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This 5G Stock Has Another Catalyst You Might Have Missed

Harsh Chauhan, The Motley Fool

The deployment of fifth-generation (5G) wireless networks has supercharged Xilinx (NASDAQ: XLNX) stock in recent months as the market has rewarded the chipmaker's impressive financial growth.

But a closer look at Xilinx's recently released fiscal 2019 fourth-quarter results reveals that there's another catalyst that investors shouldn't ignore: automotive growth.

Person reading a book while sitting behind the wheel of a self-driving car.

Image Source: Getty Images.

Xilinx's automotive business is warming up

Xilinx's automotive, broadcast, and consumer segment supplied 14% of its total revenue in the most recent quarter. Though this is not as big as the 41% contribution from the communications segment, which is on a roll thanks to 5G, there's massive potential that cannot be missed.

The automotive business grew in the double digits in the latest fiscal year, according to the company. Demand for Xilinx's chips increased because of their ability to power advanced driver assistance systems (ADAS). Xilinx said its programmable chips are powering ADAS modules at 16 automotive OEMs (original equipment manufacturers).

In fact, Xilinx's chips have already been shipped in around 100 million devices in the automotive and transportation space. That number should only expand, as demand for chips that power ADAS is set to increase. Grand View Research estimates that the ADAS market will clock a compound annual growth rate of 19% through 2025 as more cars with this feature hit the road.

The company has already struck relationships with key automotive companies and component suppliers to ensure that it doesn't miss out on the ADAS gravy train. Daimler has already showcased an artificial-intelligence-enabled Mercedes SUV that's powered by Xilinx's solutions.

ZF is collaborating with Xilinx to develop an AI-based automotive computer -- ZF ProAI -- that will help automakers deploy self-driving applications. ZF has chosen to partner with Xilinx because the programmable nature of its chips will help create a platform that can be tailored according to the needs of different customers.

Instead of developing an autonomous driving system from scratch, ZF and Xilinx's modular hardware and open-source software architecture will allow automakers to scale and customize the systems. The two companies believe that such an approach will help reduce costs without limiting the functionality of ZF ProAI.

Meanwhile, Chinese car company BYD is mass-producing a camera-based ADAS solution using Xilinx's chips.

Xilinx is pulling the right strings to keep its automotive growth engine humming. But more importantly, the company is taking steps to ensure that it doesn't lose its competitive edge in the automotive market, as its product development moves show.

Gearing up for long-term gains

Xilinx unveiled its Versal chip in October last year, which it calls the industry's first adaptive compute acceleration platform (ACAP). The chipmaker claims that this platform is far better than its existing programmable chips, promising a 20x performance jump over the current FPGA chips and a 100x increase over existing CPU applications in the fields of 5G wireless, ADAS, and data centers.

Xilinx expects to launch Versal shortly. According to CEO Victor Peng on the company's latest earnings conference call:

We're actually only short weeks away from getting the silicon in-house. So we're really excited about that. We have multiple early customer engagements across multiple markets. That does include communications, includes automotive for autonomous driving ... it's pretty broad.

So Versal should be able to boost Xilinx's business across several markets thanks to the performance gains it promises to deliver to customers in markets including automotive.

We have already seen that the chipmaker is sitting on a massive opportunity in automotive ADAS, and has already struck relationships with key players. The launch of a more powerful chip could help Xilinx cement those partnerships further and score more customers in the future.

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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool recommends Xilinx. The Motley Fool has a disclosure policy.