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Xilinx (XLNX) Q4 Earnings Lag Estimates, Revenues Top, Up Y/Y

Zacks Equity Research

Xilinx Inc. XLNX reported fourth-quarter fiscal 2019 earnings of 94 cents per share, lower than the Zacks Consensus Estimate of 96 cents but much higher than the prior-year quarter’s figure of 70 cents.

Revenues surged 30% year over year to $828 million and outpaced the Zacks Consensus Estimate of $819 million too, backed by strength across wireless communications market, which is driven by the 5G momentum.

However, higher mix of communications is a persistent overhang on gross margins.

Quarter in Detail

Product wise, Advanced product revenues soared 55% year over year, contributing 68% to total revenues. Revenues from core products (32% of total) declined 4% from the year-ago quarter.

On the basis of end markets, Communications revenues (41% of total revenues) grew 74% year over year. Growth in Wireless market, supported by early 5G production, pre-5G deployments and LTE upgrades, was a primary catalyst. Notably, 5G deployments in South Korea and a very early start of the ramp-up of 5G deployments in China drove results.

Broadcast, Consumer & Automotive revenues (14% of total revenues) increased 20% year over year, attributable to an uptick in Automotive, which offset the decline in Broadcast.

Industrial, Aerospace & Defense segment revenues (27% of total revenues) inched up 1% on a year-over-year basis, boosted by growth in each end market.

Data Center and Test, Measurement & Emulation (TME) revenues (18% of total) decreased 14% from the year-ago period. While TME remained stable, data center declined in the quarter under review. Absence of cryptocurrency-related demand and soft demand for legacy products were a dampener. Moreover, weak memory testing market was also a challenge.

Geographically, the company registered year-over-year growth across all four regions. Asia Pacific witnessed maximum growth of 56% followed by Japan with 20%. North America and Europe grew 13% and 24%, respectively.

Xilinx, Inc. Price, Consensus and EPS Surprise

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

Margins

Gross margin came in at 67.5%, below the company’s guidance, due to higher proportion of wireless in the revenue mix.

The company posted non-GAAP operating income of $259 million, up 34% year over year. Operating margin expanded 40 bps to 31.3%.

Balance Sheet and Cash Flow

Xilinx exited the quarter with cash, cash equivalents and short-term investments of approximately $3.18 billion compared with $3.47 billion sequentially.

The company has total long-term debt of about $1.23 billion, deteriorating from $721.6 million reported in the preceding quarter.

Xilinx generated cash of $288 million from operations compared with $314 million in the earlier reported quarter.

Fiscal 2019 Highlights

The company reported more than $3 billion of revenues, up 24% over fiscal 2018 figure.

First and second-generation Zynq product revenues grew nearly 60% with strength across applications in communications and automotive, particularly the ADAS, and industrial end markets.

In fiscal 2019, Xilinx returned $526 million to shareholders through a combination of buybacks and dividends. The company repurchased 2.4 million shares worth $162 million and paid a total of $364 million in dividends.

Outlook

Xilinx is changing its revenue reporting structure. Going forward, Communications will be called Wired and Wireless Group (WWG). Data Center Group will be reported separately and include high-performance computing. A&D, Industrial and TME will be called AIT, and the Automotive, Broadcast and Consumer group will be called ABC.

For first-quarter fiscal 2020, Xilinx projects revenues in the range of $835-$635 million, which is likely to be driven by growth in both the wired and wireless.

Data center is anticipated to resume double-digit growth. Meanwhile, the company predicts AIT to be down with declines in A&D and TME, more than offsetting industrial growth. The company expects ABC to grow in the fiscal first quarter with growth across all end-markets.

Gross margin is forecast to be around 66% compared with 69.8% in the year-ago quarter. 5G deployment and a few other product mixes are a threat to this metric. However, the company expects the rebalancing of end market mix to improve its gross margin during the second half.

The company hopes to revive the growth momentum in the second half with strength in data center, aerospace and defense, TME and auto while other businesses are likely to witness a modest uptick or remain stable.

Operating expenses are projected to be $308 million in the first quarter of fiscal 2020. Management assumes operating expense to grow in the second half on account of higher annual compensation across employee base and increased tape-out expenses.

Zacks Rank and Other Stocks to Consider

Currently, Xilinx has a Zacks Rank #2 (Buy). A few other top-ranked stocks in the broader Computer and Technology sector are MeetMe, Inc. MEET, Paycom software PAYC and Alteryx, Inc. AYX, all 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 rate for MeetMe, Paycom and Alteryx is projected at 20%, 25% and 15.4%, respectively.

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