Xilinx (NASDAQ:XLNX) shares took a beating Friday following the company’s disclosure Thursday night that fourth quarter sales would be down 2% to 5% sequentially, rather than 2% to 5% sequential gain the company had previously expected.
As you would imagine, more or less every Xilinx analyst on the Street chopped their profit forecasts for the company, and many reduced price targets. The most dramatic move came from J.P. Morgan’s Christopher Danely, who dropped his rating on the stock to Neutral from Overweight. Danely notes that communications supply chain inventory was 89 days in the third quarter, above a normal 85 days, which he says contributed to the trouble at both Xilinx and Altera (NASDAQ:ALTR), which issued a sales warning of its own earlier in the week.
Danely says Xilinx’s book-to-bill ratio is running at less than 1.0 - in other words, their shipments are higher than orders. “[G]iven the inventory in the communications supply chain and declining margins, we believe there is more risk to our estimates,” he wrote in a research note. Danely points out that the stock, now trading at about 26x his calendar 2007 estimate of $1.07 a share, could go to the low-end of its historic range of 20x-35x next 12 months earnings.