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Factors to Look for Ahead of Xilinx's (XLNX) Q3 Earnings

Zacks Equity Research

Xilinx Inc. XLNX is slated to release third-quarter fiscal 2018 results on Jan 24. The question lingering in investors’ minds is whether this semiconductor company will be able to post a positive earnings surprise in to-be-reported quarter. Notably, Xilinx has delivered positive earnings surprises for seven straight quarters.  Over the trailing four quarters, the company delivered an average positive surprise of 5.4%. So, let’s see how things are shaping up prior to this announcement.

What to Expect?

The Zacks Consensus Estimate for the quarter under review is pegged at 63 cents, which represents a 21.2% increase from the year-ago figure of 52 cents. We note that the Zacks Consensus Estimate remained unchanged over the past 60 days. Additionally, analysts polled by Zacks project revenues of roughly $630 million, up 7.6% from the prior-year quarter.

We expect field-programmable gate arrays (FPGA) products to drive Xilinx's third-quarter sales aided by steady demand in the communications industry, and continued strong adoption of its products in the Automotive and Aerospace and Defense markets.

Xilinx, Inc. Price and EPS Surprise

Xilinx, Inc. Price and EPS Surprise | Xilinx, Inc. Quote

Factors to Consider

Xilinx is set to capitalize on the global trend of FPGA replacing application-specified integrated circuits (ASICs). There are certain fundamental advantages of using FPGAs over low-cost ASICs. One of the basic reasons is the difficulty in getting suitable ASICs for design and the additional cost of re-certifying new ASIC-based designs.

We expect FPGA products to drive the company’s revenues throughout fiscal 2018, aided by steady demand in the communications industry, and continued strong adoption of its products in Automotive, ISM, Test and Aerospace and Defense markets. Moreover, design wins from other sectors, such as wired communication, data center and industrial, will stoke revenue growth.

Furthermore, FPGAs are widely used in third generation (3G) and fourth generation long-term evolution (4G LTE) network connections. These markets are strongly co-related with global GDP growth and spending behavior.

Most of the emerging economies are witnessing unprecedented demand for mobile devices like smartphones and tablets, and are also getting increasingly connected via the Internet. This has compelled these countries to heavily invest in the Telecom & Wireless infrastructure. We believe higher wireless deployments across the world will lead to heightened demand for Xilinx’s 28-nm, 20-nm and 16-nm nodes, thereby positively impacting its overall fiscal third-quarter results.

Nonetheless, flaring up operating expenses related to tape-outs is likely to weigh on the to-be-reported quarter’s profitability. In addition, management’s pessimistic view over business conditions in India and China, two of its fastest growing markets, remains a concern.

What the Zacks Model Unveils?

Our proven model does not conclusively show that Xilinx is likely to beat on earnings this quarter as it does not possess the key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter. Xilinx currently carries a Zacks Rank #3 and has an ESP of -0.57%.

Some Stocks With Favorable Combination

Here are some other companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Facebook, Inc. FB has an Earnings ESP of +2.04% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Microsoft Corporation MSFT has an Earnings ESP of +0.83% and a Zacks Rank #2.

Apple Inc. AAPL has an Earnings ESP of +1.12% and a Zacks Rank #3.

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