. We entered Q2 with a sizable increase in backlog from Q1. Q2 turns were in the low 50% range and the book-to-bill ratio was at parity. Gross margins increased by two points primarily as a result of Q2 manufacturing cost reductions including better than expected yields on some of our new products. The cost reductions primarily stemmed from product both received from our suppliers and shipped to customers in Q2. Operating expenses for the quarter ended at $119 million and were down $6 million from guidance. The under run was equally split between SG&A and R&D and was spread across a wide variety of line items and functions. Every function continued to contribute to the ongoing cost savings and streamlining efforts. The Q2 cost under run was not driven by expense for development masks, wafers, or prototypes and our product development agenda remains on track. Other income, primarily consisting of interest income and expense under ran our Q2 guidance by around $0.50 million. Money market rates have continued to drop in 2009. We have continued to stay conservative and expect our return to remain at this level until rates increase. Our effective tax rate for Q2 2009 was 29.6%. We did have a discrete item, $11.5 million tax charge in the quarter as a result of a United States Appellate Court ruling in the Xilinx case. The Xilinx case ruling held that stock based compensation was required to be included in certain transfer pricing arrangements between a US company and its offshore subsidiary. This discrete item is associated with prior year tax regulations and is not expected to directly impact our effective tax rate going forward. The discrete item was partially offset by the favorable effects of a change in the geographic composition of our earnings to a higher percentage in foreign jurisdictions, taxed at rates below the US statutory tax rate. Net of the discrete tax item, our Q2 effective tax rate was 12.5% and the annualized first half effective tax rate was 13.4%. Net income for the quarter was $47.4 million or $0.16 per share including roughly $0.04 of adverse impact from the one-time discrete tax item. Compared to the prior year net income declined 52% in dollar terms and 50% in EPS. On the balance sheet, cash and investment balances increased by $41 million to $1.3 billion with cash flow from operating activities contributing $47 million for the quarter. Inventory increased slightly and the pipeline months’ supply on hand increased from three months to 3.2 months, which is comprised of 2.1 months at Altera and 1.1 month for our distributors. This is still at the low end or our range of three to four months. Accounts receivable increased by $14 million and our past due amounts are at historical lows. Moving to our third quarter 2009 outlook, we expect revenue to decline in the range of 1% to 5%. The mid point of guidance implies a turns requirement of approximately 50% which is at the low end of our historical range, but quite similar to Q2. We are guiding gross margins at 67% plus or minus 50 basis points. We expect to realize continued manufacturing cost improvements as well as cost reductions across our supplier base. We also expect to realize some favorable gross margin shift in our end market segments and customers. Q4 gross margin should be comparable to that of Q3, but remain segment and customer mix dependant. Operating expenses should total roughly $124 million in the third quarter with a range of $55 to $57 million for SG&A and $67 to $69 million for R&D. The increase from Q2 R&D spending is primarily driven by the continued rollout of our 40-nm products. Total 2009 operating expenses are now forecasted at around $490 million split between R&D of around $259 million and SG&A of $231 million. This is on the lower end of our April total year range of $490 million to $495 million. The reduction to previous total year guidance is driven by the Q2 $6 million under spending to guidance partially offset by accelerated product development spending in Q4. Rounding out the guidance we anticipate Q3 other income to be roughly $0.50 million and to stay at that level for the remainder of the year. Our 2009 core tax rate is expected to be constant in the 13% to 14% range and share count should be approximately 296 million shares. Our pipeline inventory MSOH of three to four months is unchanged. With that I’ll turn the call over to John.

Thank you James, Q2 revenues increased 6% sequentially at the better end of our guidance range. The telecom and wireless segment showed strong growth again in Q2 due to communications equipment deployment in Asia, primarily in China. New program ramps across the customer base led to solid growth in eight of our 10 end markets. By vertical market for Q2, we had forecast telecom and wireless to increase for automotive, industrial, and military to grow driven by military and for computer storage and networking and other to slightly decline. Telecom and wireless increased 10% with each of up about the same amount. [Walway] was 12% of revenue in the quarter. Networking, computer and storage decreased 10% with strong growth in computer and storage offset by a decline in networking, the latter due to a slowdown in NGN spend in Japan. Industrial, military and automotive increased 7% with double-digit military growth. The military segment was 9% of revenue in Q2. And finally the other segment was up 7%. By product category for Q2 our new products grew 16% sequentially with our 65-nm and 40-nm Stratix families contributing most of the FPGA growth. Stratix IV revenue was almost $4 million, exceeding our $3 million forecast and continues to be the fastest ramping product in our history. Stratix III more than doubled. Cyclone III was up 2%, Stratix II up 5%, Arria up 14%, MAX II up 36%, and HardCopy increased 8%. Cyclone II declined 6%. We continue to expect Stratix IV to be close to $10 million in revenue in Q3. In Q2 we sampled our first 40-nm Arria II GX chip on schedule. Based on the success of our 40-nm program we are accelerating some of the last members of our Stratix IV and Arria II families from 2010 into the fourth quarter of 2009, and the R&D expenses James shared with you reflect this program change. Moving to Q3 we are forecasting a 15 to 5% sequential decline. Telecom and wireless will decline due to seasonality and a slowing of communications equipment deployment in China. Similarly computer, storage and networking should slightly decrease because of China. Automotive, industrial and military should increase with strong growth in military. Other should also increase. Our book-to-bill was approximately one in Q2 and turns required to make the Q3 guidance midpoint are in the 50% range, well below our historical high 50’s to low 60’s percent range. In summary we continue to be pleased with our near-term revenue results, as well as our industry leading 40-nm product execution. Design wins in 40-nm continue to be well ahead of any previous generation of products as we benefit both from an acceleration of ASIC and ASSP replacement in our core infrastructure markets, and from having industry leading high density, high performance, and low power FPGAs. Now let me turn the call over for your questions.

(Operator Instructions) Your first question comes from the line of Glen Yeung - Citigroup

Nice job on the quarter, maybe just a first question on gross margin, your guiding it to be pretty healthy in the third quarter and then making the point that it sounds like you could be at that level in the fourth quarter. I know you’ve talked about getting better wafer pricing in the second half and I wonder if you can maybe elaborate on that issue and whether or not that’s contributing to your gross margin confidence.

As James mentioned we have achieved price reductions across our supply base which includes both on the wafer and packaging front and so that is part of the mix going forward. If you look in the Q2 numbers specifically that was more due to yields as well as some decreases in package assembly and other areas, cost improvements that we made. So looking forward we certainly have been able to achieve price reductions.

And then as the follow-up recognizing that wireless infrastructure in China is slowing down in Q3, there are some projects that are kind of out on the near-term horizon and I wonder if you have any sense as to when you think that business in China might start to resume again.

So China is not going to zero, its continuing at a very healthy rate. As you know there is a very strong multiyear spend going in to China specifically to improve the infrastructure equipment. We also obviously have an Asia, very strong Indian 2G build and in the near future hopefully late this year, maybe next year we’ll also see a 3G spend there. Communications deployment in China has been and will remain fluid. We’ve had some customers who order product for immediate delivery who expedite us who then cancel the product and then rebook it all in a very short period of time. And as an example just to talk about the fluid nature of what we see, one of the three operators in China towards the tail end of the quarter slowed their telecom and 2G wireless deployment to solely focus on 3G network performance and in particular improving that. As I mentioned we’re in a very early stage of a massive three year communication spend. There are naturally going to be periods where some, we see some acceleration. We’ll see some periods perhaps of some deceleration. 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, really cannot provide you any information as to what will happen in Q4.

Your next question comes from the line of James Schneider - Goldman Sachs

Maybe you could address what you’re seeing specifically in the networking and wire line space right now.

As we mentioned, telecom was actually up about 10% for us in Q2, so a very strong quarter there. A number of different reasons for that but part of it is certainly as China is implementing a very large wireless network they’re also building out the wire line network to support that as well as internet capability. Networking as I mentioned, we did see down in the quarter with predominately just because of NGN in Japan. Overall we expect both telecom and networking to be down in Q3 mostly associated with China.

I think you talked about military test, medical, and broadcast being weak last quarter, you certainly talked about the fact that military will be up this quarter, but could you call out whether any of the test, medical or broadcast areas you think will be coming back this quarter.

All three of those markets were actually up for us in the second calendar quarter. Generally we would expect those many of those markets to be up for us again this quarter. As I mentioned if you kind of look at the sub segments that we have, we have, we call out four large buckets, internally we have 10. We actually saw sequential growth in the second calendar quarter from eight of our 10 markets and really that was mostly driven by new program ramps associated with new products that we have. So very good results there.

Your next question comes from the line of Srini Pajjuri – CLSA

Question on the gross margins, I guess in Q1 you had an issue with the mix and also small customer, large customer issues, I’m just wondering how much of that is coming back in terms of, how much of that is helping you this quarter and next quarter and if its not helping do you expect that to come back in Q4.

Yes, small customers did increase slightly in 2Q as large customers also increased. In terms of our largest customers say our top 20, it was roughly 50/50 in terms of those going up and increasing and decreasing from the prior quarters. I think that the 4Q gross profit percentages assumes not significant segment mix or customer mix shift from what we did see in Q2. And therefore we are comfortable with the gross profit guidance of 67% plus or minus 50 basis points.

And as James pointed out earlier in his comments, really the difference between the increase in Q2 gross margin is associated with the cost reductions on products predominately from very significant yield improvements we saw on some of the newer technologies that was able to, we were able to put product out through our system and into the customer base in a very quick period of time.

You also talked about better wafer pricing, the question there is given the utilization increasing to almost 100% levels, just wondering how sustainable the improvements are there.

Generally as we’ve talked about in the past we do not look for spot market pricing. We generally try to establish long-term trend lines on pricing and some periods of times we may be high, some periods of times we may be low but that fits with our customer base since we tend to give long range pricing to our customers. In the past we’ve mentioned that we went into a cycle really starting last year where we were not able to achieve sort of what had been our regular price reductions as there had been a change in philosophy in some of the supply chain. We’ve now worked through that and we’re back to what our normalized price reductions and earlier commentary that we had provided you in Q1 and in Q4 of last year we had mentioned that the gross margins that we were providing this year did not assume that we were able to get any reductions. We now have been able to get those. They really should help with the margins in Q4 and obviously continue to help us into 2010.

Your next question comes from the line of Uche Orji - UBS

Let me start out by asking you about something your competitor said, I think it was last week, they talked about some supply chain difficulties. Obviously it doesn’t seem like you experienced any such in the current quarter but while that is an assumption could you just talk in general if that was something you may have seen, which may have limited how much more this quarter could have been. Were there any impacts on the supply chain that, looking at what [inaudible] talked about last quarter, last week that they have impacted you as well.

We do not have really a significant, what you may call a backlog of product that customers wanted at that period of time ago, or in other words shortage of devices. So I would think in general we did not see the quarter, Q2 impacted negatively by supply. And I can’t really comment one way or the other about any of our competitors or what they’re seeing or may not see. As you know each of us tends to use different suppliers. Each of us may have different issues that could be systemic or could be one-time events. I really can’t provide any color there.

Let me just ask you about the growth you’re seeing in the new products. Are you penetrating new customers who were never traditionally Altera’s customers with your new 40-nm products and can you talk about any of those that may be just going beyond your initial test and prototyping to actually deploying those in production. I know you may not be able to mention names of customers specifically, but if you can talk about new areas where you have seen some success with all these new products so we can just gauge how sustainable these initial successes are.

If we look at Stratix IV in particular being the mainstream new high end product that we’re selling at the moment, about a third of the design wins are with accounts that we have, or divisions of accounts that we have not previously done business with, and have not used FPGAs in the past. So this is not just taking market share from a competitor and that is very, very healthy because that shows again that you are replacing ASIC and AFFEs. We will outline some of this in our upcoming Analyst meeting in November in terms of talking about some new markets and areas that we are penetrating. We have talked about in the past for instance the radios in military is a space that we are replaced a lot of ASICs using our Cyclone product. Certainly a number of examples across communication segment as well. So we’re very, very pleased with the results. If you look at Stratix IV in aggregate, at the booked designs that we have we are about one year ahead of any previous Stratix generation in the cumulative design bookings value. And so that’s also very exciting for us because we think that speaks to a very strong pipe for future revenue growth and to a large extent is fueling this very fast ramp we’re seeing with Stratix IV which is setting records for Altera and we think probably setting records for the FPGA industry as well.

If I look at your lead times and the turns and the fact that your turns requirement are still at the low end of historical range, what is the current lead times and when should we expect lead times to kind of return to the normalized four weeks timeframe.

Well generally the lead times from us will vary anywhere between we have it on the shelf either at Altera or at one of our distributor partners, to if they don’t have it we have most of our inventory in [die bank] in which case we can respond through package assembly test and ship it to the customer in four weeks. If there is a very significant unforecasted order for which we do not have either sufficient finished goods or die bank then we have to build the products starting from scratch and that can be 12 to 16 weeks. Those are our general published guidelines to our customers. I would say right now our lead times generally are fairly normal with the exception of a few products that sort of spring up on you that is, happens every quarter. So I don’t think if you’re driving to why are the turns rate low, I don’t think that’s necessarily the reason. Part of the reason I think that the turns rate may be lower right now is there has been an extension in lead times across the semiconductor base from a number of companies and so I think some companies have responded by laying a little bit longer lead time. Additionally we’ve also mentioned that we saw very strong growth from military in Q2. We see it again in Q3. Military tends to be an end market segment when you see the customers but the backlog on very early. And so I think for those two reasons our turns rate right now is low. Not saying that we’ll absolutely manage at this level permanently but it is certainly nice to have the backlog.

Your next question comes from the line of Christopher Danely - JPMorgan

Now that we’ve seen the OpEx ramp this year, can we expect it to trend down starting next year.

What we’re going to do is detail our 2010 OpEx plan in the November Analyst meeting and so I think you should sort of expect us to go through that in detail as we have for the past several years about that timeframe. I think it’s a little early to get into on the specifics and many of you know that this year is higher in R&D because of the massive wafer spends obviously associated with 40-nm. You’ve tended to see in the past some oscillation from us with R&D. So in some years it’s a little heavier as you’re doing prototypes. Other years it may be a little lighter. Other than that I think it’s really far too early for us to provide much OpEx guidance going into next year. What I would tell you is this company completely remains focused on growing our expenses at a lower rate than our revenues long-term so that we can continue to grow our earnings at a faster rate than revenues. We continue to find many new programs for us to look at and work on in order to reduce our overall cost as a corporation, whether it’s cost of goods or SG&A, R&D. That is our focus. That is our promise. That’s something that we will continue to work on. But a little too early for us to detail 2010.

I know you typically don’t comment more than a quarter out as far as in demand trends, but now that things are starting to return some sense of normalcy out there, what would be your estimate of normal seasonality for Q4.

To be honest I think we’re going to take it a quarter at a time. It is very difficult to read. A lot of customers have commented continuously to us that they have very limited visibility themselves. Many of our customers have far shorter lead times than we have from their customers, a product that they supply. So therefore ultimately they have very limited visibility and so for those reasons we’d just rather stay with Q3.

Your next question comes from the line of Ruben Roy - Pacific Crest Securities

I understand about the design win value record etc. everything sounds like its going quite well, but I was wondering if you could comment now that your competitor is out with their own 40-nm product families if the design environment has changed at all since those introductions or any comments you have on the competitive landscape.

We think we still have lasting competitive advantages in the high end across a number of fronts so even with an introduction and eventual shipment of devices from a competitor we think there are still many reasons why customers would select us. Number one our software system, we had leadership in software really through most of the 1990’s. That is the main reason I think to a large extent customer engineers select one of the two of us or for that matter the others in the field is quality of software allows them to get their job done faster and get better results the better the software. We believe that we have achieved that whether its things like tools for analysis of power or timing or even things like how fast the tools operate to compile your designs. We are significantly better than the competition at this point. And then within the silicon chips we believe we will have a power advantage of anywhere from 50% to 30% over competitor for a similar device. We will have lasting performance advantages in transceivers which are the serial IOs that are being used for multiple standards at this point in terms of quality and performance and we also will have a raw performance advantage because we did not, we designed an architecture to balance very well both power and performance. So we think we have a number of lasting advantages and for that reason if you look at Altera overall our market share in FPGAs is about 34%. If you look at the last three nodes, cumulative our market share is about 45%. So naturally we should continue to gain market share just because of the success of the last few products. In 40-nm this is really a game-changing node for us. We think that this is now the first time where we can win 60%, 70% of the designs out there. And there’s nothing that I’ve seen from a competitor that leads me to believe that we cannot achieve that at this point.

and if you could just as a follow-up remind me what your position is in the NGN network in Japan and do you expect any recovery there as you look out into perhaps Q3, Q4, and next year.

NGN will recover. We have I would say a lot of the market share within those systems today. There are two different NGN deployments going on for NTT, one is west, one is east. One is a little bit farther along then the other in terms of its deployment so it will continue for the next few years. But we just hit a short-term low and I do expect it to pick up over time.

Your next question comes from the line of Sumit Dhanda - Banc of America Securities

I wanted to go back to the mix, you know as I look at what you reported here for Q2 and expectations for growth into Q3, the stuff that’s growing is industrial, military, auto, and then what I would assume is your high margin 40-nm parts. So I guess my question is you know is much of the margin improvement only coming from cost efforts. You’re saying there’s a little bit of a mix benefit in Q3 but why aren’t we reverting back more quickly to the margin level even without the cost benefits that we saw in Q1 given that the base of customers that seems to be growing is the more fragmented smaller customer base.

Part of the reason behind that is we have a consumer [inaudible] in the other category and you’re actually seeing very strong growth in Q2 as well as Q3 in consumer. We had a number of new programs ramp in things like handsets, and in flat panel television sets, and so as we’ve talked about before where military is our highest margin segment, consumer is our lowest because of the customer concentration as well as the higher volume in consumer. So to some degree you’re seeing growth in a couple of different segments. We’re not necessarily seeing the broad customer base show significant improvement yet. We mentioned that we had two market segments decrease in Q2. One of them I pointed out was networking, the other was industrial. It was just slightly down over Q1. So the broad base of industrial accounts while up or some of the smaller accounts were up, we’re not necessarily seeing a strong recovery out of that broad base of industrial accounts.

And then just sort of dove tailing about from your comment here, the industrial, military, auto pick up, military being the strongest grower into Q3, are we actually going to see a pick up in just purely the industrial vertical following a slight decline in Q2 and then the other part of the question is, similarly for enterprise and networking ex your NGN slowdown is that, has that turned the corner from your perspective into Q3.

It’s too hard to break out all of these components. As you start getting into smaller and smaller levels, there are too many moving pieces. So I’d probably prefer to stay at a higher level and just say networking was down in Q2 and because of China now for Q3 probably should be slightly down. In terms of the broad industrial base, we are not necessarily projecting that we’re going to see strong recovery in the short run. Really most of the growth that you’re going to see in Q3 associated with that industrial, automotive, and military segment is really driven by military in particular.

Your next question comes from the line of Mahesh Sanganeria - RBC Capital

I have questions on two topics, one is HardCopy and ASIC prototyping, so in general I would assume that when you are winning against ASIC its probably ASIC at 90-nm but with HardCopy are you able to compete with say ASIC at 65-nm and the other question I have is have you gotten any hard commitment on HardCopy yet with the 40-nm products.

Yes, to answer the question from the reverse standpoint, yes we have a large number of design wins on 40-nm, 40-nm HardCopy for us is actually quite effective competing against older generations of process technology whether its 65 or 90. A couple of reasons, number one because were in 40, die size will be smaller. So even though HardCopy may still have, may not be as efficient as a pure ASIC because its one generation process technology ahead it can make up for that. Number two the NRE’s are going to be much lower because we’re only customizing a few layers as opposed to quite a number of layers in the case of an ASIC. And lastly in many cases where customers are pushing performance particularly with memory interfaces or with transceivers, 90-nm ASIC no longer cut it. Certainly 130 absolutely does not cut it, but 90 also does not in many cases meet it. And so for those reasons we’re really seeing I think an acceleration of some very big design wins in HardCopy. And I would say that’s one of the fundamental changes that we do see is the revenue per design is continuing to drive up quite substantially which is what we want to see out of these programs. Wins with the right names and wins with the right dollars around it and we’re certainly seeing that today with HardCopy.

On ASIC prototyping, in the $10 million you’re forecasting for Q4 are you getting a significant ASIC prototyping business because of the fact that you are so far ahead.

So of it is indeed prototyping of ASIC. This would be from either other semiconductor companies who are developing an ASSP or a microprocessor, a DSP who buy FPGAs in order to verify the device before they tape it out. Or, and OEMs who may be developing an ASIC who do the same. But a lot of the revenue actually at this point and a vast majority of the revenue is from customers who are designing in an FPGA to stay in an FPGA so most of the revenue is not a one-time event. Most of the revenue right now for Stratix IV is from customers who will move into production with us.

Your next question comes from the line of David Wu - Global Crown Capital

Can you talk a little bit about the military market that you more recently have become significant, is that stuff encryption kind of application or is radiation [hardened] type FPGAs that you’re selling into that military market.

The military market we have made a lot of progress in but we still are a distant number two. So there’s a lot more business that we can take both from other PLD competitors but in particular also from ASIC. There’s fewer manufacturing options on shore and so for many secure programs they do not want the pattern to go offshore and therefore buying an FPGA where you can program it at the site is the only secure option that they have. In many cases their volumes aren’t high enough to justify and ASIC any more either and so for those reasons we really see military as one of the strongest growth segments for PLDs moving forward. The areas that we’re capturing market share are in things like secure communications, in radar, number of different control applications, so things like scopes, sights. We are not in the [rat hard] market ourselves. That is a market that some of our competitors are involved with an Altera to date has not released any products for that segment.

Is that segment too small for interest to you at this point.

It’s a segment which has probably too many competitors for the size of the segment. So I know that both Xilinx and Actel have products in that marketplace. To be honest I don’t know a lot about it personally other than in my analysis of it, and in combination with our military group, its just hasn’t seemed large enough to support the number of competitors that are there and therefore because of the potential market share that we could take, may not justify our direct investment to this point.

Your next question comes from the line of Brendan Furlong – Miller Tabak

My only curiosity at this stage is with the accounts receivable ticking up a little bit I’m just curious how much an appetite you’re seeing from your TE distributors to begin to maybe stop taking down inventory or maybe build a little bit of inventory going into the back half of the year.

Yes, accounts receivable did increase by roughly $16 million quarter to quarter. A lot of that was just driven by the timing of payments at the end of June as we did receive in receipts in early July. And all the accounts are current. We’re actually at historical lows in terms of our AR aging. Distributor inventories did increase slightly quarter to quarter. A lot of that was driven by some heavier distributor shipments towards the end of June versus the end of March. We continue to maintain an acceptable MSOH. We went from 1.0 to 1.1 at the distributor so we’re not seeing any profound change in their appetite or in their ordering habits relative to last couple of quarters.

I think in general if you look at the last several quarters again, at a very high level. The really, we have not witnessed any change in behavior out of the distributors. We’d like to keep their overall inventory level about one months supply on hand, maybe a little bit above and that’s where their operating. So we really haven’t had any issues nor has there been any change in behavior from of our distributors.

Your next question comes from the line of Adam Benjamin - Jefferies & Company

I just had a question on the enterprise networking segment, you saw some weakness there. Sounds like that weakness continues, can you give a little more color in terms of what you’re seeing there from a end market perspective and whether there’s something specific with your business or its more end market driven.

Do you have anything specifically you can kind of ask on that because I already provided some commentary specifically to enterprise. Is there anything in particular.

I’m just curious if you are seeing that business continue to decline throughout the year, is it just push outs of enterprise spending or is it a share loss specifically or something more dramatic there that you can give some more color to.

I think I’d probably go back to the previous comments and just sort of emphasize the computer and storage for us did increase sequentially into Q2. The networking side was down. Most of the driver behind networking was actually in Japan. In Q3 we expect networking to slightly decline again mostly due to China. But I guess that’s probably at high level about all I could provide in terms of commentary. I think we’re not necessarily a broad predictor of how computer equipment is going. We are in higher end computer equipment but we are not in obviously PCs or some of the lower end servers either ourselves or as an industry so generally we’re not going to be a [bell weather] of those bases and if you look at the layer two switches that really is mostly an ASSP play. So again we’re not going to be a good predictor exactly of how that equipment is doing.

And then just on the 40-nm just curious if you, were willing to give sort of a target into 2010 as to when you can see that as a significant portion of your mix, call it greater than 30%.

If you look back in products it takes about four to five years for a product to start to peak. Typically when you get to 30% of your revenues, it’s probably about at that time. It’s about four to five years into it. So if you look at 90-nm that represents about a third of Altera’s revenue today. If you look at 65-nm which is still growing, that represented 15% of revenue last quarter. And still continuing to grow probably in a couple of years getting to the 30% range. So it’s still a few years out obviously for 90-nm to get there. If you look at the rough $10 million forecast for Q3 we said it would get close to $10 million. That’s about 3% of revenue. So its starting to become I think pretty significant in the short run.

That’s helpful. I just thought you had given some indication that you had accelerated that development further than the typical four to five year period.

Yes, I think what you’re going to see from Stratix IV is still the peak will probably be four to five years but ultimately the peak will be much higher than previous generations of products. So the revenue that we’ll achieve at the family will be much higher than any revenue that we’ve ever achieved before. Additionally you are seeing this grow on a dollars basis much faster than any previous generation of FPGA that we’ve had out. So typically to get the quarter that we just had of about, we did almost $4 million in Q2, that probably would have been Q1 of next year if you look at ourselves or our competitor. So we were able to accelerate this ramp about nine months. And so I think for that reason it’s a very significant family certainly for us and certainly for our long-term growth.

On the turns, you indicated that it’s a little bit lower than you normal seasonality at 50% and you indicated that military was some of that driver as they book out further, is there any level of conservatism added in there given some concern about the wireless in China and lack of visibility there as you indicated there of booking and debooking. So just curious if you added some level of conservatism.

We are trying to do what we’ve done in the past which is base this off the information that we have from our customers. Our high level look at what we think of the market segments and in some cases where we have had direct communication with some of the operators, some of the information that they played back to us and then we obviously look at the turns to determine whether we think the number is doable. I would say we’re predicting this quarter in a similar way to the way that we predicted quarters in the past. It’s not to say it’s overly conservative or overly aggressive, it’s the same behavior that we’ve used in the past to come up with this forecast.

Your next question comes from the line of Tim Luke - Barclays Capital

Just briefly could you provide any sense of your, how the [inaudible] roll is developing and whether that’s a line that you expect to have done by the end of the calendar third quarter or maybe by the end of the calendar year also just wondering do you have any incremental color on the auto area or if that’s showing any signs of life and then lastly just as you look for next year, what are the end markets where you think that you may see the [inaudible] prominent growth.

To take those in sort of a random order, we did see automotive grow in the second calendar quarter. I think the reason that we’re seeing growth and probably overall I would bet that PLD industry is seeing growth is because we are newer to the automotive industry so we’re not in platforms that are in decline. We’re really in new platforms that are ramping up primarily because you’re now seeing the sort of the entertainment systems be integrated in many models not just the high end. And many of those systems use programmable logic in order to implement things like rearview camera, or navigation, car navigation or even some of the dashboard functions now. So I think for those reasons automotive probably for us in general will grow this year and continue to grow next year. CFO hunt is going extremely well. We’re starting to interview candidates. Don’t have a specific timeframe to put on when we will have somebody here but the pipeline is very strong and there’s some very good candidates that we’re talking to. Lastly in terms of next year, I think it’s a little too early for me to exactly project next year. I do think military will grow again for us strongly into 2010. Some of the other markets I would like a little bit more time in order to project and will be a good topic of conversation at the November Analyst meeting.

Your final question comes from the line of Randy Abrams - Credit Suisse

I wanted to circle back to gross margins where you’re guiding back to 67%, if you factor in some of the yield and wafer price improvements, do you think with the same mix, 67 isn’t the right range, it actually could be a bit higher, maybe talk to the potential of actually expanding a little bit further.

Well so, gross margins will change every quarter obviously mix as we’ve talked about in the past will drive the differences. James did mention that mix independent, we expected margins to roughly be at the same range for Q4 as they are for Q3. Naturally we have some positives going for us in terms of the yield improvements. You don’t necessarily expect those to be as dramatic or continuing per say. But they will continue over the next several years. Obviously some of the cost savings in some cases are new, some cases were baked into Q2. You also have some puts on the other side which is natural price declines that you provide your customers. So based on what we know today it looks like Q4 will be roughly in the same range as Q3. But as you’ve seen from us in the past there can be obviously differences one way or the other a quarter out and so we certainly could see changes. It’s just too early for us to exactly know what those will be.

I wanted to follow-up on the industrial where it seems like it’s still flat to down type trends and down substantially from peak, could you talk about any areas you think there is lean customers or they’re under spending and is it a matter of having to get to CapEx expansion. I’d be curious in prior downturns how much of a lag you typically see for the industrial to start to come back.

I don’t know when we will exactly see the industrial segment come back and the reason I say that is twofold, one is if I look at it from a macro perspective in many end industries there’s still is an over capacity situation so I think in the short run most companies are holding back on CapEx. So that’s certainly effects many of these companies. Number two it’s a very broad segment base and we just simply don’t have the opportunity to talk to every one of these customers to understand exactly where they are. If I look at the numbers I do not think in Q2 or for that matter in Q3 we’re expecting to see customers who may have been depleting inventory suddenly come back and repurchase from us. And the reason I say that we do not think that happened in Q2 is because if you look at our mainstream and mature products, those were still down sequentially and if we had seen sort of that inventory balance where customers depleted inventory and then came back to start repurchasing, we would have seen the mainstream and mature products increase sequentially. So we haven’t seen that through Q2, not necessarily expecting any rebound in Q3 and again if you look at both the mainstream and mature categories, they’re down 39% and 47% each year on year so that’s a pretty significant decrease. The gain that we saw in Q2 really was driven across many of these market segments simply from new products and new program ramps with those new products. So again, hard to call exactly what’s going to happen in industrial. But so far we have not seen customers returning to order after depleting inventory again at a macro level at least.

There are no additional questions at this time; I would like to turn it back over to management for any additional or closing comments.

As we have no further questions this does conclude this quarter’s conference call. As a final reminder, with respect to conferences this quarter we will attend Citi’s 16th Annual Global Technology Conference September 9th in New York. This concludes Altera’s earnings conference call, thank you for your interest and participation.