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Shares of Xilinx Inc. (XLNX - Analyst Report) hit a new 52-week high of $47.76 on Sep 16, eventually closing at $47.50. The closing share price represents a one-year return of 35.3% and year-to-date return of 28.1%.

Xilinx is seeing demand for its 28 nanometer (nm) field programmable gate array (FPGA) chips accelerate, which has enabled it to surpass its archrival Altera Corp. (ALTR - Analyst Report). During the first quarter of 2014, sales of these products exceeded $50.0 million, which was much better than the company’s expectations. It expects the sales of 28-nm chips to exceed $60.0 million in the second quarter of 2014.

We believe that Xilinx is going to benefit from the usage of more FPGA chips by telecom companies in their 4G and LTE deployments.

We are also encouraged by the gross margin expansion despite difficult revenue comps. We think that the company’s continued focus on margin expansion, cost reduction across its product portfolio and higher yield are positive.

Moreover, Xilinx reported impressive first-quarter results with both the bottom and top lines beating the Zacks Consensus Estimate. Although revenues declined year over year, earnings per share improved due to cost optimization.

The second-quarter guidance was encouraging, reflecting recovery in the semiconductor market on the back of expected higher spending, especially from telecom customers.

Management expressed optimism about its yet-to-be shipped 20-nm products. Xilinx confirmed that it has reached the final stage of the design cycle for the 20-nm transition.

Xilinx also mentioned that it has extended business ties with its foundry partner Taiwan Semiconductor Manufacturing Co. Ltd. (TSM - Snapshot Report) to plan for a 16-nm transition. With this, Xilinx sounded positive about its Programmable Logic Devices market position.

Currently, Xilinx has a Zacks Rank #2 (Buy). Investors may also consider Arrow Electronics (ARW - Analyst Report) in the technology sector which also carries a Zacks Rank #1 (Strong Buy).

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