Morgan Stanley are you sure?

While a few among us are guessing Fed's next move... there are many people who are placing high hopes that the Fed will introduce more stimulus package. One interesting comment catch my attention that is Morgan Stanley actually downgraded 2 leaders in FPGA industry.

Well I am not sure how many would concur with that view but personally since I know one of the company relatively well, I am going to say that what Morgan Stanley did was either a great mistake or at least the timing of such report is definitely questionable hence it goes back to the objective of publishing such article and making the downgrade on both Altera and Xilinx.

Reason given are simple: Potential weakness in Asia telecommunication sector. In fact this financial giant actually quote that "visits to telecommunication and original equipment manufacturers in China and India "reveal slower growth in 3G subscribers in China and a much lower profitability in India", which could lead to near term decline in orders from these 2 companies.

Well, first of all in my opinion while the 3G subscribers may decline the infrastructure development will still proceed. When we talk about decline, what's the rate that we are talking about here? Second, how on earth did Morgan Stanley measure the potential decline due to the lower profitability in India? The pressure on gross margin is not so much on Altera but on its customers selling products made from Altera chips to the people of India... similarly goes to Xilinx.

At the same time, allow me to share some of the facts of one of the company, let's take Altera for example.

Stellar financial results for both quarters in 2010 with impressive y-on-y revenue and earning growth, ROE is ~40% and operating margin of close to 37%. Company is on track to gain more market share with its Stratix IVGX family leading the way to market share gain and securing more new sockets from customers who used to be hardcore fans of its main competitor.

In short, it seems that the company is hitting everything right at this point of time, with the chinese government keen on expanding the infrastructure system in China, I don't think the slow down anticipated in China's voracious chip consumption is going to be of any material impact at least not in the short term. When I say short term, that's 3-6 months period.

Chart wise, no matter how pessimistic I could possibly be the stock just appear to be heading north with a target price of USD32.90 at least. That's easily a 3 dollar gain which translate to >10% return. I say BUY since the Q3 earning report is still to be published.