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Why Is Xilinx (XLNX) Down 11.7% Since Last Earnings Report?

Zacks Equity Research
Is (UBNT) Outperforming Other Computer and Technology Stocks This Year?

A month has gone by since the last earnings report for Xilinx (XLNX). Shares have lost about 11.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Xilinx due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Xilinx Reports Mixed Q4 Results

Xilinx reported fourth-quarter fiscal 2019 earnings of 94 cents per share, lower than the Zacks Consensus Estimate of 96 cents but much higher than the prior-year quarter’s figure of 70 cents.

Revenues surged 30% year over year to $828 million and outpaced the Zacks Consensus Estimate of $819 million too, backed by strength across wireless communications market, which is driven by the 5G momentum.

However, higher mix of communications is a persistent overhang on gross margins.

Quarter in Detail

Product wise, Advanced product revenues soared 55% year over year, contributing 68% to total revenues. Revenues from core products (32% of total) declined 4% from the year-ago quarter.

On the basis of end markets, Communications revenues (41% of total revenues) grew 74% year over year. Growth in Wireless market, supported by early 5G production, pre-5G deployments and LTE upgrades, was a primary catalyst. Notably, 5G deployments in South Korea and a very early start of the ramp-up of 5G deployments in China drove results.

Broadcast, Consumer & Automotive revenues (14% of total revenues) increased 20% year over year, attributable to an uptick in Automotive, which offset the decline in Broadcast.

Industrial, Aerospace & Defense segment revenues (27% of total revenues) inched up 1% on a year-over-year basis, boosted by growth in each end market.

Data Center and Test, Measurement & Emulation (TME) revenues (18% of total) decreased 14% from the year-ago period. While TME remained stable, data center declined in the quarter under review. Absence of cryptocurrency-related demand and soft demand for legacy products were a dampener. Moreover, weak memory testing market was also a challenge.

Geographically, the company registered year-over-year growth across all four regions. Asia Pacific witnessed highest growth of 56% followed by Japan with 20%. North America and Europe grew 13% and 24%, respectively.

Margins

Gross margin came in at 67.5%, below the company’s guidance, due to higher proportion of wireless in the revenue mix.

The company posted non-GAAP operating income of $259 million, up 34% year over year. Operating margin expanded 40 bps to 31.3%.

Balance Sheet and Cash Flow

Xilinx exited the quarter with cash, cash equivalents and short-term investments of approximately $3.18 billion compared with $3.47 billion sequentially.

The company has total long-term debt of about $1.23 billion, deteriorating from $721.6 million reported in the preceding quarter.

Xilinx generated cash of $288 million from operations compared with $314 million in the earlier reported quarter.

Outlook

For first-quarter fiscal 2020, Xilinx projects revenues in the range of $835-$635 million, which is likely to be driven by growth in both the wired and wireless.

Data center is anticipated to resume double-digit growth. Meanwhile, the company predicts AIT to be down with declines in A&D and TME, more than offsetting industrial growth. The company expects ABC to grow in the fiscal first quarter with growth across all end-markets.

Gross margin is forecast to be around 66% compared with 69.8% in the year-ago quarter. 5G deployment and a few other product mixes are a threat to this metric. However, the company expects the rebalancing of end market mix to improve its gross margin during the second half.

The company hopes to revive the growth momentum in the second half with strength in data center, aerospace and defense, TME and auto while other businesses are likely to witness a modest uptick or remain stable.

Operating expenses are projected to be $308 million in the first quarter of fiscal 2020. Management assumes operating expense to grow in the second half on account of higher annual compensation across employee base and increased tape-out expenses.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

VGM Scores

At this time, Xilinx has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Xilinx has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.



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