Xilinx Earnings Estimates on the Rise

| About: Xilinx, Inc. (XLNX)

Earnings estimates for chipmaker Xilinx Inc (NASDAQ:XLNX) have been increasing following the release of solid results for the third quarter of fiscal 2010.

California-based Xilinx designs and manufactures a broad range of high-performance, high-density programmable logic devices (PLDs) such as field-programmable gate arrays (FPGAs) and complex-programmable logic devices (CPLDs).

Sales came in at $513.3 million, up 24% sequentially, driven by growth in all end-markets and geographies. In particular, sales of Virtex-5 (one of its new products) recorded outstanding growth and exceeded $100 million.

Earnings per share (EPS) came in at 40 cents, easily beating the Zacks Consensus Estimate of 35 cents per share.

Positive Guidance

For the fourth quarter of fiscal 2010, management expects sales to be up 3% to down 1% sequentially. This implies a revenue guidance of $508.2 million – $528.7 million. Once again, Virtex-5 is expected to be the growth driver. Sequentially, sales in Europe are expected to increase, but sales in all other regions are expected to be flat. Growth for mainstream products is forecasted to decline as most customers already have their inventories saturated.

From an end-market perspective, sales from the communication market is expected to be up slightly while industrial and other markets are expected to be flat.

On the third quarter conference call, management was upbeat about the recovery it saw in its business with broad-based strength across all major end-market categories.

The company continues to build upon its Virtex-5 success to deliver the next generation of FPGA product, Virtex-6 and Spartan-6. Virtex-6 is in volume production and Xilinx is already shipping the product.

On the other hand, Spartan-6 is the industry’s only 45 nanometer high volume FPGA with embedded transceiver technology. This is the key technology for Xilinx because it makes the business far more competitive in the high-volume arena.

Gross margin for the fourth quarter is projected at 64% – 65% compared to 64.1% in the previous quarter. Xilinx had earlier experienced supply constraints and was unable to meet demand in fiscal 2009, leading to a decline in margins.

The primary factor that led to constraints in the supply chain was the ramp-up of foundries from a very low utilization to a high utilization level, resulting in production inefficiencies.

Management stated that the supply issues are now behind the company, and margin improvement continues to be a key focus area.

Estimate Revisions Trend

Estimates for Xilinx have been revised upward by most analysts, following the issuance of strong guidance by management and a strong recovery in the semiconductor space.

Over the past 30 days, 4 of the 21 analysts following the stock have raised their earnings estimates for fiscal 2010 with no movement in the opposite direction. However, one analyst revised his or her estimate downward over the past 7 days.

Overall, 2010 estimates are up 1 cent. The current Zacks Consensus Estimate is $1.21, with an upside potential of 2.48%.

Xilinx has consistently exceeded its guidance. On an average, Xilinx has beaten the Zacks Consensus Estimate by 12.36% over the last four quarters.

Bookings continue to be strong as chip sales have been on the rise after a weak first half of 2009. Xilinx expects all the secondary end markets to recover above the peak June 2008 levels over the next year.

Earnings are also on the rise for fiscal 2011, with 6 of the 21 analysts following the stock raising their estimates over the last 30 days and no downward revisions. Currently, the Zacks Consensus Estimate for 2011 is $1.76, up 4 cents over the last 30 days.

Coming to the fourth quarter of fiscal 2010, we note that 3 of the 22 analysts covering the stock have raised their earnings estimates over the past 30 days with one analyst moving in the opposite direction.

The current Zacks Consensus Estimate for the upcoming quarter stands at 44 cents, with an upside potential of 2.27%.

We believe the company’s growth will re-accelerate, given the competitive advantages of the company’s 90-nm and 65-nm technologies as well as the recent signs of economic recovery, which are expected to boost capital spending in 2010.