MKM Partners downgraded Xilinx, Inc. XLNX Monday from Buy to Neutral and maintained a $45 price target.
Analyst Ian Ing noted that the stock had "rallied in sympathy the last hour of Friday trading following reports" that Intel Corporation INTC was in talks to acquire competitor Altera Corporation ALTR.
"We see little strategic fit for a second FPGA acquisition and, if true, an INTC for ALTR...deal creates a stronger competitor. Furthermore, we see the FPGA model of specialized processing becoming less favored by hardware commoditization trends," according to Ing.
Ing also felt that an INTC+ALTR combination would result in a "powerful FPGA competitor with captive foundry access and greater reach in data centers and networking."
The analyst felt that the FPGA model was "increasingly disadvantaged by the trend from specialized processing to general purpose processing" and that Xilinx conversion to high volume production had been disappointing.
Ing's overall view included three trends that did "not play well into FPGAs" due to specialized processing vs. general purpose processing:
1. "Communications and networking equipment is being commoditized via NFV, SDN, and functional convergence."
2. "Global carrier spending continues to face downward pressure as carriers seek profitability via capex frugality."
3. "Capex trends towards high volume small cells and Wi-Fi access points in China favor ASIC/ASSP solutions."
Shares of Xilinx were volatile Monday, falling 2.5 percent before recovering the losses. The stock recently traded at $43.01, up 1.6 percent.
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