Good day, everyone, and welcome to the Altera Fourth Quarter 2010 Earnings Results Conference Call. [Operator Instructions] At this time, I would like to turn the call over to Mr. Scott Wylie, Vice President of Investor Relations for Altera Corp. 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 area code (719)457-0820 and use code 258712. During today's prepared remarks, we will be making some forward-looking statements. In addition, management may make additional forward-looking statements in response to questions. 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 on 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 Ron Pasek, Chief Financial Officer. Ron will open the call with the 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 Ron.

Thank you, Scott. Revenue for the fourth quarter 2010 was a record $555 million, representing a sequential increase of 5% and slightly above the midpoint of our guidance. Our large customers were the growth leaders in Q4 with a collective growth rate well above the overall average. On the products side, we achieved a 26% sequential growth for new products, while our mainstream and mature product categories were down versus Q3. This sequential decrease in mainstream and mature products appears to be customer inventory fine-tuning and is not a surprise. Sequential growth within new products included Stratix IV increasing 25%, Cyclone III up 23%, Arria II up 22%, MAX II down 4%, Stratix III up 34%, Cyclone IV up strongly at $2 million and HardCopy III and IV up 378% at $10 million. Stepping back, for 2010, we experienced a nearly 200% increase in new products, with most of this dollar increase coming from 65-nm. Mainstream products produced growth of 12% and mature products decreased 7% as one would expect. In Q4, 40-nm revenue increased sequentially 35% and 65-nm revenues showed sequential growth of 28%. For Q4, 40-nm and 65-nm revenue represented 17% and 31%, respectively, of total revenue. 40-nm revenue on a cumulative basis is over $260 million to date. Q4 turns were in the mid-20s range consistent with our guidance. Book to bill for the quarter was below one, which is to be expected as our lead times return to normal levels for essentially all products. In Q4, we did not see an unusual number of cancellations. Gross margin at 71% was up 90 basis points from Q3 and at the high end of guidance. Improved deals and material cost improvements were the big drivers, offset by slightly unfavorable vertical mix. Operating expenses of $131 million were slightly higher than guidance. Some of this increase can be attributed to our recent acquisition of Avalon and an array of individual items that came in slightly over forecast. Operating margin for Q4 was 47.4%, the highest level in 2010. Our Q4 effective tax rate was 12% after netting the favorable effects of the R&D tax credit with some offsetting fourth quarter discrete item. Net income for the quarter was $232 million or $0.72 per diluted share. On the balance sheet, cash and investment balances increased to $2.8 billion, helped as in the last several quarters by cash received from option exercises. Cash flow from operating activities was $210 million for the quarter and our cash conversion cycle was 85 days. We ended Q4 with total pipeline Month Supply On Hand of 3.5 consistent with our guidance. Ending Q4 inventory is comprised of 2.7 months for Altera and 0.8 months for distributors. Moving on to our outlook for the first quarter of 2011, we expect revenue to be down 1% to 5%. First quarter turns look to be in the mid- to high-30s. This sequential increase in our turns is to be expected as our lead times have shortened. Keep in mind that historically, a normal turns number runs in the 50% to 60% range and over time will likely return to that range. Gross margin for Q1 will be 71% to 72% as we anticipate some favorable vertical mix. We are targeting R&D spend at $76 million to $77 million up from Q4 as we begin a multi-quarter period of 28-nm introductions and the strategic initiatives we described in our November 29 call. SG&A should be $69 million to $70 million. For both R&D and SG&A, the full year operating expense estimates we gave you on November 29 are still valid. We expect ending Q1 Month Supply On Hand inventory to be in the mid-threes, which is still in the desirable range of three- to four-Month Supply On Hand. The tax rate for Q1 will be 10% to 12%, which is slightly favorable to our earlier guidance due to the U.S. R&D tax credit. Diluted share count for Q1 will be approximately 327 million shares. Additionally, for full year diluted share count, you should use a revised number of 329 million shares. Since our call on November 29, we have seen an increase in option exercises and stock price, which increases our diluted share forecast for FY '11. With that, let me turn the call over to John.

Thank you, Ron. We are pleased Q4 revenues increased 5% sequentially to cap a stellar year of revenue growth, profitability and market share gain. For the fourth quarter, Telecom & Wireless revenue increased 10% sequentially on wireless growth in GSM, WCDMA and microwave applications. Telecom decreased due to inventory rebalancing across several customers. Huawei represented 16% of revenue in the quarter. Industrial, military, automotive declined 9% with a significant decrease in military on program timing. Computer & Storage Networking increased 17% with double-digit growth in each subsegment. Other grew 2%. In 2010, our revenues increased 64%, outpacing the semiconductor, ASIC, ASSP and PLD markets by a wide margin. Improved end-market conditions and increased PLD content in new generation systems were both contributors to the PLD industry growth. Our market's success was 65-nm and 40-nm FPGAs then led to Altera's significant outgrowth of the PLD industry. Additionally, our 2010 growth was broad-based. Telecom & Wireless increased 64%, industrial military, automotive 60%, Computer & Storage Networking 55% and other increased 73%. On the product line front in 2010, we focused on 28-nm development. As announced, we will introduce more products in 28-nm than any previous process node again relying on the customer input to drive our specifications. We also continued the tailored device strategy that has delivered our significant market share growth over the last several process nodes. Stratix V and HardCopy V are on the HP process for high performance as they have been in prior generations. Arria V and Cyclone V are on the LP process with low-power and low-product cost. Each product will have optimized architecture, memory, DSP and transceivers tailored for diverse market requirements. This portfolio of approach will perhaps costly earn R&D, matches customer need across a broad array of markets, delivering superior growth and profitability. We taped out our first Stratix V 28-nm family member in December and plan the sample in Q1. For Q1 revenue, we are forecasting a 1% to 5% sequential decrease. We expect Telecom & Wireless to decline as a few customers rebalance inventory and because TD-SCDMA fourth round deployment completed in Q4. This should be partially offset by growth in WCDMA and LTE. Industrial, military, automotive should increase on military and automotive. Computer & Storage Networking should be flat to slightly down. Others should decrease. Our book to bill was under one in Q4 as expected with the lead time reduction. But turns required to make the Q1 guidance are in the mid- to high-30% range, well below our historical high-50s range. There are very few customers that have reported inventory and the amount looks minimal, which correlates to the low turns number. In summary, our 2010 results show the success of PLDs and Altera specifically in replacing ASICs due to the rising semiconductor design costs associated with each new process node. And note the addressable ASIC market is still twice the size of the PLD industry. The design cost burden also affects microprocessors and ASSPs. Using our FPGAs as a product platform, we are adding microprocessors to encroach on the embedded industry and IP blocks as evidenced by our Avalon acquisition to replace ASSPs. Our goal is to continue to grow at a rate of double the semiconductor industry on average and with an estimated $47 billion ASIC, ASSP and embedded market replacement opportunity, we believe we are well-positioned to do so. Now let me turn this call back to 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 pool for questions?

Thank you, sir. [Operator Instructions] And we'll take our first question from Uche Orji with UBS.

Let me start with Ron. Ron, can we just probe a little bit what's going on with the inventory? I know you said it's still within your normal range but we've had a hit [ph] jump this quarter. Can you kind of try and pose that data and tell us what's happening within a specific customers or within distribution just for us to get slightly better comfort with that? And looking forward, how should we think about the trend for inventory now that lead time are back to normal?

So you look at the last year historically, we were running inventory a year ago, December, below three. And then through the year, in the low threes. And also, our lead times were actually extended. So to some extent, this is just getting lead times synched with inventory. It's still on a very desirable range and as I said earlier on the script, we're basically at standard lead times for almost all products.

There is a breakout of distribution versus Altera inventory that's in the press release, so you can see that. And again, typically, we've tried to operate between the three- to four- Month Supply On Hand total of both distribution and Altera. At three and half, I think we're in great shape, particularly coming out of a period where we did not have inventory and ultimately caused the lead time expansion.

John, you talked about your gross margin when you gave your business update I think a couple of months ago and even as you're seeing strength in FPGAs over ASICs, did that at least suggest that gross margins continue to stay strong? How should we think about this going forward, as to what gross margin should trend? What factors should affect that as we look at you versus the the ASICs side?

Yes, Uche, this is Ron. So I think a couple of things, the biggest factor that will swing gross margin in the short term is of course vertical mix. And that's why you're seeing a slight increase from Q4 to Q1. But what we talked about on November 29, over the long-term for this year, you should see margins around 70% plus or minus a point and over the long term what we said over the next, certainly at the end of five years, probably going down to 65%.

Next question, please?

We'll take our next question from Adam Benjamin with Jefferies & Company.

Just curious, your competitors have been talking a lot about share gains stabilizing by the end of this year. Just curious as to -- in terms of the design cycle, what you've seen, how you can draw that back, maybe 12 months, given how the share shifts should have happened in terms of designs translating to revenue later this year? And then in terms of just high-end versus low-end, how do you think of your position going forward?

So I would expect that Altera will once again increase market share again in 2011 as we did in 2010 and actually going back I think probably for the last eight years. I have seen nothing in the battle of 40-nm and 45-nm, which I believe will change the momentum that we have. I do think because Altera did so well in 40-nm with roughly 2/3 of the overall revenue that we should continue to gain market share as the 40-nm node continues to grow over the next several years. In the 28-nm battle, I think actually we're extremely well set-up to continue that momentum. I like our tailored product approach, it's something that has done us very well for several generations of products now. I think it addresses a wider array of markets and applications. I think it also provides a much better cost structure for each individual product. And so I would expect, as we enter into the 28-nm battle that Altera will continue to do extremely well. So fundamentally in conclusion, I just don't see anything that has happened near term or from what I've heard from announcements of competitors that I think changes the momentum that we have in the marketplace today. Next question, please?

Next, we'll hear from Glen Yeung with Citi.

Kind of going back to the first question about inventory. We've got lead times kind of back to normal, inventories are kind of back to normal. How would you characterize the supply environment that you're in right now, John? Do you think this is something works [ph] for the balance of the year? Your concern is more that things are tight or your concern is more that things may get a little loose?

Right now, Glen, we are in a position where we can get the product that we need. I think if we were to grow 64% again this year, we would probably struggle getting product. But based on our plan, we feel that we have enough supply commitment from our foundry substrate suppliers and back in assembly suppliers and ultimately test capacity that will be okay. So right now, we're projecting based on our numbers that we'll be okay. There may be some tightness in a few specific nodes. We'll have to deal with that as things come. I guess the question then becomes, are we doing anything to procure inventory strategically ahead of time? No, that's not our plan. Ultimately, we would rather purchase the product at a later date when yields improve and costs go down then trying to put inventory in place because once again we do think we have adequate capacity commitments from our supply base.

And as a follow-up, just thinking about the 28-nm node again, and the idea that we've now seen share gain from Altera really several years if you go way back. As we think about 28-nm and yourself and Xilinx are kind of coming in, in a similar timeframe, plus or minus, but with different sort of family approaches for lack of a better term. Is this a node where you think you can extend your share gain, you're kind of almost at record levels now with market share? Can you go even further still at the 28-nm node?

I would expect that we can, and the reason is because I think the approach is between the two companies are actually quite different in this process node. We are continuing the tailored approach by products. Remember when we originally came out with the Cyclone family and designed a dedicated dye for that, it was low cost. It really did significantly extend our overall business. And we did that by cutting down features, cutting down performance, but not having to sacrifice anything on our Stratix family. I think that the advantage that our competitor does have is if you do one product in one process technology, which is I think essentially what they're doing, you can lower your overall R&D investment. But I think it's important to remember that the battle that we fight is not with, necessarily, our primary competitors. The battle is for ASICs and ASSPs. And we supply into a diverse set of markets that each have different requirements of technology. Consumer, for instance, television sets does not require high performance, it does not require high-end transceivers, it does not require high density, its more about product cost. When you're in OTN applications, it's quite the opposite. Density performance, transceiver speed are everything to those customers. So we believe that by having a tailored product set, we can address more applications, we can displace more ASICs and ASSPs, which obviously leads to revenue growth and again, because each product is differentiated, the lower-end products like Arria and Cyclone will have a much lower cost structure per dye and we think that will be advantageous for us from a gross margin perspective long term as well. So I'm actually, from everything I've seen and heard over the many months from our competition, I'm actually excited about 28-nm. I think it plays in our favor. There's nothing that's been announced that has us rethinking our strategy. And we do think we can extend the gains that we've had in 40-nm and hopefully accelerate that in 28-nm. Next question, please?

Next, we'll hear from Patrick Newton with Stifel, Nicolaus.

Quick big picture question for you, John. Given that you outgrew the broader semiconductor industry by two times or maybe more than two times in 2010 when 90-nm and 60-nm designs were really the volume drivers, I guess as we move into 2011, 2012 when 40-nm and 28-nm are the volume drivers, do you think that perhaps your long-term growth target could prove somewhat conservative?

Our target is to grow twice as fast as the semiconductor industry on average. We do believe that this year, in 2011, that we will outgrow the semiconductor industry. We would hope so to continue to do that. It's really a factor of a couple of things. One, I think we've done really well in 40-nm. Obviously, 40-nm is really the growth node for programmable logic over the next several years, so we should get a marketshare advantage for that. And then if you look at our products like Stratix IV, we really did open up a lot of new applications, had record design wins, had record opportunities. And I think that speaks to the fact that programmable logic really opened up a lot more of the ASIC and ASSP market to replace and that means that, that revenue is in the future and we should be able to grow at a faster rate than those industries. 28-nm then continues at acceleration obviously. By the time you're in 28-nm, you're now a good four nodes, process nodes, ahead of the mainstream ASIC industry. And you really are compelling for almost all ASIC designs for them to use your programmable logic instead. And I think we can continue to see PLDs accelerate to replacement. Again, remember, what we believe that we can replace, so if we take out things like handsets, we take out games, we take out platforms that we know that we cannot participate in either because of cost or power, and we look mainly at the infrastructure. There's about a $47 billion opportunity of products that we can go replace. Simply replacing 1% of that per year gives you an opportunity to grow the company at a 10% compound annual rate. So we feel pretty good that we have the opportunity. We just need to continue to execute on our end and take market share.

And speaking of taking market share, I guess moving to 40-nm, last quarter your competitor said that they pegged their share to roughly 40%. I don't believe that we got a number this quarter. I was just wondering if you have your thoughts on where your market share stands at the 40-nm node?

It's probably between 60% to 70%, probably about 65% from what we saw for the entire year. I didn't see a breakout by quarter from our competitors, so we didn't know. But if you take the whole year, which is where they give the figure, it's about 63% to 65% in favor of Altera. Next question, please?

And next, we'll hear from Srini Pajjuri with CLSA Securities. Srini Pajjuri - Credit Agricole Securities (USA) Inc. John, you said that TD-SCDMA market is going to decline or is in a decline because of inventory correction. Just wondering what's next after Phase 4? Are you hearing anything about if there's a potential Phase 5? And also if you can touch upon where the WCDMA growth is coming from, whether it's U.S. or India? And then how important the Telecom & Wireless market is for you to outgrow the industry this year?

TD-SCDMA is the technology to China Mobile is supplying for the third generation. Remember that there are three communication operators in China. China Mobile's deployment comes in phases, the others are doing more regular measured purchases. So while TD-SCDMA has ended that does not mean -- for the fourth round -- that doesn't mean that China Wireless has ended because the other two carriers continue to deploy. Additionally, remember that the wireline infrastructure in China is still in its infancy and there will continue to be a very significant telecom deployment in China. So TD-SCDMA goes in phases or rounds. We just completed the fourth round. There is now discussion of the fifth. It is possible that the fifth may turn away from TD-SCDMA into LTE or TD-LTE which is the Chinese version. If that happens, great, if it stays TD-SCDMA, that's fine too because we have very high market share in either of those. TD-SCDMA did not end because of inventory. It really ends because, again, they do the purchases in a block or short period of time and then in between, there's a redesign cycle. In terms of WCDMA, we're seeing deployment really across quite a few geographies with the deployment of Smartphones requiring an upgrade in data bandwidth capability. We're seeing deployment in the United States still, in Europe and other developing countries, certainly in China. And we've seen some initial work for India. GSM has also been quite strong for India, as well as other developing countries and as I mentioned, microwave is a backhaul. It's been very strong of late as well. Srini Pajjuri - Credit Agricole Securities (USA) Inc. And then if I may just one quick question for Ron. Ron, your lead times are back to normal and inventories are back to normal. I'm just wondering why your turns are not back to normal yet?

Well, as we told you a couple of quarters in a row, we have this phenomena of customers placing inventory not just for the current quarter, but for the next quarter as well. And that's still happening, so we've had a number of orders on our books for Q1 for a while and that has the effect of lowering the turns number. Don't know how long that's going to last, but it's kind of nice to have.

I would expect the turns number over time to get back up into the high 50s. It's where we operated for many, many years and I think customers have said repeatedly that they'll go back to that. But what you're seeing is a very orderly transition from a period of time where we had length and lead times to now. As Ron mentioned, cancellations have been minimal and quite consistent with what happened all of last year. We've seen some push-outs, but they've been easy to deal with. And therefore, we're carrying a tremendous amount of backlog still which is why the turns number is low. Next question, please?

And next, we'll hear from James Schneider with Goldman Sachs.

I was wondering if you could address the industrial OEM customer mix right now, meaning medical, test and measurement, automotive customers, things like that. What are you seeing from those customers now are they kind of in a inventory takedown mode or do you think they're kind of running pretty much steady at this point?

The industrial business is fairly steady at this point. I think if you look at some of the areas that you mentioned, some were up in Q4, some may be down in Q1. But we haven't really identified a lot of that being tied to inventory as much as it is. Program timing or customers and their success with their products in the marketplace. So as we mentioned, the overall other category did fairly well in the fourth calendar quarter. It grew 2%. We're expecting it to decline this quarter, but I don't think it's a tremendous decline. If you look at the industrial category, which includes military and automotive it did decline in Q4, but we're expecting it to grow this quarter because of automotive, as well as military. So I think generally, most of the categories are fairly stable at this point at a gross level.

On geographic basis, it was pretty notable that Japan was very, very strong and the U.S. declined a lot. Is the U.S. decline just do military is there any more color was going on within the geographical regions?

And then on a geographic basis, it was pretty notable that Japan was very, very strong and the U.S. declined a lot. Is the U.S. decline just to the military or is there any more color on what was going on within those geographical regions? There are other puts and takes, but certainly military did impact North America. And again, there are other puts and takes in there that did impact it as well. Next question, please?

And next, we'll hear from Mahesh Sanganeria with RBC Capital Markets.

Question on the gross margin. When you had provided guidance for 70% ahead, did you assume that gross margins will be higher than the first half and lower in the second half? I was just modeling flat. Can you just give some color on that one?

We didn't really give -- we're not that fine-tuned. Again, it depends on vertical mix throughout the year, so we just gave a 70% plus or minus a point. So in any given quarter as that mix of vertical revenue comes in, it will affect margin. So I can't tell you that we model the first half different than the second half at all.

And then on the military you said it was down significantly. Was there anything specific because usually for your competitor at least the military is, December is like a peak quarter. Is there any reason that you have a different seasonality than your competitor?

I don't know specifically what our competitor did this Q4. But certainly, it was down for us. So simply in Q4, it was program timing. It's going up this quarter. So nothing I think tremendously unusual there. Next question, please?

And next, we'll hear from Shawn Webster with Macquarie.

Can you share with us what your mix of wireless versus wireline within your Telecom & Wireless segment was for Q4 and the full year and then I have a quick follow up? On the theme of ASIC displacement, I was hoping that maybe you might have some quantitative information for us in terms of design wins or something more specific that we could wrap our arms around it, try and quantify that aspect of your revenue growth?

Well, I think if you look at a macro level, this is the fourth year that programmable logic is outperforming the ASIC industry. And so this year, significantly more perhaps in the last couple. But it certainly gives you an indication that it's now a one-year trend, it's been a multi-year trend and again, the cost is the issue and I think that's, at this point, universally accepted. Because you see the growth across a broad array of marketplaces, it's not one application or one area that we're replacing ASICs as much as it is just broadly. We've talked in the past for instance about security cameras use PLDs today, military applications like radios used to be ASICs and DSPs are now using programmable logic, communications equipment, obviously you've seen a very significant increase in programmable logic content. Replacing a large number of ASICs and some ASSPs and a broad array of product lines. So we've talked about PLDs entering into consumer applications like television sets, where perhaps ASICs used to be used in the past or in some cases, ASSPs. So I can't really give you one thing because it's not as much as it is just a trend broadly in a large number of marketplaces and PLDs are benefiting, and I think ultimately because Altera's been better positioned in products. We're benefiting more. Then on the product breakdown, my guess would be its 60% wireless, 40% telecom. How close am I?

A little bit heavier.

A little bit heavier in wireless. It's about 70/30.

It's between those two.

In Q4 or for the year?

In Q4.

And for the year, it's probably closer to 60/40. So that should give you, I hope, a rough breakdown of the business. Next question, please?

And next, we'll hear from Chris Danely with JPMorgan.

Sticking with Webster's question on end markets. John, you're kind enough to give us your end market color commentary on Q1. Can you just maybe give us your relative growth expectations for end markets for the year?

Chris, for the year, I really can't and the reason is it's very difficult for our customers themselves to forecast the full year and provide what they believe their guidance is going to be. So we just try to stick with one quarter at a time. Certainly, we do expect to outgrow the semiconductor industry for the full year, but that's about all I could say at this point.

And then maybe if you could comment on what the linearity of your order rates were like last quarter and so far during this quarter?

We didn't see any unusual patterns in order rates for last quarter. And so far this quarter, we're not seeing anything unusual either, Chris.

Next question, please?

And next, we'll hear from Ian Ing with Gleacher.

First question on gross margins. Could you describe the differences in the cost reductions and yield improvements you got this time versus back in March when you had another uptick, I'm assuming its 40-nm related? And also, I thought the mix would reach in a little bit going forward given less wireless deployments?

Definitely, more of the yield improvement was direct related to 40-nm this quarter versus March of last year, that certainly a factor. I'm trying to understand the second part of your question, Ian.

Wireless-based stations tend to have leaner mix and I would think it would reach in if that's a little bit below average growth. I think you're guiding wireless and wireless down next quarter?

Yes, so again as a vertical, telecom tends to have slightly lower margins than some of the other verticals.

I think that the same with Telecom & Wireless. It just really depends on the application within it. If you're in a base station, the volumes are lower than if you're in a radio. And so where the volumes increase, typically the pricing and the margins go down which is why in general consumer has lower gross margins and for instance, industrial or defense-related market segments. Pricing tends to be volume-related in semiconductors. So sometimes where we could have a flat communications quarter, but the mix within communications can change and that can cause from a high-volume to a low-volume segment, that could cause margin swing one way or the other. So understand that there's a lot of puts and takes within these markets to drive that. Overall, we did benefit from a lot of product cost reductions. Our yields continue to substantially improve, generally are well ahead of what others are seeing in similar process nodes with the similar foundry and we're very pleased with what our organizations been able to do with cost reductions over last year and, hopefully, through Q1.

Quick follow-up for John. The high-speed serials, you're pushing that fairly aggressively down the stack, five gig at Cyclone and 10 gig at Arria. Could you talk about the impact of cannibalization as you try to convert some of the Stratix IV sockets?

Yes, really that's because what's happened is broadly there are a number of serial protocols that have entered into the industry. So you think of things like PCI Express or a SIPRI [ph] for wireless or you kind of SATA, which is a storage. There are in a broad array of these, which require different performance rates. So even some of the cost-sensitive markets like consumer have moved to serial I/O standards, the midrange, the SIPRI rate has moved up into the 5 to 6.5 gig area which is why you see Arria with that standard. So it's simply because the bandwidth is moving up and a lot of these end applications, so we need to deal with that for the cost application. I do think that's an advantage for us because again, we're doing the tailored approach. So by having a lower performance transceiver in one family, that means the I/O buffer itself is substantially smaller, the cost is lower. And I think that gives us an advantage in each of these markets by having the tailored approach. Next question, please?

And next, we'll hear from Mark Lipacis with MSSB.

John, how would you characterize the biggest wireless opportunities geographically and by area interface standard this year? And with that, can you talk about how big you expect LTE to be for you?

I think China will continue to be strong because of telecom really for and microwave for backhaul. There will be more cards added to the base stations. In other words, a lot of the base stations were deployed with not being completely full. So as we see an uptick in user demand for Smartphones, I think that will continue. Obviously, India is a great marketplace. There has been 2G deployment. There will be 3G deployment as a spectrum has been purchased. North America because both the continued deployment of HSDPA combined with WCDMA plus LTE. And then you'll see the emerging countries continue to deploy 2G GSM which should be strong. And that's going to be South America and that's going to be Africa. And then you're going to see some initial deployments of LTE in Japan. So I think you're actually going to see a broader deployment of equipment in wireless from a geography standpoint that we saw last year. Now, a lot of people look at the CapEx figures and they say, well CapEx is down therefore, it's going to impact the programmable logic suppliers. And if you go back and look at CapEx for telecom, it's actually been down for several years, year-on-year, and yet we've been growing. And what some people have missed is that with each new generation of equipment, our content goes up significantly. And so as we made transitions to seeing deployment of 2G to 3G equipment, the actual dollars spent on the equipment maybe flat, but the PLD content goes up dramatically. And therefore, we grow at a much faster rate than the industry itself. I would expect that trend to continue because again, if you look into LTE, we have a multiple of the dollar content that we had in 3G. So I think we're well-positioned to continue to see growth over the next several years within Wireless and Telecom. Next question, please?

And next, we'll hear from Hans Mosesmann with Raymond James.

Can you comment about wafer pricing if there's any change here over the past year relative to what you see today?

We have long-term agreement with our foundry. We haven't seen any change in wafer pricing, nor anticipate to see anything happen for the foreseeable future.

And then as a follow-up, you have slightly lower turns in Q1. Do you have a sense at this point how Q2 could emerge, and maybe perhaps not as turns but in terms of seasonality could be normal seasonal?

I have no idea on the seasonality of Q2 and would prefer to stay away from trying to guess on that one. I do anticipate that our book to bill will probably be under one again this quarter. And that over the next couple of quarters, we'll start to approach the high-50s in terms of our turn rate which is again our historical norm. Next question, please?

And next, we'll hear from Sumit Dhanda with Citadel Securities.

Just, first, a follow-up on the competitive dynamic that we knew in Xilinx. One of the things that they're focused on is the opportunity at 45-nm given that Cyclone IV is still a 60-nm product and hence, they're ability to gain share. I was wondering if you could specifically comment on that dynamic and how you see that playing out, whether you feel you're disadvantaged because you're a process geometry behind.

We do not feel we're disadvantaged at that process, no. We actually have a Cyclone IV that we recently introduced. Its transceiver performance is rock solid. We're continuing to win very well within the low-end space. I haven't really seen anything that is going to cause a tremendous market share shift one way or the other at this point within the low end. I think at the high end, we continue to have the momentum and will certainly until 28 products are out and even when then, I think at the high end, we'll have a much higher performance, higher density, much better transceiver story. So I would expect at the high end, we really will continue to do extremely well for years to come. And you remember, at the low end, it's not just Altera and Xilinx, we certainly have Lattice as a competitor there as well, so we have many people in that space.

And then just as a follow-up on the book-to-bill. My recollection was when you reported last quarter, you said that it was flat quarter to date and it eventually finished the quarter below one. Does that suggest that relative to your sales trajectory for the last two months, bookings were a little weaker? Or is that not really consequential?

What we said last quarter, the earnings release, was that for the quarter, book to bill was above one. But for the month of September, it was slightly below one. We also indicated was that as we predicted as lead times shortened, bookings would tend to weaken in relation to shipments. So we expect that the book to bill it's going to be below one, and that's what we're seeing. With good lead times, we're seeing a book to bill below one. That's all.

I think it's important to remember with customers, their goal is to cover your lead times with backlog. So if your lead times extend, they need to place more orders in order to extend the backlog coverage. When your lead times come back in, of course they don't need to book as much because they don't need to cover as long of a period of time. The bookings, therefore, at times where you see changes in the lead time are not a good indicator for what the underlying business is doing. And so that's important to remember. That's why our business is doing okay even though our book to bill may be below one. It's just simply customers are reacting to the fact that they don't have to place as much backlog or have a backlog that goes out as far. Next question, please?

Next, we'll hear from Sukhi Nagesh with Deutsche Bank.

Ron, can you just help me understand what's really going on in Networking business? It showed some solid strength here, 17%, and you're guiding that to be flat, yet you do consider of course of a growth there. Help us understand what's going on in that space, please?

So, I think it's important to remember that Networking is more than just a couple U.S. companies. There's also networking equipment that is being developed in other countries, number one. And number two, remember that we are growing market share content within these systems as another important metric. Overall, Networking was up very strongly in the quarter, as was Computer & Storage, I think reflecting the fact that corporations and even in some cases carriers are returning to strong purchases or upgrades. And that's the driver combined with the market share gains that we're seeing.

As a follow-up, if you look at Huawei, that increased 20% sequentially. It seems to have more than doubled from a year ago. If you look at the share, how should we be looking at Huawei as the year progresses?

I can't really comment on any particular customer for this year for the same reason I can't comment on what the end verticals may do this year. We simply don't know. Because of the concentration of customers in the communications world and because communications are such a large marketplace, in general for semiconductors but also for programmable logic, I think it is natural or it's very possible that you'll see 10% plus customers from us at time to time. We have one now. I believe our competitor has one as well. And so it's possible, I'm not overly concerned with it. But again, can't really comment on what any particular customer is going to do for the full year. Next question, please?

And next, we'll hear from John Pitzer with Credit Suisse.

John, just getting back to the long-term gross margin target of 65%. When I kind of scan over the last 32 quarters, I only see about four or five quarters when you weren't operating above that longer-term target. I guess I'm trying to understand what's the mechanism that gets gross margins from current levels back down to target, especially in light of the fact that a big reason for ASIC replacement is that PLDs kind of provide a tangible economic value to the customer that you should be able to share in.

Well, I think 65% has been our long-term target that we have cited for many, many years, probably eight. We feel historically it's a good balance between growth and profitability. In other words, we don't want to limit our growth potential by trying to maximize gross margins. On the other side of the coin, we don't want to destroy the profitability of the company just for growth's sake. So 65% has been a target that we have established and we sort of used that internally. I think for a series of reasons, we've been able to operate above that level, either because of in-vertical mix, because of success of our products, because of cost reductions that we've been able to enjoy or put in place. It's very hard to predict exactly where gross margins will be in a couple of years from now. We certainly, as Ron has said, don't see anything in the near term which causes a tremendous change in the gross margins. But long term, 65% is still our comfortable long-term model and we feel maybe over several years we may get there. It's possible we stay above. But again, if we need to put out a long-term target, it still remains 65%.

And then, John, earlier you talked about sort of a goal of doubling the growth of the semi industry. I'm just kind of curious with the step up in R&D around 28-nm this year. In part, you kind of broaden the product portfolio and get the new markets. Would you expect that multiplier to go up as 28-nm starts to ship and the volume call in a year or a year and a half from now?

Yes, I think the growth potential certainly is there for us as an industry to grow 2x the overall ASIC ASSP and embedded opportunity. Again if you do the math, PLDs were only 5 million last year and yet the opportunity is probably close to 50. So you have the ability with 1% to literally grow our industry 10%. So I think the opportunity is there to grow at an extended rate. I think in particular for Altera, we benefit two ways. Number one, is we're an incumbent coming out of 40-nm. Number two, I think from what I've seen we have a much better, broader product portfolio in 28-nm, which should allow us to address more of the ASIC and ASSP opportunities. And again as I mentioned earlier, do it more cost effectively because we have different families that are optimized. Therefore, our product cost I think should be better. And I think all put together should allow Altera to continue to grow faster than the other PLD companies and capture market share, but most importantly replace ASICs and ASSPs and hopefully continue to grow at 2x the overall semiconductor industry.

John, just getting back to your first question. I think it's fair, but I just want to remind you that in November, what I tried to outline is the 65%, what I kind of left you with was that would occur in 2015. So there's a lot that can happen between now and then. It is in fact a very long-term target.

Next question, please?

Thank you, sir. And next, we'll hear from Tim Luke with Barclays Capital.

Ron, just to clarify. Other than Huawei, would you have any other 10% customers and was that correct that Huawei was up $0.20 sequentially. And separately when you're thinking about OpEx, should we think about it being slightly higher in the first half of the year with the spend on 28-nm to get to your unchanged full year targets? Or how are you thinking about the way that, that flows through the broad year?

So First of all, we only have one of above 10% customer and that is Huawei. I'd have to check the growth rate. I'm not sure it's 20% quarter-to-quarter.

We listed Huawei also is a greater than 10% customer last quarter, 14%. So the math's roughly there, if you come back into it. I apologize I don't know the particular number...

I think you gave the exact percentage last time, so that's very helpful.

To the last question you asked, Tim, I think what you should expect to see is a ramp of headcount through the year and in that sense, you should see probably the second half being higher in OpEx than the first half just because of the way the hiring is occurring.

And John, just generally, you've seen several strong quarters in a row and now it seems that you're broadly seeing the lead times normalize and supply and demand come into equilibrium and the revenue is slightly lower sequentially. Do you now, of these high levels, expect this year to be a growth year and will it be a couple of quarters of absorbing the movement to normalize lead times? Or do you feel that given what you've seen, this is a one-quarter period and you'll return to growth in June?

Well, I can't comment specifically on the second calendar quarter. What I can say is we do expect to grow this year. We do expect to outgrow the semiconductor industry this year. We also expect to take market share within programmable logic this year. The other comment I'd make is the inventory that has been reported is only by a few customers so far and is fairly minimal. And so with lead times now at a fairly normal level, you would expect those that have our inventory positions would be reporting that and obviously changing their order flow in the future so that they could pull that inventory down and again we're not hearing from a lot of customers that they have inventory a few. So can't really say what that means for the second calendar quarter at this point. But again, we do expect to grow this year and outgrow the semiconductor industry. Next question, please?

And next, we'll hear from Gus Richard with Piper Jaffray.

Could you talk a little bit about or give a little more color on your 28-nm sampling plans to customers have products in hand as we speak and sort of just a little bit more color as to when samples hit the streets?

We released software for our Stratix series I believe in the second calendar quarter of this year. It is in a press release, we do have it out. It is still the only generally available software in PLDs for any product in 28-nm. So I think we've had a very substantial lead on that. We did take out our first Stratix V product in the fourth calendar quarter in December. We are planning to sample that to customers this quarter in Q1. And then we just announced the Arria V and Cyclone V families. You'll see those arriving both in software format and then later, starting first with the Arria series with chips this year as well. So you'll see a lot of introductions across several different products from us in 28-nm, again starting with Stratix V this quarter in sampling.

So it's now in-house?

No, it's in manufacturing right now.

Next question, please?

I think we're probably coming up on the hour. I would suspect we have time for one more question if there's one more out there.

There is, sir. And we'll take our final question from Ruben Roy with Pacific Crest Securities.

John, following up the 28-nm discussion. I was wondering if you could spend a minute or two on, I understand the optimized families, but when you look at the high end of your product families, the Stratix, can you give us a little bit of information on where you see the differentiation using the HP process, the TSM versus what Xilinx seems to be using at HPL?

Well, I think the first thing is performance. HP, it stands for high performance. It is what the FPGAs and GPUs, for instance, have been built on for many generations. I think if you put a high-end family on a low-power process technology, low power means also low performance. And so the downside is you're simply not going to have the performance and you add something like a 28-gig transceiver which we have and have demonstrated to customers. Once you bring that performance rate into the chip, you need to have a high-performance fabric and memories to be able to handle that much data that quickly. And I would suspect there will be challenges trying to shoehorn a low-power process technology product into the high end. So we're simply doing what we've done for many generations. And for that matter, what our competition's done for many generations. We've estimated that the high end is probably 60% of the business, the low end is probably 40%. So it's not an insignificant part of the business at all. And we think by continuing what we've done in the past, we actually entered the high end with an extreme advantage, in performance rates in particular, both with transceivers and the overall fabric performance of the devices. We're seeing in general just going back to the comment on just something struck me, remember we do the methodology which has been traditionally different from what our competitors have done and that we do prototypes or test chips along the way so that we can prove out each piece of the technology, which is why in the third and fourth calendar quarters, we were able to demonstrate our 28-gig transceiver operating in a 28-nm process technology. There is no other such transceiver, in fact there's no transceiver that's operating today in 28-nm other than our device. This allows us to see each piece and know that by the time that we put this all together that we have proven the technology out, we've tuned it and that the first chip should be very solid. So employing that strategy yet again on 28-nm gives us a feeling that our products will be pretty rock solid and should be able to easily start to sample that product in the first calendar quarter.

And if I could just really quickly get a follow-up around the Avalon acquisition, was that driven by a specific customer program, a near term or kind of general IP acquisition for longer term at Altera?

We've done really well in the OTN applications because of the transceiver performance requirements. We really haven't had any competition to a large extent in that space. We had many customers using the Avalon IP actually to implement their OTN applications, 40 gig, 100 gig and we felt the technology was very extensible to the 400-gig range, which customers are trying to work on now. And so we felt with the Avalon technology we could actually extend our IP and start replacing some other ASSPs potentially that were coming to market and broaden our business base. And so that's why we did the acquisition. I think it's a space we're doing very well and again because of the transceiver performance that we had and the good partnership we had with Avalon on the IP. This just kind of brings it all together and allows us to, I think, do more ASSP replacements as a product strategy going forward.

As we wrap up today, let me mention that we will attend two industry conferences this quarter, the Morgan Stanley Technology Media & Telecom Conference, March 2, in San Francisco and the Raymond James 32nd Annual Institutional Investors Conference in Orlando on March 8. This concludes Altera's Earnings Conference Call. Thanks for your interest and participation.