Good day, everyone, and welcome to the Altera First Quarter 2011 Earning Results Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Mr. Cliff Tong from Altera Investor Relations. Mr. Tong, please go ahead.

Thank you. Good afternoon. I'm filling in for Scott Wylie who is traveling today, and as is usually the case, I'll also be available after the call if any of you have further questions. 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 webpage where you'll find complete instructions. The telephone replay will be available at (719) 457-0820 and use code 258712. During today's prepared remarks, we'll 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 in our SEC filings. Investors are cautioned that all forward-looking statements in this call involve risks, uncertainty and at future events may differ from 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, and John will follow. After John concludes his remarks, we'll 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 now would like to turn the call over to Ron.

Thank you, Cliff. Revenue for the first quarter 2011 was $536 million, a sequential decrease of 4% and close to the midpoint of guidance. As we anticipated, we saw declines in several of our large Telecom & Wireless customers, which were partially offset by strength in the automotive, industrial and military vertical. Our other two verticals declined slightly. On the product side, we achieved 13% sequential growth for our new products, while mainstream declined and mature was roughly flat. Please note, in Q4 FY '10, new products were nearly 50% of the quarter's revenue. As a result, we have updated our new mainstream and mature product categories in Q1. With the revised definition, our 40-nanometer devices make up nearly all of the new product category. Historical tables presented using both the updated and previous methods appear on our IR websites. Within the new product categories, Stratix IV increased 7%, with Cyclone IV up 142%, Arria II down 36%, and HardCopy IV of 263%. All in, 40-nanometer revenue increased 8% sequentially and represented 18% of revenue for the quarter. By the way, our 65-nanometer devices, now part of mainstream, did decline. We expect to continue to see significant 40-nanometer growth throughout FY '11. Q1 turns were 38%, consistent with our guidance. Book-to-bill was less than 1 as we worked for the most part at standard lead times. Please keep in mind in Q1 and to some extent in Q4 FY '10, we had several of our large customers change the manner in which they procure Altera product. To a greater extent, we are seeing our large customers move to VMI or Vendor-managed inventory. The change means that bookings for these customers now occurs simultaneously with shipment or revenue, so in the past, product would be booked and accumulated in backlog thus reducing the turns needed. Now, with more use of VMI, the bookings happen at shipment. As a result, the turn's number will be higher, all things being equal. So what we told you last quarter remains accurate: as our lead turns return to normal, our turns number will increase. However, we now anticipate that we would nominally reach our historic turns norm of a mid- to high 50s, but because of the move to VMI, probably to high 60s over time. Gross margin for Q1 was 72.6%, an increase of 1.6 points from Q4 and slightly higher than guidance. Favorable vertical mix was the driver behind the sequential gross margin increase. Operating expenses at $143 million was slightly lower than guidance. The other run was specific to R&D and the result of slightly slower than anticipated hiring. Operating margin for Q1 was 45.8% and the effective tax rate was 8.7%, reflecting some favorable discrete items. Net income for the quarter was $224 million or $0.68 per diluted share. On the balance sheet, cash and investment balances increased to $3.1 billion. Cash flow from operating activities was a healthy $297 million for the quarter, and our cash conversion cycle was 90 days. We ended Q1 with total pipeline inventory month supply on hand of 3.6, little change from Q4 and in line with guidance. Ending Q1 inventories comprised of 2.8 months for Altera and 0.8 months for distributors. Moving to the outlook for the second quarter of 2011, we expect revenue to be flat to up 5%. Second quarter turns look to be in the mid- to high 40s, and incidentally our book-to-bill thus far through Q2 is above 1. Gross margin will be 71% to 72%, slightly less than Q1, since we expect some negative vertical mix. We are targeting R&D spend at $84 million, $85 million, up from Q1 as we continue a multi-quarter period of 28-nanometer introductions and a series of strategic R&D initiatives. SG&A should be $70 million to $71 million. Incidentally, full year SG&A will likely be $280 million versus previous guidance of $265 million, due to a number of factors including legal expenses, the Avalon acquisition and other miscellaneous items. We expect ending Q2 Months Supply On Hand to be in the low- to mid-3s range. The tax rate for Q2 will be 10% to 12%, and the diluted share count for Q2 will be approximately 330 million shares. Before I turn the call over to John, I would like to update one important piece of long-term gross margin guidance we gave you on November 29, 2010. What we signaled at that point was a long term for 2015 gross margin rate of 65%, which we viewed as a good balance point between growth and profitability. After reviewing many of our assumptions, we think a long-term gross margin rate of 67% is a better estimate. This change elevates our long-term operating margin to 38%. All of the long-term business model guidance we gave you remains unchanged. With that, let me turn the call over to John.

Thank you, Ron. First quarter revenues increased 4% sequentially as we completed a one-quarter minor inventory adjustment, combined with a temporary slowdown in wireless. The Q1 impact from the earthquake in Japan in terms of supply and customer take rate was negligible. In the first quarter, the verticals played out generally as expected. Telecom, Wireless revenue declined 14% sequentially, with Wireless down significantly due to the end of the fourth round of TD-SCDMA deployment in China and weakness in India, partially offset by growth in WCDMA and LTE. Huawei represented 13% of revenue in the quarter. Industrial, Military, Automotive increased 25%, with all three submarkets up. Computer, storage, Networking declined 4%, with Computer up and Networking down. Other declined 4%. We have completed the initial characterization and delivered our first Stratix V samples to customers. This phase has been much smoother than normal, and with the complexity of the first device at 3.9 billion transistors, quite satisfying. Stratix V, developed in a high-performance process, delivers significantly higher performance with much lower total power consumption than competing 28-nanometer FPGAs. With 28 gigabit-per-second integrated transceivers, variable precision DSP, and embedded Hard Copy blocks, Stratix V is uniquely optimized for high-performance and high bandwidth applications. We are clearly in the lead in the high end, which is the largest revenue segment of the FPGA industry. We continue with the tailored product approach in 28-nanometer, utilizing different architectures, features and process technologies for our low-end Cyclone, midrange Arria and high-end Stratix families. With tailored products, we best serve diverse end market requirements for fast growth while also optimizing cost for profitability. Our tailored approach is a major reason our gross margins have expanded over the last decade and why we are resetting our long-term gross margin model higher to 67%. For Q2 revenue, we are forecasting flat to a 5% sequential increase consistent with our expectations prior to the earthquake in Japan. We expect growth in communications driven by Wireless. We expect the automotive, industrial, military, computer, networking and other verticals to be flat to slightly down sequentially. The rising cost of semiconductor design continue to favor programmable products, with the tipping point well underway. We expect to continue to outgrow our customers as we displace ASICs and ASSPs in the infrastructure markets. We have enjoyed design win momentum in FPGAs that have and will continue to fuel growth and market share gains. And with our tailored product approach, optimizing costs, features and color consumption are matched to market opportunity, we believe that we can, on average, grow at twice the rate of the semiconductor industry. Now let me turn the call back to Cliff.

We would now like to take questions. [Operator Instructions]

[Operator Instructions] We'll take our first question from Tristan Gerra with Robert Baird.

Question regarding disruption from Japan, which you said was negligible, have you seen a change in patterns from your customers trying to increase inventories due to the Japan earthquake? Did this have some type of effect on your top line either for Q1 or in terms of your Q2 guidance?

Japan, either from the take rate in Japan itself or from other customers, did not have an impact on the first calendar quarter, and we're not anticipating that it will have an impact on the second calendar quarter. We have managed the supply to customers to make sure that no single or a few customers are able to hoard supply of material. That process has gone extremely well, and from a supply perspective, we have been able to get material to meet customer forecasts and demand.

Okay. And then a quick follow-up, if you could elaborate on the [indiscernible] managing inventories and what's driving this transition and timing for that?

Yes, it's -- this is Ron. It's purely customer-driven. In a lot of cases, they just want supply closer to them, but honestly, it's a trend we're seeing in some of our large customers, and it's something we're accommodating as needed.

And if you go back over quite a few years, this has been something that we've commented on before, and I think a trend that probably we'll continue to see over time. Turns still remain low based on the fact that we still have significant backlog coming out of last year, but again as Ron mentioned, we do anticipate that turns will eventually get back into not only the high 50s again but into the 60s, and those are figures quite honestly we saw some years ago.

Okay. Thank you.

Thank you very much Tristan.

And we'll take our next question from Jim Schneider with Goldman Sachs.

Thank you for taking my question. This is Gabriela Borges on behalf of Jim. Could you provide the split between Wireless and Wireline in Q1, and can you give a little detail about what Wireline Telecom did in the quarter, either by application or by geography?

In terms of Telecom was slightly down, mainly due to a slowdown in optical deployments, not geography-specific, we really saw that across quite a few customers. Part of that also was, as we talked about in last quarter's conference call, there was some minor amounts of inventory in the Telecom segment. We expected that to be worked down in Q1. In terms of the split, it's roughly 60% Wireless, 40% Telecom, slightly higher so maybe it's 62%, 38% again in favor of Wireless, but that's roughly the breakout for the quarter.

Great, thanks. And if I could just ask a follow-up. Wireless has obviously been very strong for Altera given your exposure there. As we look forward to the year, do you see any change in your customers' investment priorities, and do you think it's possible that Wireline cannot go wireless?

In terms of the year, I'm not going to comment. We do take each quarter one at a time. In terms of the long-term trend, I do think both Telecom & Wireless have a very good growth cycle going forward. There is a tremendous amount of obstacle deployment for Metro and even in some geographies to do fiber to the x being curbhouse [ph] whatever it may be, which I think will fuel growth in the Telecom sector, and Wireless obviously we're seeing some geographies like India start 3G deployment. China continuing to deploy 3G and then other geographies like North America, Europe and -- excuse me, North America, specifically United States, Japan and North -- South Korea doing LTE or fourth generation deployment. So I do think we have a several year solid communications growth cycle in front of us, coupled with the fact that, in each generation of equipment, you typically see the programmable technology increase its dollar content. So as we've talked about before, our dollar content doubled going from 2G to 3G base stations and tripled going from 2G to 4G. So that allows us even on a flat CapEx market to continue to grow very well. Hopefully that provides some background for you. Thank you very much.

Yes, thank you.

And we'll take our next question from Ambrish Srivastava with BMO Cap (sic) [Capital] Markets.

John, just on the 28-nanometer, could you just to help us calibrate where are you in the rollout versus filings? And then related to that, when do we start to see evidence of design win momentum in that, and then I have a follow-up?

Yes, certainly. In terms of the products, what we've announced what we're going to do is 3, and I believe our competitors announced that they're doing similar. Software for our high-end family was out probably about a year, almost earlier than software from our competition. They gave us a distinct lead there. Obviously, our chips at the high end are out earlier than theirs. At the midrange, they are slightly ahead of us. They've shipped I believe -- ships that they've announced in late Q1. Of their mid-range family, you'll see that from us a little later in the year, and then it looks like both companies are roughly on track with the lower-end products. So I think that kind of gives a summary as I understand it. As well, I mean the thing to note is the high end is the revenue driver. If you look at the revenue split, it's been high end, low end and then midrange in terms of size and order, and we're out first in the high end both in terms of software and chips, and I think that gives us a distinct advantage in where a bulk of revenue has been for the industry. Just as a last comment, we take revenue from ASICs and ASSPs, and so if you think about encroaching further into those markets, it's the high-end family that typically does that, and so this affords us an opportunity to continue to expand at a faster rate, we hope, than certainly the market and the competition. Follow-up, Ambrish?

John, actually just kind of related to that, when do we start to see evidence of design wins at the high end or at any end and understanding the high end is the bigger piece there.

Yes, that's a good question. I'm sorry, you asked that and I did not speak to it. So design wins have been very robust. Stratix V includes a lot of features that were not in Stratix IV: higher performance transceivers; the variable precision DSP, which is unique to Altera; the embedded HardCopy Blocks; some other technology and features that we've included. And it's been very popular in particular in telecom, military tests as examples. And so design win momentum has been very strong in the product line as we would expect continuing to take market share from ASICs and ASSPs as we had hoped and expected. I will have to at some point break out some statistics and give you some information. I just don't have anything today for you.

Okay. And next quick follow-up with the lead times, has there been any change? We've heard all about DTRs, and also on the front end, there's been some shortages, so any changes in your products for the lead times?

Yes, in terms of lead times, first of all, there's no issue with wafer supply. There's no issue with any of the PLCC or QFP types of packages. The issue really breaks down to flip chip and wirebond substrate packages which are used more on the higher-end product lines from materials coming out of Japan. We have been able to meet customer forecast and customer demand in the near term and we anticipate through Q3. Orders for new unforecasted demand for those chips that are affected, flip chip, but more predominantly, the wirebond substrate are eight to 12 weeks, but if customers were forecasting or previously had orders, the lead times are unaffected. So at this point, generally, I would say most every product is fairly normal. Again, for anybody that's looking for upside product on the products that are affected, lead times are 8 to 12 weeks. For those that were ordering it or had forecasted, they see no effect at all.

Thank you, sir.

Alright, thank you very much.

And we'll take our next question from Christopher Danely with JP Morgan.

Thanks, guys. Any guess on how OpEx should trend at least on a relative basis for next year?

Chris, this Ron. A little early to do that. We haven't even really begun our planning process yet. I did update OpEx on the SG&A side for this year, and maybe next quarter if there's a change, I'd update RD as well, but little early to think about that at this point.

Sure. And then one more longer-term question. 40-nanometer continues to ramp nicely. What would be your best guess on when that peaks as a percent of your revenue?

So if tradition holds, and it's a fairly predictable pattern, we're looking at 15 to -- well, actually 18 to 24 more months. We're really starting the ramp of revenue at this point, and we had 2 years of Prototyping, and now you're starting to see the growth through this year, you'll see it through next year. So roughly, I'd say 18 to 24 months.

Even though that product line is early and it's, if you look at, for instance Stratix IV, it's early in its product life, it's now the largest product for Altera in the Q1 quarter. So you'll see a lot of strength, a lot of growth and, as Ron points out, a couple more years of solid growth in front of it.

Great, thanks.

Thank you.

And we'll take our next question from Glen Yeung with Citi.

Thanks. John, your guidance says flat at 5% and I think you said that every end market would be down except for Wireless. I wondered if that's right. And then then follow-on to that is, if it gets to the upper end of the range, can it only be Wireless or do you need to see other businesses contribute to get to the upper end of the range?

Yes. So to answer it, we provide 4 groups. We expect three of the groups to be flat to slightly down, one of the groups being Telecom Wireless to grow. Actually, when you look at it, there are 11 submarkets, some of those markets are growing, some of those markets are decreasing. So that's -- when you put them all together into four categories, that's what you get. In terms of the major changes, I would say for Q2, the Wireless market we expect to be up, 3G, 4G, Microwave, Automotive should be up strongly, consumer should be up strongly. The one that I would say would be notable down is Military on program timing, and then the rest are all sort of in the middle somewhere. In terms of growth or being able to hit the high end, at the end of the day, it's a mix, it's a forecast. We're never exactly spot-on, pretty close last quarter, and we can have changes in any of those that could drive the business to one end of the range or the other or even outside of the range one way or the other.

Okay. Second question is around VMI. The first part of it is, what portion of your business is VMI now and what was it last quarter and last year? And then secondly, to that, as you move more to VMI, what should we expect to see in terms of differences in the way you manage inventory and differences in the kind of feasibility you think you have?

Yes, so, Glen, it's still a fairly small piece of total, something -- I'm not even going to give you a percentage, but it's not significant. But the piece that is significant as we're seeing it grow, and so that's why -- and it's growing in some of our large customers, so that's why I pointed it out in the script. So what's happening is, they're giving us a forecast and we kind of know what to build based on that forecast. But they're not booking it until -- officially booking until they pull it out of VMI. So that's the change. You don't see it in traditional backlog anymore. And that's the only change. I mean it sort of affects what we see as book-to-bill, it affects our turns number, but we still have good visibility on what the customer demand is.

Can you kind of fill it in every week or some periodic time?

Exactly. And we do not anticipate -- I mean, again, this has been something that's been growing for years. We had customers, I would say, probably going back to 2007, '06, in that timeframe. That's sort of the transition. We did, as Ron points out, have more transition last quarter because of a couple of customers, but it doesn't change our inventory profile, either ourselves or distribution over the long term. It's just sort of a change in the way that we do business with them, but we do not anticipate that it requires more inventory from alternative service.

Okay, thanks.

Yes, and remember, Glen, the inventory that they have is still our inventory until they pull it. So as John pointed, it might have been sitting in the distant [ph] past, now it's just sitting in our inventories.

Got it.

Or it's sitting in the distributor side, that's by the end customers, so it's ultimately something that just will change the profile, but for the turns, there's just been nothing really else.

Thanks.

Alright. Thank you very much.

We'll take our next question from Ian Ing with Gleacher & Company.

Thanks for taking my questions. Could you talk more about what's driving the OpEx increases in Q2, and what sort of sequential trends we should expect for R&D and SG&A Q3 and Q4 to get to the full year target?

Yes, so, Ian, this is Ron. I'll try to articulate it. It's a bunch of little things, but essentially you're looking at -- we had the Avalon -- we did Avalon after we booked our plans for one. We also have some legal expenses associated with one particular lawsuit with Intellectual Ventures. Those are not something we contemplated and are fairly significant. And we have a whole bunch of little items, honestly, nothing that is as large as the first 2.

Okay. And then trends for the rest of the year, Q3 and Q4?

Yes. What I said was, basically, we were $70 million or $69 million SG&A in Q1. That's what roughly I gave for Q2 and you'll see that same rough amount for Q3 and Q4. So that's why I gave a new number of $280 million.

Okay, thanks. And then John, the Asia base station market, can you talk about perhaps defending share on the remote radio heads? I mean, there is this talk of NetLogic acquiring Optichron offering a high earnout. They do have some IT related to direct conversion, perhaps you can talk about that?

I haven't seen any evidence of any design win-loss to that sort of company or technology or for that matter any of our competitors or DSP companies. And I was there just a few weeks ago. So I think our design win momentum within Wireless, whether it's base stations or radios or microwave continues to be very strong, and I would expect that our market share will continue to increase in that space.

Okay, thank you.

Alright. Thank you very much, Ian.

And we'll take our next question from Hans Mosesmann with Raymond James.

Yes, thank you. John, can you comment on wafer availability in the second half vis-à-vis what you saw last quarter looking into the second half, and I have a follow-up.

We're not concerned at all about wafer availability. There has been no impact to Altera from the events in Japan, and based on our forecasts as needed at this point in time, we have secured enough capacity out of TSMCs so we feel very comfortable with our position for wafers in the second half.

Okay, and then as a follow-up, your competitor at the high end is taking a stack silicon approach to get extra capacity or density. When do you suppose Altera will take that approach, if any time soon?

We've been working on stack silicon 3D for a while. It is one of the strategic initiatives that we've increased this year over last year, in fact, by adding more individuals to that. We have been working with several vendors. As soon as the technology is qualified and ready for deployment, which is still well over a year out from now, if you look at stated public documents from suppliers, you can expect to see our products from Altera as well. Then I think quite a few other vendors, it is something that is in vogue in the industry. It's a way not only to do multiple programmable devices is an example to get a larger device, but it's also certainly the case that you can combine different types of technologies to do what's been described as more than more, and something that Altera and our customer base are very interested in seeing some creative products around. As is typical for Altera, we will announce specific products about the time that we have software for customers to begin using, and we're near deployment of those actual chips.

Great. Thank you.

Alright. Thank you very much.

And we'll take our question from Shawn Webster with Macquarie. [Technical Difficulty]

I'm sorry we didn't catch much of that. Can you ask that again please?

Sure, sorry. About the industrial growth you saw, you saw a really strong growth in that segment in Q1. If you could break that down a little bit for us and talk about the individual components of that, Automotive, Industrial and Military?

All three were up sequentially. As a percentage, I think Military was probably the higher gainer. Within the industrial market specifically, industrial automation in general has been a very good driver in the quarter overall.

Okay. And a follow-up then about the military timing issues, so there have been a number of companies that are talking about seeing pushouts potentially due to the budget impasse in Congress. Have you seen anything related to that or is this unrelated?

No we haven't. Typically, what we see with some of the military contractors is they'll come in and buy for a program in the quarter, and then maybe go away for a quarter or two or three or maybe even a year. So those who I think participate in the military do see it as a sector where buys can be specifically targeted in a quarter. If you go back to the fourth calendar quarter, our Military business was down. We did predict it would go up in the first calendar quarter. It did. We are expecting it to go down in this calendar quarter so it's kind of typical. Nothing related to the budget, however, that's causing any impact to the overall business or our expectations for the business for this year.

Okay. And if I could sneak one more in, about the Automotive sector, have any of these delays in the builds affected you at all or do you see any customer pushouts or expediting of orders?

It has not changed our profile of orders, and in fact, Automotive was up in the first calendar quarter and we expect it to grow again in the second calendar quarter. So it has not impacted our business at all.

Okay, great. Thank you very much.

Thank you.

We'll take our next question from Gus Richard with Piper Jaffray.

Yes, thanks for taking my question. Just to be clear on your lead times, it sounded like you've got them back in, but if anybody wants upside, it's for specific packaging types [indiscernible]. Could you just give a little bit more color on lead times at this point?

Yes. Part of that was in order to prevent anybody from coming in and trying to buy up all of our supply. I think I'm talking to -- first of all, we were very aggressive and very early about securing material from subcontractors to make sure that we had adequate supply for our customers, both for the second calendar quarter and the third calendar quarter. Based on feedback from our major suppliers, we're in the top tier in terms of companies and their ability to supply, so I'm not getting any phone calls from customers about their issues with getting product. We have seen a couple customers who have tried to order extra product to create buffer stocks. That is something that the lead times were meant to deal with, to prevent somebody from pulling in and taking supply from others. We are allocating to prior orders, we're allocating to the forecast from customers. We're allocating the need. So we do have turns capabilities. Really what we're trying to do is, first, if somebody orders upside, to schedule it out a quarter and then investigate it and talk to them and see if they really need it and then pull it in if necessary. And that's what the lead times are basically there to do. And at this point, most of the products that are affected, lead times are in the 8 to 12 weeks so they will be this week, next week. The products that were unaffected are at normal lead times, which are available off the shelf for two to four weeks for assembly. And then I would imagine as we get into the third calendar quarter, probably all lead times will be back to normal.

Got it. And then just a follow-up, just so I have an idea, how many 28-nanometer takeouts, roughly, do you expect to do this year?

I don't have that off the top of my head. I don't really even know. Sorry, I apologize. That is something that we do have planned and scheduled and I just don't know the numbers. So we can get that for you, and I apologize. It's just not something that I thought of to bring.

Okay, thanks.

Alright. Thank you.

And we'll take our next question from Sureni Pajorie [ph] with CLSA.

This is Ryan Goodman for Sureni. I've got a question on the midrange in the market. Your competitor is ramping a 45-nanometer product against, I guess your Cyclone IV, which is 60 nanometers. I just want to know, are you seeing any change in the competitive dynamics there?

I think that's the low end. It's a Spartan VI versus our Cyclone IV. We are not seeing necessarily any significant changes within that market space. We did see Xilinx before, with Spartan-3. We've certainly seen Platus [ph] within some of that area as well as programmable competitors. At a broader level, we see a lot of other guys including ASIC suppliers, but I really can't say that we've seen any dramatic shift of market share or design wins or any challenges. Cyclone IV actually has some pretty strong growth last quarter, and to my expectations actually beating the ramp right now.

Okay. And then just a follow-up, different area. You've raised the long-term gross margin target. I know you've been above there for several quarters. Just curious why you went to 68%, you've still been above that for about 6 quarters, so how come you don't go higher? And from here to, I don't know, I guess 2015 is what you said the target sort of represents, what would happen to low-end margins from where they are today at that?

Just one point of clarification. What we've changed on the long term, our 2015 gross margin was 67% from 65%. Yes. So I think we used to get the same question when it was at 65%. There's just a ton of different factors. I mean John mentioned one in the script that we believe helped and was certainly one of the reasons we increased it, which is the two-tiered [ph] approach to the three segments in the FPGA space. But in the marketplace, there's a ton of other factors, both from a price standpoint and competitive standpoint. You can name them, so you can see where we are now. We're at fairly lofty levels based on history. What we're trying to give you is an estimate what we think will happen over the next 4-plus years.

I think if you kind of take a step back, 65% has been our target for probably 8 years. Majority of that time, we've been slightly above that. We do think because of our tailored product approach, the vertical markets that we're pursuing and the opportunity that's available on those markets, and the margin mix within those as well as cost programs at 67% is probably a much better target long-term than 65%, which is why we've updated that. And ultimately, it's sort of a metric that we've put together as a longer-term stake in the ground. We believe it's a good balance between growth and profitability. We're not trying to grow at the expense of profits on one end and we're not trying to maintain profits but maybe sacrifice growth on the other. And so it's really what we feel is good balance based on vertical market opportunity and the product portfolio that we have.

Okay, thank you.

Thank you.

We'll take our next question from Vivek Arya with Bank of America Merrill Lynch.

Thanks for taking my question. John, how do you see the market share dynamics paying out that 28-nanometer versus your main competitor? You obviously have the incumbency advantage at 40-nanometer, but do you think that's enough to retain the majority market share at 28-nanometer? Could you just maybe talk through the dynamics?

Yes. I think if you go back a long, long time ago, incumbency, I certainly underestimated coming into this industry. I came from the ASIC side. People used third-party EDA tools, and I did not realize or I certainly underestimated joining this company 10 years ago, that the struggle that we would have as a company that had lost a lot of market share and lost a lot of mind share and engineering software seats, how difficult it would be to sell, and basically, what it required for Altera is we had to have better products, better capabilities, relationships, something that was different that would interest people to move. Incumbency is a very large barrier to entry, either for a competitor or somebody new in our industry. As you point out in 40-nanometer, that definitely is on our side. You've seen a lot of success over a long period of time of Altera growing that, to the point where we have a maturity of the users designing with Altera product today. We think we will carry that forward into 28 and I think the thing that really is in our favor is having a tailored product approach, means we're going to have a better product set for the competition from everything that we've seen today. So as I mentioned earlier, it really takes a better product in order to get the customers to switch, and I haven't seen it in the competition that is compelling enough that's going to get people to switch. So I believe that if we continue to execute the products that we have slated in our roadmap as we have with the first Stratix device -- and by the way, again, the transistor count on the Stratix device, this is the largest chip in the family, so we're doing something that is quite complex of 3.9 billion transistors to get it all to work and ship to customers on schedule is a pretty amazing feat. We're very happy with that. We think that means that all of the other products will come out on time as well. And again, having better products combined with incumbency, I do feel we're going to be able to maintain market share. And that market share is much higher than our overall market share in the FPGA industry, which is why we feel confident that we will continue to grow our overall market share for years to come.

That's very helpful. Just one more. Due to the higher share price, the diluted share count is going to go up this year. You have a lot of cash on the balance sheet. Any thoughts on the uses of this cash?

Yes. We get this question I'm sure at least once a quarter or so. What we've said is we will continue over time to increase the dividend and do opportunistic buybacks, so we're going to return cash to shareholders in a blended form.

Got it. Sorry, just one last one. John, back to you. In terms of where you're seeing the market share gains of the design wins at 28-nanometer, are there certain applications, are there certain end markets where you think you are better positioned versus others? Thank you.

Yes. I think at this point, the high end is a product line that's very heavily used by areas such as Test & Measurement, Military, Telecom, some wireless applications broadcast, Computer and some of the medical. And I think in those applications quite honestly from what I see, we're not going to have much of a competitive threat. I think at the low end as we've talked about before, we'll have a better cost structure because of the process technology that we're in, which is non-hi K [ph] metals, so therefore it carries a much lower wafer price, which means our cost structure will be better. Really where we'll see the FPGA competition I think is going to be predominantly in the midrange and the midrange is play and Wireless, Automotive and some other types of applications. With note, we've done the midrange family for two generations. Were going on our third generation. Of the 3 products, the midrange family has been consistently the smallest of the 3 revenue families. We do think that will increase over time, but we do think that the high end is substantially larger.

Great. Thanks and good luck.

Alright. Thank you very much.

We'll take our next question from Uche Orji with UBS.

Thank you very much. John, let me just ask you a couple of quick ones. You talked about India and as well as PV Fifths V [ph] as kind of long-term drivers. I was wondering if any of that was factored into Q2 already? And also with China Mobile talking about LA [ph] trials now for TDLTE, are you seeing any indications of that today?

So we are getting revenue from TDLTE because there are prototype and development units that are being put together, so that revenue is certainly in Q1, Q2. In terms of TD-SCDMA/LTE for CMCC, which is China Mobile, I think that's more of a back half of the year plan, so I'm not anticipating much revenue in the second calendar quarter. India was weak in the first calendar quarter. We're not anticipating that, that comes back substantially this quarter and it was weak in particular for both the optical and wireless side.

I see. Just a little bit of a follow-up on that. With India, I mean, it's been slow to get started and doesn't seem to have really taken up. Any commentary as to why and when do you think this -- what it kind of holding it back and when do you think that will start to kind of open up?

The feedback from the equipment manufacturers is that the governments and the operators seem to be in constant discussions, and you see this played out through the press. It's been discussions on things like being able to utilize vendors from specific geographies due to concerns of espionage, to technology transfer requirements, to tariffs that they've put forward, to concerns over bid rigging within 3G. All of these things I think to an extent have slowed some of the deployment. I do think it's going to happen. Clearly the operators have spent a lot of money on the auctions, and so therefore, as well as contractual obligations, need to deploy equipment as quickly as possible, particularly in the populized major cities, I do think that, that will go forward. It just has been, as you point out, slow, so it's something in the future and certainly a growth opportunity in front of us.

Can I just [indiscernible] for Stratix V, you talked about a couple of things. One was that it will position DSPs. What does that really mean in terms of performance versus your competition?

It's a new architecture and it basically can do floating points and variable precision, very popular in Military. We still have a lot of room to grow our market share in Military that this is something that we think really differentiates us, and things like radar applications is also important, and the medical area and to some extent Broadcast and Wireless. So we think that this in telecom -- excuse me, so we think that this architecture does differentiates us. There's only us and one DSP vendor that are capable of doing this today, and so we think it will accelerate some design win business in a couple of vertical markets that we need to grow market share.

Thank you very much.

Because as I mentioned, the way to do it from our experience is having a better product, and so this kinds of ties in to having a better product.

I appreciate that. Thank you.

Thank you, Uche.

We'll take our next question from Sandeep Shyamsukha with Auriga.

Thanks for taking my question. My question was centered around Wireless, particularly for LTE, you have talked in the past that your dollar content on LTE is significantly higher than 2G and 3G products. I was just curious as to what percentage of revenue LTE is right now for Wireless and how do you expect it to grow in this year?

It's small. It is mainly small because you're really seeing only 1 geography do any significant deployment, and that's in North America right now. I do expect it to significantly grow over the next few years because you're trying to see deployments in Japan and South Korea that complement North America, and I think to an extent you'll see North America accelerate, plus, at some point, you'll see this deployment also within, I would bet, China. To some extent, it gets a little clouded because some of the newer equipment is capable of being software upgraded from WCDMA to LTE. And so the current equipment, while called WCDMA is actually LTE-capable, and so in some cases it's going out as WCDMA and eventually will be redone as LTE. But overall, I would say it's a small proportion of our revenue today.

Right. Just a follow-up on this, I mean in the North American side, typical end customers seem to be using your competitor's product more. Is that a factor for LTE being a smaller percentage? I mean do you think LTE might be a larger percentage of your competitor's revenue?

I don't know that I would say that. I've heard that and I've seen it in print. I don't know that I could necessarily say that, that's a factual observation, per se. I think our contents generally in Wireless is continuing to go up from a market share perspective this year over last year, so overall, I wouldn't say any one geography necessarily benefits us or hurts us. There are particular accounts where you're better than a competitor that can play, but overall, I think our position is really solid right now.

Okay, great. Thanks. That's all I have.

Alright. Thank you.

We'll take our next question from Parker Paulin with Wells Fargo Securities.

First question. I just wanted to see if we could get a little bit more color perhaps on the R&D end of things for longer-term?

This is Ron. So yes, I think what we clarified on November 29th last year was the long-term R&D number of 18% of revenue, and what we said was it would take us several years now to get to that number. We had a 25% increase in R&D spending, 2010 to '11, and it'll take us 2 to 3 years to get back to that 18%. 18% has been the magical number for a while, but in the business model, we are trying to get down to that number and now we're -- we have the luxury of trying to get up to that number.

I think it's, we should probably add, we have not done any planning work for next year at this point, so we really can't provide you any model or information either for R&D or SG&A because we simply have not sat down and done the planning yet.

Okay, thank you. And one other question, real quick, on just the uptick that you've seen with the Tunnel Creek with working with Intel?

Unfortunately, as with all customers, I can't really talk about any details. It is -- I forget the product name, it was the product that used to be called Stellarton, I believe. It is a product that includes an FPGA from Altera. I can't really talk about that because it's their product, they sell it. So I apologize but I can't provide any color on that.

Perfect. Well, thank you very much.

Alright. Thank you.

[Operator Instructions] We'll take our next question from Uche Orji with UBS.

Thank you very much. I just wanted to follow up a bit on the Stratix V. What kind of HardCopy functions would you be deploying within Stratix V? Would it be for connectivity? I just want to get a sense of how you plan to roll out the HardCopy on Stratix V?

Yes, so it's -- what we've done is -- the idea is to be able to then make metal mask [ph] versions of the FPGAs utilizing the HardCopy Blocks that include other functionality. These can be things like complex I/O controllers or other large complex logic functions. The reason to do that is because you can include something that's significantly large that isn't changing, so therefore it doesn't need the FPGA fabric integrated, whereas in the past the function may have been too large to integrate into the FPGA. And then the other benefit is you get a significant cost in power reduction through integrating that into the HardCopy Block instead of the FPGA. This will be a technology available both for Altera to make specific products over time. There are variations of the Stratix devices for different markets, but we also are opening up to customers that want to implement their own specific logic within an FPGA, and its feedback has been very, very strong on that as a feature and capability. Nothing to specifically announce or talk about yet. You'll see some, I think, things over time from us in terms of capabilities versus specific targeted markets.

Sure. And so, essentially I mean, because the history, the softness rates of previous HardCopy variations have not been [indiscernible] from my perspective. It kind of sounds like this is more customer-driven so should we expect this to be more successful in Stratix V?

I think what you're going to see is first of all, Altera utilizes technology for integration of complex logic blocks into the FPGA, and then later on, customers. I think if you look at HardCopy, it's actually doing fairly well this year, growing well. It was, as Ron noted, up significantly, sequentially, and to close the quarter it was 5% of revenue. So the product line, particularly in 40-nanometer is going extremely well right now.

Sure, alright. Thank you very much.

Alright. Thank you, Uche.

[Operator Instructions] And it looks like at this time all questions have been answered. I'll turn it back over to Mr. Cliff Tong for any closing remarks.

Thank you, operator. As we wrap up today in terms of conferences this quarter, we'll participate in the JPMorgan Conference in Boston on May 17. This concludes Altera's Earnings Conference Call. Thank you for your interest and participation.