Shares of Xilinx Inc. (XLNX) have generated a return of 6.6% over the last three months. The company also delivered a positive earnings surprise of 12.7% in the second quarter of fiscal 2015.
We are optimistic about the company after it posted better-than-expected results in the last-reported quarter. Xilinx’s earnings of 62 cents per share not only increased 26.5% year over year but also beat the Zacks Consensus Estimate of 55 cents per share.
However, Xilinx’s year-over-year revenue growth was marginal (0.9%). The company’s 28-nm sales remained flat, while 40-nm sales were down. This 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 an 8% improvement in revenues from Industrial and Aerospace & Defense markets (41% of total revenue) while revenues from Other sources increased 12%.
Moreover, the company provided decent third-quarter revenue guidance. Further, 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.
The price appreciation can also be attributed to Xilinx’s significant exposure to telecom and wireless vertical markets. These markets are strongly correlated with global GDP growth and spending behavior. Most of the emerging economies are seeing unprecedented demand for mobile devices like smartphones and tablets and are also getting increasingly connected via the Internet. This has compelled these countries to heavily invest in telecom and wireless infrastructure. We believe that Xilinx is well positioned to capitalize on these opportunities.
Going forward, 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. We believe that the company’s continued focus on margin expansion, cost reduction across its product portfolio and higher yield are positives. The company's product launches are also expected to boost revenues.
We also remain optimistic about the company’s future performance due to its endeavor to return shareholder value through continued share buybacks and dividends. During the first half of fiscal 2015, Xilinx returned approximately $301 million and $154 million to shareholders through share buybacks and quarterly dividends, respectively. These investor-friendly initiatives not only boost earnings but also instill investors’ confidence and loyalty.
However, delays in China LTE deployments and stiff competition from Altera Corp. (ALTR) remain near-term headwinds.
Currently, Xilinx has a Zacks Rank #4 (Sell).
Stocks to Consider
Some better-ranked stocks in the technology sector include EMC Corporation (EMC) and Avago Technologies Limited (AVGO), both sporting a Zacks Rank #1 (Strong Buy).
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