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Xilinx (XLNX) Up on Product Strength, Competition a Concern

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Xilinx Inc. XLNX has been gaining on a steady demand in the communications industry, and continued adoption of its products in Automotive, ISM, Test and Aerospace and Defense markets.

Notably, the company surpassed the Zacks Consensus Estimate in three of the four trailing quarters, with an average positive earnings surprise of 6.9%.

With expected long-term earnings per share growth rate of 9.3% and a current market cap of $16.8 billion, it seems to be a stock that investors should retain in their portfolio right now.

Let’s take a look at the factors aiding the company’s performance.

Xilinx, a designer and manufacturer of a broad range of high-performance, high-density programmable logic devices (PLDs), is witnessing impressive growth of its 16-nm, 20-nm and 28-nm products.

The company’s ongoing transition from a FPGA provider to an all-programmable devices producer has been helping the company gain market share. This is also helping Xilinx counter the stiff competition from the likes of Intel INTC.

Moreover, the increasing demand for the company’s Ultrascale+ FPGAs from data-center operators for providing FPGA-as-a-Service looks promising, with the client base already having prominent names like Amazon AMZN and Alibaba BABA.

We believe Xilinx is poised to tap the opportunities stemming from an increase in adoption of AI technologies, 5G connectivity, autonomous vehicles and IoTs, which will drive  its revenue growth over the long run.

Xilinx, Inc. Revenue (TTM)

Xilinx, Inc. Revenue (TTM) | Xilinx, Inc. Quote

However, the company is plagued with certain headwinds in one of its largest markets — the Asia Pacific having sluggish wireless deployments. This, in turn, might be a drag on the company’s near-term results.

Additionally, intensifying competition from Intel is a negative for Xilinx. Notably, Intel has become an even stronger competitor after the acquisition of Altera in 2015 and made it difficult for Xilinx to gambit the duo’s combined initiatives.

Moreover, Xilinx keeps on innovating for producing advanced FPGAs of lower geometries to improve performance, density and system-level functionality, integration, and lower cost and power consumption at each manufacturing process node. With each transition to a new process node, there are considerable tape-out costs, the need to navigate the learning curve and limited volume production, which are all significant headwinds for margins and profitability.

Nevertheless, a favorable product mix, along with a satisfactory guidance for first-quarter fiscal 2019, keeps us hopeful about this Zacks Rank #3 (Hold) stock’s retention in investors’ portfolio.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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