Shares of Xilinx Inc. (XLNX) jumped 3.92% in after-hours trade on Thursday following the company’s second-quarter earnings of 62 cents which not only increased 26.5% year over year but also beat the Zacks Consensus Estimate of 55 cents.
Quarter Details
Expectedly Xilinx’s year-over-year revenue growth was marginal (0.9%) in the quarter. The company’s 28-nanometer (nm) sales remained flat during the quarter while 40-nm sales were down which led to the tepid revenue performance. Nonetheless, the company’s revenues of $604.3 million surpassed the Zacks Consensus Estimate of $601 million.
The year-over-year increase was due to 8% improvement in revenues from Industrial, Aerospace & Defense (41% of second-quarter fiscal 2015 revenues) and revenues from Other sources increased 12% in the quarter.
Nonetheless, Xilinx witnessed a 4% year-over-year decline in revenues from Communications & Data Center (41% of revenues) due to lower sales to two major communication customers. Also, revenues from Broadcast, Consumer & Automotive segment were down 6% on a year-over-year basis.
Geographically, revenues from North America were up 3% year over year, while Asia Pacific and Europe were down 2% each. On the other hand, revenues from Japan were up 13% on a year-over-year basis.
Xilinx reported 245 basis points (bps) gross margin expansion year on year to 71.9%, primarily attributable to customer mix and favorable product mix.
Operating expenses for the quarter were down 7% to $234.6 million and, as a percentage of revenues, operating expenses were down 331 bps on a year-over-year basis. This aided Xilinx’s operating margins which increased 577 bps year over year to 33.1%. In dollar terms, operating income for the quarter increased 22.2% to $200 million.
Xilinx’s net income for the quarter came in at $171.5 million or 62 cents compared with $141.5 million or 49 cents reported in the year-ago quarter.
Xilinx ended the quarter with cash, equivalents and short-term investments of $2.59 billion compared with $2.48 billion in the previous quarter. The company has long-term debt (long-term debt plus current portion) of $1.56 billion. Xilinx generated $204 million of cash from operations and incurred $8 million in capital expenditure. The company paid $77 million in cash dividends and repurchased shares worth $200 million.
Guidance
Management expects third-quarter revenues in the range of flat to up 4% on a sequential basis, which comes to a range of $604 to $628.2 million (mid-point $616.1 million). The Zacks Consensus Estimate is pegged at $625 million.
Gross margin is forecast to be roughly 69%. Operating expenses are expected to be around $230 million, which includes approximately $2.5 million of amortization of acquisition-related intangibles. Share count is expected to be approximately 272 million and effective tax rate to be about 13%.
Xilinx expects revenues from wired and wireless communications to increase modestly in the December quarter while the 28-nm revenues are expected to be up sequentially. The company expects global LTE deployment activity to positively impact its results.
Conclusion
Xilinx reported better-than-expected second-quarter results. Also, third-quarter revenue guidance was modest. The growing demand for 28-nm nodes driven by higher wireless deployments and strength in the wired communication segment are expected to remain the growth drivers. The company also expects a rebound in the Industrial, Aerospace & Defense sales. The company’s product launches are also expected to boost revenues.
Nonetheless, delay in China LTE deployments and higher spending on research and development, and selling, general and administrative segments could impact the company’s near-term results. Also, stiff competition from Altera (ALTR) remains a headwind.
Currently, Xilinx has a Zacks Rank #4 (Sell).
Investors may also consider other better ranked stocks such as Rambus (RMBS) and SunEdison (SUNE). Both the companies sport a Zacks Rank #1 (Strong Buy).
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