Increased Expenses Knock Xilinx Off Goldman's Americas Buy List

While the decision to accelerate its R&D efforts is likely to pressure near-term fundamentals for Xilinx, Inc. XLNX, Goldman Sachs’ Toshiya Hari believes this implies the opportunity that lies ahead for the company.

Hari downgraded the rating on the company from Buy to Neutral, with a price target of $51. The analyst believes there is limited upside to the stock valuation, as well as the estimates.

Share Gains Expected

Hari mentioned that although Xilinx had gained 400 bps of share during FY11-FY15, there was a bigger runway with 65 percent share in 28 nm, 80 percent in 20nm and 100 percent so far in 16.14 nm.

This is expected to provide “some benefit over the next few years as revenue tied to 28nm/20nm continues to ramp.”

However, Hari also pointed out that 40 percent of the company’s sales was tied to communications and the communication infrastructure market was expected to see weakness, which would offset the impact of share gains.

Estimates Revised

The CY16 EPS estimate has been reduced from $2.25 to $2.17 due to Xilinx’s decision to increase opex in FY17.

The FY17 EPS estimate, however, has been raised from $2.25 to $2.28, on expectations of potential market share gains.