Xilinx (XLNX) Beats Q1 Earnings; Misses Revenue Estimates

Xilinx Inc. XLNX reported mixed first-quarter fiscal 2016 results wherein the bottom line surpassed the Zacks Consensus Estimate but the top line missed the same.

The California-based chipmaker's adjusted earnings of 55 cents per share beat the Zacks Consensus Estimate of 53 cents. However, on a year-over year basis, it declined 11.8% mainly due to weak top-line performance.

Quarter Details

Xilinx's first-quarter revenues of $549 million decreased 10.4% from the year-ago quarter and missed the Zacks Consensus Estimate of $555 million. The decline resulted from the dismal sales at its Communications & Data Center division.

Sales at Communications & Data Center division declined 36% year over year. Broadcast, Consumer & Automotive and Industrial, Aerospace & Defense divisions, however, registered year-over-year growth of 2% and 27%, respectively.

Geographically, revenues from North America were up 18% year over year, while that from Asia Pacific, Europe and Japan declined a respective 24%, 19% and 5%. Product-wise, Xilinx's revenues from New and Base products increased 10% and 5%, respectively, while the same from Mainstream and Support products decreased a respective of 40% and 4%.

Xilinx reported 170 basis points (bps) expansion in adjusted gross margin (excluding one-time items) on a year-over-year basis to 71.3% mainly backed by better product and customer mix.

Adjusted operating expenses went down 2.7% to $208.8 million. However, as a percentage of revenues, the same went up 300 bps on a year-over-year basis to 38%.

Xilinx's adjusted operating margins contracted 130 bps year over year to 33.3% mainly due to higher operating expenses, as a percentage of sales, which more than offsets the positive impact of gross margin improvement. In dollar terms, adjusted operating income decreased 13.6% to $182.8 million.

Xilinx exited the quarter with cash, equivalents and short-term investments of $3.33 billion compared with $3.30 billion in the previous quarter. The company has total long-term debt (long-term debt plus current portion) of $1.57 billion. During the quarter, Xilinx generated $183 million cash from operations and incurred $8 million in capital expenditures. The company paid $80 million in cash dividends and repurchased $100 million shares in the quarter.

Guidance

Management provided a tepid second-quarter outlook. The company expects revenues to decline in the range of 2% to 6% sequentially or within the $538 million to $516 million range (mid-point $527 million). The Zacks Consensus Estimate is pegged at $576 million.

Gross margin is forecast to be between 69% and 70%. Operating expenses are expected to be around $217 million, which includes approximately $2 million of amortization of acquisition-related intangibles. Share count is expected to be roughly 268 million and effective tax rate about 12%.

Conclusion

Xilinx reported mixed first-quarter fiscal 2016 results wherein the bottom line beat the Zacks Consensus Estimate but the top line missed the same. Also, second-quarter revenue guidance was disappointing.

We remain cautious of the company's near-term prospects due to persistent weakness in the wireless communication market. The weakness is primarily the result of decline in capital spending by enterprises.

Moreover, 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 Corp. ALTR remains a headwind.

Stocks to Consider

Currently, Xilinx has a Zacks Rank #4 (Sell). Investors may consider better-ranked stocks such as Avago Technologies Ltd. AVGO and eMagin Corp. EMAN carrying a Zacks Rank #2 (Buy).

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