This Semiconductor Company Looks Good

Semiconductors are present all around us -- from computers to mobile phones to cars and even fighter planes. Because of this, investing in a semiconductor company that is diversified can enable investors to benefit from different industries. One such option is Xilinx  (NASDAQ: XLNX  ) , a company that makes products and components for consumer, telecom, automobile, and industrial applications among other applications.

The company has been on a roll recently, and its latest quarterly results released in July are proof. Let us take a look at its latest results and see how the company might perform in the future.

Diversification helps
Xilinx reported revenue of $579 million , which was well above the consensus estimate of $550 million. This marked a slight decline from last year's quarter, but an increase of 8.8% sequentially. The year-over-year decline was attributed to weaker-than-expected sales in the communications and data center segment as well as the consumer and automotive end markets.

The decline in the two segments was partially offset by gains in the industrial, aerospace, and defense markets. Sequentially, all the end markets posted robust performances, leading the company to exceed its own sequential growth guidance of 1% to 5%. Sales of new products increased 75% year-over-year.

This diversification is a great advantage to have, as weakness in one segment can be offset by strength in another. Looking forward, Xilinx has solid plans to grow its business.

Prospects
The company's transition to 28-nanometer (nm) nodes, development of 20nm nodes, and general recovery in the semiconductor market are some of the company's tailwinds. Xilinx is determined to stay ahead of the competition, and its latest innovations like "UltraScale" are focused on delivering better performance. UltraScale devices are expected to power the next generation of smart vision systems, smart networking equipment, high-performance computing devices, and intelligent surveillance and reconnaissance systems.

Telecom is one of the focus areas for Xilinx. The company is aiming to capture a larger share of the opportunity presented by service providers across the world that are expanding their LTE infrastructures. Xilinx has set its eye on two of the biggest telecom markets of the world – North America and China.

The Chinese LTE expansion involves two major players, China Mobile (NYSE: CHL  ) and China Telecom. The impact on revenue as a result of the 4G expansion by these two is expected to start showing up later this year, driven by China Mobile. China Mobile will be increasing its capital expenditure to $30 billion , with half of that anticipated to be spent on the carrier's TD-LTE development.

The carrier recently doled out contracts worth $3 billion and it is looking to build more than 200,000 base stations in around 30 provinces in China. China Mobile is the world's largest telecom carrier and Xilinx's revenue can receive a good boost if it climbs onto the 4G bandwagon in China.

In North America, the acquisition of Sprint by Softbank gives it a much-needed resource for expanding into more markets, increasing its tally of 151 markets as it aims to make a dent in AT&T and Verizon's markets. This competition among telecom players in the U.S. and China is good news for Xilinx's telecom business.

Industrial, aerospace, and defense is the company's other important segment with a revenue share of 37%. In the previous quarter, sales from this segment improved 10% on a sequential basis, primarily driven by a government defense program. Future growth is primarily dependent on government spending .

The programmable logic devices (PLD) market is expected to growth at a compounded annual growth rate of 12.9% between 2012 and 2016 . One of the key drivers behind the growth of PLD market is the need to reduce power consumption. This segment is a virtual duopoly of Xilinx and Altera (NASDAQ: ALTR  ) . Going forward, the company can expect growth in revenue coming from its PLD segment.

Stiff  competition from Altera and dwindling PC sales (a significant consumer of semiconductor chips) are headwinds for Xilinx.

Altera reported earnings of $0.31 per share in the second quarter of 2013, in line with consensus estimates. Total revenue of $421.8 million missed the consensus estimate of $425 million, however. Sequentially, Altera witnessed solid performance from all of its geographical regions except the Americas, and experienced solid sales from all of its product categories and end markets .

Altera expects sales to grow in the 5%-9% range sequentially in the third quarter of 2013. As a result of an expected turnaround in telecom and wireless, auto, industrial and military, and networking and storage end markets, the company expects revenue improvement going forward.

Conclusion
Xilinx's business has been growing in a stable manner, and positive developments in end markets such as telecom and defense have been driving growth. The company's positive guidance for the present quarter suggests that it sees sustained strength in the future, and the expansion of LTE in North America and China should provide more tailwinds going forward.

 

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  • Report this Comment On September 11, 2013, at 2:14 PM, fearandgreed2005 wrote:

    Altera will use Intel's already proven 14nm process in 2014. Xilinx is stuck at 28nm and hopes to move to a 20nm process that does not presently exist. I think Altera is going to be the clear winner. Your numbers are all from the past. Investing is a game of the future.

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