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Xilinx Sues Flextronics

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According to Bloomberg, chip maker Xilinx Inc. (XLNX) has sued Singapore-based electronics manufacturer Flextronics (FLEX) for fraudulently selling its semiconductor chips to other customers at a higher price. The complaint was filed in a California Superior Court.
Xilinx claimed that defective chips when sold at a marked-up price led it to incur huge losses due to the obligatory warranty replacement. Flextronics, on the other hand, has allegedly made significant profits from buying these semiconductor chips at a discount and selling them at a higher rate.

Xilinx also accused Flextronics, its authorized distributor, of providing false information and facts to Checkpoint Systems Inc. (CKP) related to Xilinx’s products in June. Xilinx found out about these malpractices when serving Checkpoint through another preferred customer, which was not marking up the prices. It appears that Flextronics charged $4.50 higher for the same device on a large discounted order than this preferred customer.

Per the complaint, Xilinx accused Flextronics of not only counterfeiting its products and dealing in the grey market but also fraudulence and misrepresentation of Xilinx’s devices.

Founded in 1990, Flextronics provides design and manufacturing services to original equipment manufacturers (OEMs) globally. Flextronics’ components portfolio also provides a complete solution that enhances customer satisfaction. It is also worth noting that Flextronics provides cameras and battery chargers to Apple Inc. (AAPL).

Xilinx posted a 6.6% rise in the earnings per share to 49 cents in the second quarter of 2014. However earnings lagged the Zacks Consensus Estimate of 52 cents.

Revenues in the quarter grew 10.1% to $598.9 million, exceeding the Zacks Consensus Estimate of $588.0 million. The year-over-year increase was due to a 32% improvement in revenues from Industrial, Aerospace & Defense segment and 17% year-over-year growth in Broadcast, Consumer & Automotive, which more than offset the 3% decline in revenues from Communications & Data Center segment.

Moreover, Xilinx’ transition into and the expected shipment of 28-nm nodes and recovery in the semiconductor market are catalysts. However, competition from Altera Corp. (ALTR) and shrinking PC market (significant consumer of semiconductor chips) keep us concerned in the near term.

Currently, Xilinx has a Zacks Rank #3 (Hold).

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