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Xilinx Looks Set to Fly

Harsh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Programmable chips manufacturer Xilinx (NASDAQ: XLNX) saw a drop in its revenue and earnings in the fourth quarter, but trumped Mr. Market’s expectations, and its shares are trading some 6% up as I write this. Adding to investors’ positive sentiment was Xilinx’s guidance, which is well ahead of analyst expectations even at its mid-point of $576 million.

Now I will put the company under the lens and check how it might perform in the long run.

A look at the quarter
The industry slowed down last year as a result of weak demand conditions, thereby giving rise to oversupply. The effects were felt in the quarter as revenue slid 5% from last year to $559 million. However, the company witnessed a rebound in its wireless communications business, the Consumer & Automotive business, and Industrial and Other business. These improvements resulted in a 9% increase in revenues on a sequential basis.

The most remarkable part about Xilinx in the quarter was the way it managed its costs. Xilinx introduced a better customer and product mix, improved yield on newer products and efficiently managed its inventory. As a result, the company’s gross margin improved to 66.4% in the quarter from 65.3% last year. The expansion in gross margin is quite commendable once you consider that the industry wasn’t doing well, as I said before. But with things getting better now, Xilinx seems capable of putting in a good performance ahead. Let’s see why.

Getting better
Xilinx has a better order backlog in the current quarter. It expects its Communications business to improve again in the ongoing quarter along with data processing sales. However, a decline in defense sales might result in the Industrial and Other business to remain flat. Similarly, a decrease in audio/video broadcast is expected to drag down Consumer & Automotive business to flat levels from the previous quarter. But on the whole, Xilinx expects its top line to grow 1% to 5% sequentially.

Furthermore, the positive guidance issued by the company is reaffirmed when we consider that peer Linear Technology (NASDAQ: LLTC) also expects its top line to add some 4% to 8% in the current quarter. With both the industry mates singing the same tune and a revival in progress, the time seems just about right to consider a new addition to your portfolio.

Impressive design wins
However, it is the design wins that should catch your attention. The company’s 28-nanometer design has found high levels of acceptance among customers. Xilinx has more than 650 design wins for this chip, valued upwards of $2 billion. The company is ramping up the production of these chips and expects them to deliver the desired results by the end of the year.

The takeaway
Xilinx has delivered a decent performance and managed to improve its efficiency under adverse circumstances. Moreover, the industry is gathering momentum and Xilinx has an impressive pipeline to boot. The stock has already added around 13% to investors’ wealth, with most of the growth coming after yesterday’s earnings. And with the possibilities that lie ahead, Xilinx is certainly a stock to reckon with. 

TechJunk13 has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Linear Technology. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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