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Will End-Markets Uptick Benefit Xilinx (XLNX) Q3 Earnings?

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Xilinx (XLNX - Free Report) is scheduled to report third-quarter fiscal 2019 results on Jan 23.

The company beat the Zacks Consensus Estimate in three of the trailing four reported quarters, the average positive surprise being 8.74%.

In the last reported quarter, the company delivered earnings of 87 cents per share, much higher than the Zacks Consensus Estimate of 75 cents and the prior-year quarter’s figure of 65 cents.

Revenues increased 19% year over year to $746.3 million and outpaced the Zacks Consensus Estimate of $710.3 million.

For third-quarter fiscal 2019, Xilinx projects revenues in the range of $760-$780 million.

Let’s see how things are shaping up for the upcoming announcement.

Factors at Play

Xilinx is benefiting from growth across majority of the end markets. Solid performances of its Communications businesses and broad based growth at Data Center, Testing, Measurement, and Emulation (TME) plus Industrial segments are buoying investor confidence in the company’s near-term prospects.

In the last reported quarter, better-than-expected growth in wired revenues was a positive. Moreover, a strong wireless business, which benefited from LTE upgrades, early deployment of 5G across multiple geographies and preparation for 5G deployment, drove results. Although management expects 5G to ramp up mostly in 2020, acceleration in deployments, particularly in Korea, makes it optimistic.

Moreover, the company expects a strong uptick from Data Center and TME segment, Industrial, Aerospace and Defense (A&D) segment as well. A&D, which declined in the last reported quarter, is expected to recover in the December quarter.

We are optimistic about the surge in demand for Xilinx’s Ultrascale+ FPGAs among data-center operators for providing FPGA-as-a-Service (FaaS). On the last earnings call, management mentioned that Amazon (AMZN - Free Report) Web Services doubled its FaaS availability zones to 8.  Moreover, the company’s leadership position in the Chinese market with regard to FaaS expanded with Alibaba (BABA - Free Report) moving from beta to general access.

Xilinx’s successful product portfolio also looks impressive. Significantly, the company’s first and second-generation Zynq products hit a new sales record in the last reported quarter, soaring 76% year over year, driven by robust demand in the automotive, industrial, communications and data center markets.

However, Broadcast, Consumer and Automotive revenues are anticipated to be approximately flat in the soon-to-be reported quarter.

Increase in operating expense due to higher employee compensation including profit sharing and sales incentive as well as the full integration of the DeePhi acquisition is an overhang on margins.

Xilinx, Inc. Price and EPS Surprise

Xilinx, Inc. Price and EPS Surprise | Xilinx, Inc. Quote

What Our Model Says

Our proven Zacks model clearly indicates that a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has maximum chances of beating estimates if it also has a positive Earnings ESP. The Sell-rated stocks (Zacks Rank #4 or 5) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Xilinx currently carries a Zacks Rank #3, which increases the predictive power of ESP. However, its Earnings ESP of 0.00% makes surprise prediction difficult.

Key Pick

Here is a stock that you may consider as our model shows that it has the right combination of elements to beat on earnings in the upcoming release:

Cloudera, Inc. (CLDR - Free Report) has an Earnings ESP of +30.00% and a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here

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