Xilinx: Looking Past the Weak Quarterly ResultsXLNX) recently reported weak results for the second quarter as it posted net revenue of $527.6 million, down 13% year-over-year and a sequential decline of 4%. Going forward, Xilinx has provided sales guidance for the December quarter of fiscal year 2016 and estimates sequential sales to grow in 3% to 7% range. In addition, Xilinx reported second-quarter net income of $127.3 million, down 26% year-over-year from $171.5 million and a sequential decline of 14%.
But, as mentioned above, Xilinx’s financial performance is expected to improve on a sequential basis.
What next for Xilinx?
Xilinx plans to deliver year-over-year growth in gross margins and operating cash flows through enhanced cost management on innovative products, superior discipline and better pricing strategies along with continued supply chain effectiveness. Going forward, Xilinx forecasts gross margin for fiscal year 2016 to be in the range of 68% to 70%.
The company has adopted a focused approach to control year-over-year capital expenditures through a disciplined spending strategy delivering innovation. In addition, Xilinx is observed to be delivering outstanding and highly-durable cash flow, supported by its disciplined capital spending approach.
Xilinx is expected to deliver impressive continued growth in its cash flows, supported by a strategic cost control and cash preserving approach being adopted by the company. Crucially, Xilinx is successfully generating durable cash flows much above the industry’s average or S&P 500 index.
Moving ahead, Xilinx is strongly committed towards returning cash to shareholders, which is further visible from the fact that the company is estimated to return approximately 120% of its key operating cash flows during the fiscal year 2015. Xilinx is uniquely optimizing its capital structure for maintaining flexibility with debt capacity and thus, it has repurchased more than 90 million shares over last 10 years.
New products will drive growth
Xilinx is focused on delivering an innovative 28 nm FPGA, 20/16 nm architecture, 3D IC Break-out and SoC offerings. Xilinx is particularly expanding its top and bottom lines growth through new product offerings to successfully deliver on its commitment to offer improved shareholder returns.
Qualcomm and Xilinx have strategically collaborated to deliver advanced and diverse industry-leading computing solutions for the key datacenter segment and having superior performance and efficiency.
The integrated technology company is keen on developing innovative SoC solutions through planned agreement with Qualcomm to share their expertise in developing new solutions and distribute a majority of the invested capital to its key stakeholders in form of dividends.
I think that investors can go long on Xilinx shares given its trailing P/E and forward P/E ratios of 19.91 and 20.35, respectively. The profit margin of 26.90% is also attractive. Moreover, Xilinx has solid balance sheet with significant total cash position of $3.33 billion against weaker total debt of $1.57 billion, encouraging the company to make growth investments in the long run. Hence, despite weakness in the previous quarter, Xilinx looks like a good long-term bet.
Published on Oct 20, 2015By Vinay Singh