2013 Could Be Better Than 2012 for This Company

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2013 looks like the year when infrastructure spending will spring back to life, driven by the need for faster networks and growth in data centers. Gartner forecasts spending on data centers to grow 4.5% this year, along with a 2.4% jump in telecom services as opposed to a decline last year.

Positive signs started emerging late in 2012, when AT&T (NYSE: T) announced that it would be boosting its infrastructure spending for building faster networks. Ma Bell is looking to spend $14 billion in the coming three years on its wireless and wireline broadband networks, with expansion of 4G LTE being one of its primary objectives.

According to Infonetics Research, telecom spending is expected to improve across North America and Asia, since telcos will now need to upgrade their networks after procrastinating last year. All this should sound like music to the ears of networking and communication equipment providers and component makers, since increased capex by telcos would mean more revenue for them.

Thus, with a possible rebound in sight, it would make sense to take a look at Xilinx (NASDAQ: XLNX), a component supplier which seems well-positioned to benefit from a resurgence in infrastructure spending. Moreover, with the company’s third-quarter results expected on Jan. 17, there couldn’t possibly be a better time to take a look at this solid stock which might climb higher on the back of optimism in the industry.

Solid Clientele

Xilinx, which supplies chips to equipment makers, is one of the best stocks to play the improvement in carrier spending. The company counts the likes of Huawei, ZTE, Ericsson and Cisco (NASDAQ: CSCO) as clients. The presence of these stalwarts would most probably help Xilinx turn in an even better performance in 2013 after appreciating close to 12% in 2012, which could be considered impressive in the wake of depressed telco spending.

Moreover, Xilinx’s position in data communications also looks sunny in the long run. According to Canalys, the data center infrastructure market is expected to exceed $150 billion by 2016 on the back of growth in cloud computing. And this is certainly good news for Xilinx, as Cisco would be one of the primary drivers of the cloud computing boom. Cisco’s data center division has been on a roll of late, and with further growth in cloud computing coming up, both Cisco and Xilinx stand to benefit.

Impressive Technology and Cost Management

In addition, Xilinx is one of the leading providers of 28nm chips and has successfully translated its superior technology into revenue. It possesses the largest 28nm portfolio in the industry, and saw their sales exceed the company’s own target last quarter. But Xilinx isn’t stopping here, and is focusing on the development of 20nm chips in a bid to stay ahead of peers, and tap the most out of the growth of next generation networks.

Another impressive point about Xilinx is the way it manages its costs. Despite guiding for a soft quarter last time, Xilinx said that it was gunning for a 210-basis point improvement in gross margin. The company has a solid track record of managing costs well by way of efficient inventory management, and improving yield on new products.

Keep a Watch

All these factors make Xilinx look like a good long-term proposition. Solid clientele, backed by cutting-edge technology and efficient cost control, are positives which shouldn’t be ignored. Also, Xilinx’s dividend yield of 2.5% isn’t bad either. The company stands to benefit from growth in data and faster networks over the long run, and 2013 could probably the year when the stock takes off. There’s a high probability that Xilinx would guide for a better future in its third-quarter report, and that would be an indication that the stock is set for a good year.

Visit this space again in a few days or add Xilinx to your Watchlist for the complete coverage of earnings and analysis of its prospects by clicking here.


TechJunk13 has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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