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Modest 3Q for Xilinx, View Positive

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Xilinx Inc. (XLNX - Free Report) reported adjusted earnings per share (EPS) of 38 cents in the third quarter of fiscal 2013, inching past the Zacks Consensus Estimate by a penny. However, quarterly earnings failed to surpass the year-ago earnings of 47 cents a share.


The company generated total revenue of $509.8 million, slightly down from $511.1 million in the year-ago quarter but better than the management’s guidance of down 1.0%-5.0%. The overall decline was due to weaker-than-anticipated sales from Broadcast, Consumer & Automotive end market and Communications & Data Center end market, offset somewhat by better-than-expected sales from Industrial and Aerospace and Defense end markets.

Year over year, North America remained flat, Asia-Pacific fell 3.0%, while Europe and Japan grew 1.0% and 5.0%, respectively. New product sales increased 79.0% year over year, driven by higher sales of Kintex-7 and Virtex-6 FPGAs. The company reported that its 28 nanometer families gained much traction during the quarter. But the company generated soft revenues from Mainstream and Base products.

Operating Results

Gross margin increased to 66.6% from 65.8% in the year-ago quarter, primarily attributable to continued focus on yield improvement and cost reduction and favorable customer mix. Operating margin decreased to 23.7% from 26.8% in the year-ago quarter due to higher research and development expenses.

Balance Sheet & Cash Flow

During the quarter, Xilinx generated $122.6 million of cash from operations and incurred $8.1 million in capital expenditure. Xilinx paid $57.3 million in cash dividends. Xilinx ended the quarter with cash, equivalents and short-term investments of $1.7 billion, flat sequentially.


Xilinx stated that the backlog entering into the fourth quarter was up sequentially. The company also expects revenues from all the end markets and 28-nanometer products to increase sequentially. Consequently, Xilinx expects sales to be up 2% to 6% sequentially in the fourth quarter of fiscal 2013 with support from higher revenues from all geographic regions.

Gross margin is forecasted around 66%. Operating expenses in the March quarter are expected to be approximately $208.0 million, including approximately $2.0 million of amortization of acquisition-related intangibles. Other income and expense is expected to be $7 million. Fully diluted share count is expected to be approximately 274 million. Effective tax rate is expected to be approximately 13 - 14%.


Xilinx’s third quarter results were decent with bottom line beating the Zacks Consensus Estimate. Both revenue and EPS came below the year-ago level. However, the fourth quarter guidance was encouraging, which reflected some recovery in the semiconductor market on the back of expected higher spending.

The company’s transition into 28nm nodes is turning out to be positive and there is possibility for Xilinx to outperform the market going forward. But stiff competition from Altera Corp. (ALTR - Free Report) , gloomy semiconductor outlook for 2012 predicted by IT research firm Gartner Inc. and dwindling PC (significant consumer for semiconductor chips) market keeps us concerned for the near term.

Currently, Xilinx has a Zacks Rank #3 (Hold). We would like to recommend other technology stocks which are really doing well. You can consider Atmel Corp. , which has a Zacks Rank #1 (Strong Buy) and Omnivision Technology , which has a Zacks Rank #2 (Buy).

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