Xilinx Beats on Q2 Earnings, Revenues In Line, Guides Well

Xilinx Inc. XLNX reported modest second-quarter fiscal 2016 results wherein the bottom line surpassed the Zacks Consensus Estimate and the top line matched the same.

The California-based chipmaker's reported earnings of 48 cents per share beat the Zacks Consensus Estimate of 46 cents. However, on a year-over year basis, it declined 22.6% mainly due to a weak top-line performance.

Shares of Xilinx went up nearly 5% in after-hours trading yesterday, primarily due to better-than-expected earnings during the quarter and an encouraging third-quarter revenue guidance.

Quarter Details

Xilinx's second-quarter revenues of $527.6 million decreased 12.7% from the year-ago quarter and almost matched the Zacks Consensus Estimate. The decline resulted from dismal sales at its Communications & Data Center division and Industrial, Aerospace & Defense divisions.

Sales at Communications & Data Center division declined 19% year over year. The Industrial, Aerospace & Defense division experienced a decline of 12% year over year. Broadcast, Consumer & Automotive, however, registered year-over-year growth of 4%.

Geographically, revenues from North America were down 19% year over year, while that from Asia Pacific, Europe and Japan declined a respective 7%, 17% and 6%. Product-wise, Xilinx's revenues from New products increased 20%, while the same from Mainstream, Base and Support products decreased a respective 29%, 28% and 8%.

Xilinx reported 180 basis points (bps) contraction in gross margin (including stock-based compensation expenses) on a year-over-year basis to 70.1% mainly due to unfavorable product mix and lower revenue base.

Adjusted operating expenses went down 7.4% to $214.9 million. However, as a percentage of revenues, the same went up 230 bps on a year-over-year basis to 40.7%.

Xilinx's adjusted operating margins contracted 410 bps year over year to 29.4% mainly due to higher operating expenses, as a percentage of sales. In dollar terms, adjusted operating income decreased 23.5% to $154.9 million.

Xilinx exited the quarter with cash and cash equivalents and short-term investments of $3.29 billion compared with $3.33 billion in the previous quarter. The company has total long-term debt (long-term debt plus current portion) of $1.58 billion.

During the quarter, Xilinx generated $133.7 million cash from operations and incurred $5 million in capital expenditures. The company paid $80 million in cash dividends and repurchased $100 million shares in the quarter.

Guidance

Management provided an encouraging third-quarter outlook. The company expects revenues to increase in the range of 3% to 7% sequentially or within the $544 million to $565 million range (mid-point $554.5 million). The Zacks Consensus Estimate is pegged at $550 million.

Gross margin is forecast to be roughly 69%. Operating expenses are expected to be around $230 million, which includes approximately $2 million of amortization of acquisition-related intangibles. Share count is expected to be roughly 265 million while effective tax rate is likely to be 12%.

Conclusion

Xilinx reported modest second-quarter fiscal 2016 results. However, year-over-year comparisons on both the count were unfavorable, primarily due to lower revenues from end markets and from geographical regions. Nonetheless, third-quarter revenue guidance was encouraging.

Moreover, increasing 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's product launches are 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 Corp. ALTR remains a headwind.

Stocks to Consider

Currently, Xilinx has a Zacks Rank #4 (Sell). Better-ranked stocks include NetApp, Inc. NTAP and Juniper Networks, Inc. JNPR, both sporting a Zacks Rank #1 (Strong Buy).

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