Looking Beyond Xilinx's Earnings

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Programmable-computer-chip maker Xilinx's (Nasdaq: XLNX  ) shares rose 8% in late trading after it posted estimate-topping numbers in the third quarter. The company's upbeat outlook was enough to boost investor confidence and send its shares north, despite a drop in revenues and earnings.  

I will now put the company through the wringer and see what's working for Xilinx.

Precise inventory management 
The challenge for Xilinx in the quarter was to keep its margins intact. And it did just that.  It seems that the company's predictions of low sales were bang on target, and it adjusted inventories with precision. This helped Xilinx to keep its gross margin stable at 66%, whereas industry peer Linear Technology (Nasdaq: LLTC  ) , which came out with earnings earlier this week, saw its gross margin drop 4%. Xilinx has managed to keep its basics in place, although a few glitches were unavoidable.

The turnaround begins …
The industry has been in a slowdown mode since last year, resulting in an oversupply of chips. Xilinx is no exception. The company's revenue in the quarter fell 10% to $511 million from the year-ago period due to weak demand in the wireless market, which, in turn, led to a 13% decline in Xilinx's communications business.

However, Xilinx believes that the weakness in the industry is almost over, and is projecting top-line growth in the range of 2% to 6% for the current quarter, ahead of analysts' expectations. It makes sense to depend on Xilinx's forecast, as even Linear Technology looks to beat the Street and projects revenue growth of 4% to 8% for the quarter, propelled by new booking orders.

 … and Xilinx has a strong pipeline
Xilinx has a strong pipeline and superior product development initiative to generate higher revenue in future. The company has substantial design wins already in its bag. It is churning out chips which are ahead of time and provide better solutions in terms of speed, as well as being cost-effective.

Xilinx's latest 28-nanometer chips are finding broad acceptance among customers and the company has already seen 350 design wins in this category, totaling above $1 billion. The company is ramping up production of this new family of chips, and expects the effort to start bearing fruit by the end of this year.  

The Foolish takeaway
The industry is beginning to revive due to inventory correction. And Xilinx is already in line with some nice development plans that make me feel positive about its prospects. I believe that Xilinx is one stock that you should take a look at if you are contemplating an addition to your portfolio. In case you still harbor some doubts about Xilinx's credentials, you can use our customized Watchlist feature to keep an eye on it by clicking here.

Fool contributor Harsh Chauhan owns none of the stocks mentioned in the article. Motley Fool newsletter services have recommended buying shares of Linear Technology. 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.

Read/Post Comments (0) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1764557, ~/Articles/ArticleHandler.aspx, 10/26/2016 3:38:07 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 6 hours ago Sponsored by:
DOW 18,169.27 -53.76 -0.30%
S&P 500 2,143.16 -8.17 -0.38%
NASD 5,283.40 -26.43 -0.50%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/25/2016 4:00 PM
XLNX $50.31 Down -0.02 -0.04%
Xilinx CAPS Rating: ***
LLTC $60.32 Up +0.07 +0.12%
Linear Technology CAPS Rating: ***