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Xilinx (XLNX) Q1 Earnings Surpass Estimates, Revenues Miss

Zacks Equity Research

Xilinx Inc. XLNX delivered first-quarter fiscal 2020 earnings of 97 cents per share, higher than the Zacks Consensus Estimate of 94 cents as well as the prior-year quarterly figure of 74 cents.

Further, revenues rose 24% year over year to $850 million but missed the Zacks Consensus Estimate of $851 million.

Solid growth in the company’s Wired and Wireless Group (WWG); A&D, Industrial and TME (AIT) and Automotive, Broadcast and Consumer group (ABC) end markets helped the company achieve the mid-point of its revenue guidance. However, the suspension of shipments to Huawei due to the export ban imposed by the U.S. government dented the company’s revenues.

Quarter in Detail

Product wise, Advanced product revenues soared 53% year over year, contributing 69% to total revenues. However, the same from core products (31% of total) declined 13% from the year-ago quarter.

Growing demand for the company’s 60-nanometer UltraScale+ family has been the key driver. The company is also benefiting from strong demand for its Zynq platform, which is boosted by the adoption of MPSoC family in wireless and across core vertical markets.

On the basis of end markets, WWG revenues (41% of total revenues) surged 66% year over year. Strong demand from wired and wireless customers, given the global 5G deployment, was a tailwind. However, Huawei shipping restrictions affected the 5G deployments in China.

ABC (15% of total revenues) increased 10% year over year, attributable to an uptick in Broadcast. Sluggish automotive sales in China due to the trade tussle were a downside.

AIT revenues (39% of total revenues) rose 10% on a year-over-year basis, aided by solid growth in industrial. Management mentioned that a lower-than-anticipated fall in A&D and TME was a positive.

Data Center revenues (5% of total) decreased 13% from the year-ago period, primarily due to the suspension of shipments to Huawei. Decelerating demand from a memory customer going through a product transition is a persistent challenge.

Geographically, the company registered year-over-year growth across all four regions. Asia Pacific witnessed maximum growth of 42% followed by Japan with 20%. While North America and Europe grew 3% and 16%, respectively.

Xilinx, Inc. Price, Consensus and EPS Surprise

Xilinx, Inc. Price, Consensus and EPS Surprise

Xilinx, Inc. price-consensus-eps-surprise-chart | Xilinx, Inc. Quote

Margins

Gross margin came in at 66.6%, 60 bps more than the company’s view.

The company posted non-GAAP operating income of $260 million, up 19% year over year. However, operating margin contracted 130 bps to 30.6%.

Balance Sheet and Cash Flow

Xilinx exited the fiscal first quarter with cash, cash equivalents and short-term investments of approximately $2.88 billion compared with $3.18 billion sequentially.

The company has total long-term debt of about $1.25 billion, deteriorating from $1.23 billion reported in the preceding quarter.

Xilinx generated cash of $298 million from operations compared with $288 million in the earlier reported quarter.

Outlook

The impact of Huawei ban and other trade related uncertainties coupled with the company’s usual business variability forced it to provide a weaker-than-expected outlook for second-quarter fiscal 2020. Xilinx projects revenues in the range of $800-$850 million, lower than the current Zacks Consensus Estimate of $856.6 million.

On the earnings call, management mentioned that the company lowered its sales expectations for Huawei this year by more than half. However, in the ongoing quarter, the company resumed shipping products like 28-nanometer chips and other older ones not designed for 5G applications to Huawei.

The company forecasts WWG business to be down slightly in the fiscal second quarter with downsides in the wired business while wireless is expected to grow slightly.

Data center is assumed to resume growth, backed by an improvement in the advanced memory architecture related business and expansion of business at other hyperscalars as well.

Meanwhile, the company predicts AIT to fare poorly with deterioration in TME and Industrial, more than offsetting growth in A&D. Order timing and macro issues are an overhang on industrial while pause in a customer specific program is likely to deter TME business.

The company expects ABC to grow in the current quarter with growth across automotive and broadcast while consumer is envisioned to remain stable.

Gross margin is forecast to be around 66-67% compared with 69.8% in the year-ago quarter. Slump in AIT, 5G deployment and a few other product mixes are a threat to this metric.

Operating expenses are projected to be $322 million in the second quarter of fiscal 2020.

The company did not include the impact of Solarflare buyout in its guidance. However, it mentioned that the completion of Solarflare acquisition would incur an additional expense of around $10-$15 million with the onboarding of Solarflare employees.

Given the unpredictable trade scenario and the overall volatile economic environment, the company refrained from reiterating or updating its full-year guidance.

Zacks Rank and Stocks to Consider

Currently, Xilinx has a Zacks Rank #4 (Sell).

A few better-ranked stocks in the broader technology sector are Rosetta Stone RST, Lattice Semiconductor Corporation LSCC   and Alteryx AYX, each flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Rosetta Stone, Lattice and Alteryx is currently estimated at 12.5%, 12.5% and 13.7%, respectively.

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