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Xilinx (XLNX) Q2 Earnings Beat, Revenues in Line, Stock Down
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Xilinx Inc. reported second-quarter fiscal 2018 earnings of 65 cents per share, which beat the Zacks Consensus Estimate by three cents. The figure increased 6.6% from the year-ago quarter and 3.2% from the previous quarter.
This year-over-year growth has been primarily driven by higher revenues, while the sequential increase benefited from the modest top-line growth and lower cost of revenues, partially offset by elevated operating expenses.
Despite this shares of Xilinx dropped approximately 4.7% during yesterday’s after-hour trade as revenues marginally fell short of the company’s own guidance range at the mid-point. For the reported quarter, the company recorded revenues of $619.5 million, marginally below the mid-point of its guidance range of $605-$635 million (mid-point $620 million).
However, quarterly revenues came in line with the Zacks Consensus Estimate and marked year-over-year growth of 7% and sequential increase of 0.7%.
Management noted that Xilinx’s revenues increased for the eighth consecutive quarter reflecting product strength. This uptick was primarily driven by robust performance of the company’s 16nm, 20nm and 28nm products.
Product wise, Advanced product revenues jumped a whopping 21% year over year and 1% sequentially. We note that the segment’s contribution to total revenues was 52%, a significant increase from 46% in the year-ago quarter. However, the contribution remained flat when compared with the previous quarter.
The robust performance of Advanced products was mainly driven by strong demand for its Zynq SoC platform and 20-nm and 16-nm nodes. Revenues from the Zynq SoC platform recorded 65% year-over-year growth and contributed 12% to total revenues, backed by robust demand in wireless, primarily for pre-5G deployments.
The 20-nm sales were up 40% year over year in the reported quarter, chiefly driven by strength in multiple end markets.
However, Xilinx noted that the 16-nm was the top performer in the quarter, registering a four-fold jump in revenues. The company shipped 34 unique products to more than 930 discrete customers across all end markets.
Revenues from core products declined 5% from the year-ago quarter, however inched up 1% sequentially.
On the basis of the End Market, Communications & Data Center segment revenues (37% of total revenue) dipped 5% year over year and 10% sequentially. The industrial, Aerospace & Defense segment revenues (45% of total revenue) climbed 17% on a year-over-year basis and 7% on a sequential basis. The broadcast, Consumer & Automotive revenues (18% of total revenue) ascended 12% year over year and 11% sequentially.
Geographically, the company registered year-over-year growth in every region. Revenues from Japan, Asia Pacific, Europe and North America were up 14%, 12%, 4% and 1%, respectively. Nevertheless, sequentially, Asia Pacific was weak, declining 7%. This was fully offset by robust growth from North America, Japan and Europe, which advanced 8%, 8% and 2%, respectively.
Product Strength: Key Catalyst
Xilinx’s ongoing transition from a FPGA provider to an all-programmable devices producer is helping the company gain market share. The company’s expanding product portfolio, which includes the Zynq RFSoC platform, is assisting it to counter intense competition from the likes of Intel (INTC - Free Report) . The company’s Zynq portfolio, which is implemented in both the 28-nm and 16-nm node, delivered sturdy top-line growth in the quarter.
Xilinx noted that it had started shipping of the 16-nm RFSoC Silicon In-house family of product in the second quarter, which offers a superior architectural solution to 5G wireless with integrated RF-class analog technology. The product facilitates the reduction of power consumption (50-75%), as well as footprint reduction for future 5G deployments, cable and wireless backhaul applications.
Management is also optimistic over the demand of Amazon’s (AMZN - Free Report) FPGA-as-a-Service (the cloud service is supported by Xilinx’s Ultrascale+ FPGAs) that targets the traditional hardware FPGA designers. Xilinx believes Amazon’s deployment of SDAccel and SDSoC products will fortify its competitive position against other SoC providers.
Operational Details
Gross margin expanded 60 basis points (bps) year over year to 70.2% and 140 bps sequentially, and was within the company’s guided range of 69-71%.
Operating expenses flared up 10.2% year over year and 2.7% sequentially to $249.8 million. Nonetheless, the figure came in $3.2 million lower than the company’s guidance. As a percentage of revenues, operating expenses amounted to 40.3%, reflecting an increase of 120 bps on a year-over-year basis and 80 bps sequentially.
Escalating operating expenses as a percentage of revenues more than offset the benefit of healthy revenue growth and improved gross margin, resulting in year-over-year contraction of 60 bps in operating margin which came in at 29.9%. Nonetheless, on a sequential basis, operating margin improved 60 bps mainly driven by higher gross margin.
In dollars, the company posted operating income of $185.2 million, up 4.7% year over year and 2.6% sequentially.
Balance Sheet, Cash Flow & Shareholders’ Return
Xilinx exited the quarter with cash and cash equivalents, and short-term investments of approximately $3.56 billion compared with $3.65 billion recorded in the previous quarter. The company has total long-term debt (excluding current portion) of about $1.74 billion, flat from the end of the previous quarter.
Xilinx generated cash of $202.1 million from operations and incurred $12.2 million as capital expenditure during the second quarter. The company paid $87 million in dividends and repurchased approximately 2.6 million shares for $170.5 million.
In the first half of fiscal 2018, the company generated cash of $393.1 million from operations and incurred $22.1 million as capital expenditure. It paid $174.3 million in dividends and repurchased approximately 3.6 million shares for $237.5 million.
Guidance
For third-quarter fiscal 2018, Xilinx projects revenues in the range $615-$645 million (mid-point $630 million). The mid-point of the company’s guidance range is currently higher than the Zacks Consensus Estimate of $626.5 million.
Management continues to expect growth in the Advanced Products segment. Xilinx anticipates the Broadcast, Consumer & Automotive end market to register a decline, while Communications will likely remain flat year over year. On the other hand, the Industrial, Aerospace & Defense end market is projected to witness growth.
Gross margin is anticipated to be between 69% and 71%. Operating expenses are likely to increase to $260 million, mainly due to higher research & development (R&D) expenses. Tax rate is projected between 11% and 14%.
The company remains focused on achieving its fiscal 2018 revenue target of approximately $2.5 billion. Xilinx also expects to deliver more than 30% of operating margin exiting this fiscal year.
Our Take
We believe the rising demand for 28-nm, 20-nm and 16-nm nodes is a positive for the company. Also, a favorable product mix (higher Industrial, lower wireless) will help in gross-margin expansion in the near term.
Xilinx’s expanding software defined programming portfolio, along with hardware solutions, to accelerate machine learning is anticipated to drive user base. The company has significant growth opportunities in Data center, 5G deployment, Artificial Intelligence (AI), Industrial IoT and Advanced Driver Assisted Systems (ADAS) applications over the long haul.
However, growth from wireless is expected to remain volatile until 2020, which is a concern. Escalating operating expenses related to tape-outs might weigh on the company’s profitability in the near future.
In addition to this, management’s pessimistic view over business conditions in India and China, two of its fastest growing markets, is another grave concern.
Long-term expected EPS growth rate for NVIDIA is 11.2%.
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Xilinx (XLNX) Q2 Earnings Beat, Revenues in Line, Stock Down
Xilinx Inc. reported second-quarter fiscal 2018 earnings of 65 cents per share, which beat the Zacks Consensus Estimate by three cents. The figure increased 6.6% from the year-ago quarter and 3.2% from the previous quarter.
This year-over-year growth has been primarily driven by higher revenues, while the sequential increase benefited from the modest top-line growth and lower cost of revenues, partially offset by elevated operating expenses.
Despite this shares of Xilinx dropped approximately 4.7% during yesterday’s after-hour trade as revenues marginally fell short of the company’s own guidance range at the mid-point. For the reported quarter, the company recorded revenues of $619.5 million, marginally below the mid-point of its guidance range of $605-$635 million (mid-point $620 million).
However, quarterly revenues came in line with the Zacks Consensus Estimate and marked year-over-year growth of 7% and sequential increase of 0.7%.
Xilinx, Inc. Price, Consensus and EPS Surprise
Xilinx, Inc. Price, Consensus and EPS Surprise | Xilinx, Inc. Quote
Advanced Products Drove Top-Line Growth
Management noted that Xilinx’s revenues increased for the eighth consecutive quarter reflecting product strength. This uptick was primarily driven by robust performance of the company’s 16nm, 20nm and 28nm products.
Product wise, Advanced product revenues jumped a whopping 21% year over year and 1% sequentially. We note that the segment’s contribution to total revenues was 52%, a significant increase from 46% in the year-ago quarter. However, the contribution remained flat when compared with the previous quarter.
The robust performance of Advanced products was mainly driven by strong demand for its Zynq SoC platform and 20-nm and 16-nm nodes. Revenues from the Zynq SoC platform recorded 65% year-over-year growth and contributed 12% to total revenues, backed by robust demand in wireless, primarily for pre-5G deployments.
The 20-nm sales were up 40% year over year in the reported quarter, chiefly driven by strength in multiple end markets.
However, Xilinx noted that the 16-nm was the top performer in the quarter, registering a four-fold jump in revenues. The company shipped 34 unique products to more than 930 discrete customers across all end markets.
Revenues from core products declined 5% from the year-ago quarter, however inched up 1% sequentially.
On the basis of the End Market, Communications & Data Center segment revenues (37% of total revenue) dipped 5% year over year and 10% sequentially. The industrial, Aerospace & Defense segment revenues (45% of total revenue) climbed 17% on a year-over-year basis and 7% on a sequential basis. The broadcast, Consumer & Automotive revenues (18% of total revenue) ascended 12% year over year and 11% sequentially.
Geographically, the company registered year-over-year growth in every region. Revenues from Japan, Asia Pacific, Europe and North America were up 14%, 12%, 4% and 1%, respectively. Nevertheless, sequentially, Asia Pacific was weak, declining 7%. This was fully offset by robust growth from North America, Japan and Europe, which advanced 8%, 8% and 2%, respectively.
Product Strength: Key Catalyst
Xilinx’s ongoing transition from a FPGA provider to an all-programmable devices producer is helping the company gain market share. The company’s expanding product portfolio, which includes the Zynq RFSoC platform, is assisting it to counter intense competition from the likes of Intel (INTC - Free Report) . The company’s Zynq portfolio, which is implemented in both the 28-nm and 16-nm node, delivered sturdy top-line growth in the quarter.
Xilinx noted that it had started shipping of the 16-nm RFSoC Silicon In-house family of product in the second quarter, which offers a superior architectural solution to 5G wireless with integrated RF-class analog technology. The product facilitates the reduction of power consumption (50-75%), as well as footprint reduction for future 5G deployments, cable and wireless backhaul applications.
Management is also optimistic over the demand of Amazon’s (AMZN - Free Report) FPGA-as-a-Service (the cloud service is supported by Xilinx’s Ultrascale+ FPGAs) that targets the traditional hardware FPGA designers. Xilinx believes Amazon’s deployment of SDAccel and SDSoC products will fortify its competitive position against other SoC providers.
Operational Details
Gross margin expanded 60 basis points (bps) year over year to 70.2% and 140 bps sequentially, and was within the company’s guided range of 69-71%.
Operating expenses flared up 10.2% year over year and 2.7% sequentially to $249.8 million. Nonetheless, the figure came in $3.2 million lower than the company’s guidance. As a percentage of revenues, operating expenses amounted to 40.3%, reflecting an increase of 120 bps on a year-over-year basis and 80 bps sequentially.
Escalating operating expenses as a percentage of revenues more than offset the benefit of healthy revenue growth and improved gross margin, resulting in year-over-year contraction of 60 bps in operating margin which came in at 29.9%. Nonetheless, on a sequential basis, operating margin improved 60 bps mainly driven by higher gross margin.
In dollars, the company posted operating income of $185.2 million, up 4.7% year over year and 2.6% sequentially.
Balance Sheet, Cash Flow & Shareholders’ Return
Xilinx exited the quarter with cash and cash equivalents, and short-term investments of approximately $3.56 billion compared with $3.65 billion recorded in the previous quarter. The company has total long-term debt (excluding current portion) of about $1.74 billion, flat from the end of the previous quarter.
Xilinx generated cash of $202.1 million from operations and incurred $12.2 million as capital expenditure during the second quarter. The company paid $87 million in dividends and repurchased approximately 2.6 million shares for $170.5 million.
In the first half of fiscal 2018, the company generated cash of $393.1 million from operations and incurred $22.1 million as capital expenditure. It paid $174.3 million in dividends and repurchased approximately 3.6 million shares for $237.5 million.
Guidance
For third-quarter fiscal 2018, Xilinx projects revenues in the range $615-$645 million (mid-point $630 million). The mid-point of the company’s guidance range is currently higher than the Zacks Consensus Estimate of $626.5 million.
Management continues to expect growth in the Advanced Products segment. Xilinx anticipates the Broadcast, Consumer & Automotive end market to register a decline, while Communications will likely remain flat year over year. On the other hand, the Industrial, Aerospace & Defense end market is projected to witness growth.
Gross margin is anticipated to be between 69% and 71%. Operating expenses are likely to increase to $260 million, mainly due to higher research & development (R&D) expenses. Tax rate is projected between 11% and 14%.
The company remains focused on achieving its fiscal 2018 revenue target of approximately $2.5 billion. Xilinx also expects to deliver more than 30% of operating margin exiting this fiscal year.
Our Take
We believe the rising demand for 28-nm, 20-nm and 16-nm nodes is a positive for the company. Also, a favorable product mix (higher Industrial, lower wireless) will help in gross-margin expansion in the near term.
Xilinx’s expanding software defined programming portfolio, along with hardware solutions, to accelerate machine learning is anticipated to drive user base. The company has significant growth opportunities in Data center, 5G deployment, Artificial Intelligence (AI), Industrial IoT and Advanced Driver Assisted Systems (ADAS) applications over the long haul.
However, growth from wireless is expected to remain volatile until 2020, which is a concern. Escalating operating expenses related to tape-outs might weigh on the company’s profitability in the near future.
In addition to this, management’s pessimistic view over business conditions in India and China, two of its fastest growing markets, is another grave concern.
Currently, Xilinx has a Zacks Rank #3 (Hold).
A better-ranked stocks in the broader technology sector is NVIDIA Corporation (NVDA - Free Report) , sporting a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term expected EPS growth rate for NVIDIA is 11.2%.
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Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
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