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Xilinx (XLNX) Tops Q4 Earnings, Stock Falls on Weak View

Xilinx Inc. XLNX reported better-than-expected fourth-quarter fiscal 2016 results wherein both the top and bottom lines surpassed the respective Zacks Consensus Estimate. Despite this, shares of the semiconductor company dip over 3% during yesterday’s afterhours trading due to a weak revenue forecast for the first quarter of fiscal 2017.

Details of the Quarter

The company’s adjusted earnings (including stock-based compensation but excluding all other one-time items) of 54 cents per share came ahead of the Zacks Consensus Estimate of 52 cents. However, the figure dropped approximately 7% from the year-ago quarter figure of 58 cents.

Xilinx’s fiscal fourth-quarter revenues of $571.1 million inched up 0.7% year over year and surpassed the Zacks Consensus Estimate of $566 million. The improvement was mainly driven by robust sales of new products. Moreover, during the quarter, the company witnessed stabilizing trends across its end-market segments.

Sales at the Communications & Data Center division increased 5% year over year but remained flat sequentially. Broadcast, Consumer & Automotive grew 1% year over year and 6% sequentially. Sales at the Industrial, Aerospace & Defense division, on the other hand, dipped 3% year over year and 1% sequentially.

Geographically, revenues from North America and Europe were flat year over year, while that in the Asia-Pacific increased 3%. Revenues from Japan declined 4%. On a sequential basis, revenues from North America and Europe grew 2% and 18%, while that in the Asia-Pacific and Japan declined 5% and 8%, respectively.

Product-wise, Xilinx’s revenues from New products and Support increased 21% and 5%, respectively, while the sales of Mainstream and Base products decreased a respective of 7% and 20%. Sequentially, revenues from New products and Mainstream increased 3% and 4%, while the sales of Support and Base products decreased 1% and 6%, respectively.

Xilinx reported a 10 basis point (bps) contraction in gross margin (including stock-based compensation expenses but excluding other one-time items) on a year-over-year basis to 69.8% mainly because of a customer mix shift to larger customers and higher ramp-up costs incurred due to aggressive product introductions.

Adjusted operating expenses increased 0.9% to $215.9 million, but remained below the company’s expectations. As a percentage of revenues, the figure was flat year over year at 37.8%.

Xilinx’s adjusted operating margins contracted 20 bps year over year to 29.1% mainly due to lower gross margin. In terms of dollars, adjusted operating income remained almost flat at $182.7 million.

Xilinx exited the quarter with cash and cash equivalents and short-term investments of approximately $3.34 billion, compared with $3.6 billion in the previous quarter. The company has total long-term debt (long-term debt plus current portion) of about $1.58 billion.

During the quarter, Xilinx generated $122.9 million cash from operations and incurred $14.8 million in capital expenditure. The company paid $78.9 million as cash dividends and repurchased shares worth $143.2 million.

Concurrent with its fiscal fourth-quarter results, Xilinx announced that its board of directors has increased the quarterly cash dividend to 33 cents per share from 31 cents. The increased dividend will be paid on Jun 8 to the shareholders of record date as of May 18.

Guidance

Despite reporting better-than-expected fourth-quarter fiscal 2016 results, the company provided disappointing revenue guidance for the first quarter of fiscal 2017. Management expects revenues to be flat sequentially at $571 million, which is lower than the Zacks Consensus Estimate of $575 million.

Gross margin is predicted to be between 69% and 70%. Operating expenses are likely to be around $220 million, which includes approximately $1 million of amortization of acquisition-related intangibles. Share count is expected to be roughly 266 million, while the effective tax rate is projected to be approximately 14%.

Conclusion

The California-based chipmaker reported better-than-expected fourth-quarter fiscal 2016 results. Its top-line results improved year over year while the company witnessed stabilizing trends across all its end-market segments.

Xilinx’s revenues at Communications & Data Center; and Broadcast, Consumer & Automotive registered year-over-year growth, while sales at the Industrial, Aerospace & Defense end-market witnessed a decline.

Moreover, increasing demand for 28-nm nodes driven by higher wireless deployments and strength in the wired communication segment are expected to remain growth drivers. The company’s product launches should further boost revenues.

Nonetheless, the company provided a soft revenue guidance for the first quarter of fiscal 2017.

Moreover, a slowdown in the Chinese economy, along with economic weakness in Europe and the Asia-Pacific could impact the company’s near-term results. Also, stiff competition from Lattice Semiconductor Corporation LSCC remains a material headwind.

Stocks to Consider

Currently, Xilinx has a Zacks Rank #4 (Sell). A couple of better-rankled stocks in the broader technology sector are Advanced Micro Devices Inc. AMD and Broadcom Limited AVGO, both carrying a Zacks Rank #2 (Buy).

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