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Xilinx (XLNX) Beats Q2 Earnings Estimates, Raises Guidance

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Xilinx (XLNX) Beats Q2 Earnings Estimates, Raises Guidance

Xilinx (XLNX) second-quarter fiscal 2019 results benefit from strength in advanced products and growth across majority of the end markets.

Xilinx Inc. XLNX reported better-than-expected fiscal second-quarter 2019 results, wherein both the top and the bottom lines surpassed the Zacks Consensus Estimate and recorded year-over-year improvement.

The company reported earnings of 87 cents per share, which was much higher than the Zacks Consensus Estimate of 75 cents and the prior-year quarter’s figure of 65 cents.

Revenues increased 19% year over year to $746.3 million and outpaced the Zacks Consensus Estimate of $710.3 million driven by strength across Communications, Data Center & TME as well as Automotive, Broadcast & Consumer businesses.

Buoyed by the encouraging results, the company raised its revenue guidance for fiscal 2019 to approximately 20% growth.

Quarter Details

Product wise, Advanced product revenues surged 43% year over year, contributing 64% to total revenues. Revenues from core products (36% of total) declined 9% from the year-ago quarter.

Management noted that revenues from the company’s Zynq products grew 70% from the year-ago quarter, driven by robust demand in automotive mostly advanced driver assist systems, industrial and communications markets. The Zynq SoC Platform, which includes Zynq at 28nm and both MPSoC and RFSoC at 16nm, now contributes 18% of total revenues.

Sales of 20nm node and 28nm node increased 40% and 16% year over year, respectively in the reported quarter. Xilinx noted that sales of 16nm node increased more than 3.5 times.

On the basis of end markets, Communications revenues (35% of total revenues) grew 33% year over year. Growth in wireless and wired businesses due to LTE upgrades, early deployment of 5G in Korea and preparation for 5G deployment in both China and North America drove results.

Broadcast, Consumer & Automotive revenues (16% of total revenues) increased 17% year over year. Slight decline in consumers was more than offset by growth in automotive and broadcast.

Industrial, Aerospace & Defense segment revenues (25% of total revenues) declined 5% on a year-over-year basis due to a decline in Aerospace & Defense mostly.

Data Center and Test, Measurement & Emulation (TME) (21% of total) grew 28% from the year-ago quarter. Key design wins from hyperscalers globally for accelerating applications beyond FPGA as a Service (FaaS) drove results.

The company’s leadership position in China market with regard to FaaS expanded with Alibaba BABA moving from beta to general access. Amazon’s AMZN AWS doubled its FaaS availability zones to 8, by adding London, Sydney, Frankfurt and most recently China.

Geographically, the company registered year-over-year growth in North America, Europe and Asia Pacific of 5%, 20% and 34%, respectively, while Japan revenues were flat.

Xilinx, Inc. Price, Consensus and EPS Surprise

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

Operational Details

Gross margin contracted 150 basis points (bps) year over year to 69% due to lower A&D in the company’s end market mix.

Operating expenses as a percentage of revenues declined 200 bps to 37.8%.

The company posted operating income of $235.8 million, up 22.4% year over year. Operating margin expanded 90 bps to 31.6%.

Balance Sheet, Cash Flow & Shareholders’ Return

Xilinx exited the reported quarter with cash, cash equivalents and short-term investments of approximately $3.38 billion compared with $3.36 billion recorded in the previous quarter.

The company has total long-term debt (excluding current portion) of about $1.201 billion, down from $1.207 billion reported in the previous quarter.

Xilinx generated cash of $313 million from operations compared with $176 million in the previous quarter.

The company paid $91 million in dividends and repurchased shares for $23 million.

Guidance

For fiscal 2019, Xilinx projects revenues in the range of $2.95-$3 billion, compared with the earlier guidance of $2.8-$2.9 billion.

Gross margin is expected to be between 69% and 70% compared with the prior guidance of 68.5% and 70.5%. Operating expenses are projected to be in the range of $1.13-$1.15 billion, up from the previous guidance of $1.12-$1.14 billion.

For third-quarter fiscal 2019, Xilinx projects revenues in the range of $760-$780 million.

The company expects strong growth from Data Center and TME, Industrial, Aerospace and Defense and Communications. TME, Aerospace and Defense and wireless are expected to deliver strong results, while Automotive, Broadcast and Consumer is anticipated to be approximately flat.

Gross margin is expected to be around 69%. Operating expenses are projected to be $290 million. The sequential increase in operating expense is due to higher employee compensation, which includes profit sharing and sales incentive and the full integration of the DeePhi acquisition. Tax rate is estimated between 10% and 12%.

The company expects Alveo revenues to start increasing in the second half of fiscal 2019. Alveo is expected to contribute meaningfully to fiscal 2020 revenues while in the current fiscal its contribution will likely be relatively modest.

Zacks Rank and a Key Pick

Xilinx currently carries a Zacks Rank #3 (Hold).

A better-ranked stock in the broader technology sector is Vishay Intertechnology, Inc. VSH, sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth for Vishay is projected to be 9.2%.

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