Xilinx Reports a Solid Quarter - Analyst Blog

Xilinx Inc (XLNX) reported sales of $513.3 million in the third quarter of fiscal 2010, up 24% sequentially driven by growth in all end-markets and geographies. In particular, sales of Virtex-5 (one of its new products) recorded outstanding growth and exceeded $100 million. 

Coming to end-markets, sales from communications increased 23% sequentially and industrial and other increased 29%. Within communications, sales to wireline customers were particularly strong, while sales to wireless customers were up slightly. Sales to the consumer and automotive and data processing categories were also strong increasing 15% and 25% sequentially. During the quarter, consumer sales were driven primarily by growth within audio-video broadcast and automotive sub-segments. Data processing sales were driven by strength from computing as well as storage and servers. 

Sales in all geographies increased sequentially during the quarter with Asia Pacific and North America posting the strongest sequential growth of 27% and 25% respectively. Strength in Asia Pacific was driven by a broad base of applications with exceptional strength coming from wired communications. Strength in North America was also broad based with the largest incremental sales gains coming from communications and industrial and other. European sales increased 19% sequentially during the quarter driven by strength from communications, audio-video broadcast and automotive. Sales from Japan increased 17% sequentially, driven primarily by strength in the industrial and other markets. 

Gross margin for the quarter came in at 64.1%, up from 61.9% recorded in the previous quarter driven by revenue growth in mainstream products and continued yield improvement. 

Operating expenses came in at $192 million, $6 million higher than management forecast due to the higher variable spending associated with higher sales. Despite the increase, operating margin increased to 27% from 20% in the previous quarter and was the highest that the company has recorded in four years. 

Earnings per share (EPS) came in at 40 cents easily beating the Zacks Consensus Estimate of 35 cents. The reported EPS excludes approximately 2 cents per share for restructuring charges. 

During the quarter, the company generated $185 million of cash from operations and used $9 million in capital expenditures. Xilinx paid $44 million in cash dividends and used $25 million on stock buyback. 

Xilinx ended the quarter with cash and equivalents of $1.5 billion and convertible debt of approximately $354 million and other long term liabilities of $124 million. 

Going forward, management expects sales to be up 3% or down 1% sequentially in the March quarter. Virtex -5 is expected to be the growth driver. Sales in Europe are expected to increase sequentially but sales in all other geographies are expected to be flat sequentially. Gross margin is projected at 64% – 65%. Operating expenses are estimated to decline by approximately $12 million to approximately $180 million. The share count is expected to be 275 million and the tax rate is forecasted to be approximately 20%. 

We believe the company’s growth will reaccelerate, given the competitive advantages of the company’s 90-nm and 65-nm technologies as well as the recent signs of economic recovery, which are expected to boost capital spending in 2010. In view of the expected growth in the coming quarters, we have recently upgraded our rating on the stock to OUTPERFORM from NEUTRAL. 

California-based Xilinx designs and manufactures a broad range of high-performance, high-density programmable logic devices (PLDs) for electronic equipment manufacturers.
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