Semiconductor provider Xilinx (NASDAQ: XLNX) reported its fiscal first-quarter results after the market closed on July 24. Both revenue and earnings grew by more than 20%, despite weak demand from data center customers. Growth will slow way down in the second quarter, because of the loss of revenue from Huawei as well as general economic uncertainty. Here's what investors need to know.
Xilinx results: The raw numbers
Non-GAAP earnings per share
Data source: Xilinx.
What happened with Xilinx this quarter?
- Core products revenue declined by 13% year over year, accounting for 31% of total revenue. Advanced products revenue rose 53% year over year, accounting for 69% of revenue.
- Growth in the advanced products segment was driven by the accelerated ramp-up of Xilinx's 16-nanometer node and demand from 5G customers.
- Sales to the wired and wireless end markets jumped 66% year over year, accounting for 41% of total revenue.
- Sales to the aerospace, defense, industrial, and test, measurement, and emulation end markets rose 10% year over year, accounting for 39% of total revenue.
- Sales to the automotive, broadcast, and consumer end markets increased 10% year over year, accounting for 15% of total revenue.
- Sales to the data center end market slumped 13% year over year, accounting for 5% of total revenue.
- Revenue from the Asia Pacific region soared 42% year over year, accounting for 51% of total revenue.
- Revenue from North America was up 3% year over year, accounting for 23% of total revenue.
- Revenue from Europe grew 16% year over year, accounting for 18% of total revenue.
- Revenue from Japan jumped 20% year over year, accounting for 8% of total revenue.
- Xilinx agreed to acquire NGCodec, a video encoding technology provider, during the first quarter.
Image source: Xilinx.
What management had to say
During the earnings call, Xilinx CEO Victor Peng talked about Huawei and the company's 5G business:
Despite our complete suspension of shipments to Huawei in the middle of the quarter, we saw continued strong demand at many of our wired and wireless customers in support of global 5G deployments. We remain well positioned during this initial wave of the 5G cycle, which we continue to believe will be factors larger than the 4G cycle.
Peng also explained why the data center business suffered during the first quarter:
Our business did not grow as expected, largely due to the suspension of shipments to Huawei for their [function-as-a-service] deployment, as well as the slowdown in orders due to a product transition at a significant memory customer, the latter of which we expect to meaningfully recover next quarter.
Peng also discussed the rationale behind the acquisition of NGCodec:
We announced the acquisition of NGCodec that adds a differentiated video compression software to our portfolio to support our Data Center Group. This product has already gained traction with key cloud customers, including Twitch and Alibaba. Video acceleration will be one of the key growth drivers for the DCG business.
Xilinx provided the following guidance for the second quarter:
- Revenue between $800 million and $850 million. That's down from the first quarter and the fourth quarter of fiscal 2019 at the midpoint, and up 10.6% year over year.
- Gross margin between 65% and 66% on a GAAP basis, and between 66% and 67% on a non-GAAP (adjusted) basis.
- Operating expenses of approximately $326 million on a GAAP basis, and approximately $322 million on a non-GAAP basis.
- Other income of approximately $11 million.
- A tax rate of 0%.
- Using the midpoint of Xilinx's guidance ranges, non-GAAP earnings per share are expected to be approximately $0.92.
Xilinx's guidance reflects a full quarter of shipping restrictions to Huawei, as well as trade-related uncertainty. It does include an estimate of revenue from the resumption of shipments of certain permissible products to Huawei. Xilinx has reduced its revenue expectation from Huawei by more than half for the full year.
Given the uncertainty surrounding trade with China and the overall economic environment, Xilinx isn't talking about full-year guidance. "Given the uncertainty regarding these important factors," said Xilinx CFO Lorenzo Flores during the earnings call, "we are not reiterating or updating our full-year guidance today. We expect to provide an update on our fiscal '20 outlook at our October earnings call."
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