Xilinx's Guidance Shows 'It's Not So Bad Out There'

• The share price of Xilinx, Inc. (NASDAQ: XLNX) has increased 11.4 percent over the last month, reaching a high of $45.38 on October 14.
• Barclays’ Blayne Curtis has maintained an Equal-Weight rating and price target of $41 on the company, while Ian Ing of MKM Partners has maintained a Neutral rating and price target of $42.
• The company reported roughly in-line Q3 results, with the EPS slightly ahead of the consensus, driven by stronger gross margin. Xilinx also guided to a slightly better-than-expected December quarter.

Results & Guidance Better Than Group

According to the Barclays report, Xilinx’s results and guidance “were likely better than the group as a whole as the company is coming off fairly low levels, but still supports our view that end markets aren’t as bad as many fear.”

Analyst Blayne Curtis mentioned, however, that there did not appear to be clear catalysts to drive growth for the company.

For Q3, the Defense segment was “very soft,” although Curtis expects it to rebound toward the end of 2015. In addition, strength in Wireless Infra is expected to drive the Comm segment, while the Wired business is likely to make a modest recovery towards the year end.

Curtis also stated that the CQ4 guidance has benefited from the extra week in the quarter, with the revenue slightly ahead of the consensus and meaningfully higher than the estimate. The CQ4 EPS is expected to be in-line with or slightly ahead of the consensus.

June Quarter Was A Trough

According to the MKM Partners’ report, “While the recent June quarter now appears to be the revenue trough, the company is only seeing a modest recovery in the key communications equipment market.”

There was a broad-based inventory correction in the Industrial, Medical and Scientific segments late in CQ3, which is expected to continue into a part of the December quarter. Xilinx reported its EPS ahead of the consensus, driven by share count and gross margins.

Analyst Ian Ing stated that the Communications and Data Center segments beat expectations, growing 5 percent quarter-on-quarter.

“We see a slow and modest recovery in this segment limited by global carrier capex frugality and lack of material China infrastructure deployments,” Ing mentioned.

Ing also believes that channel inventory appears to be lean, which could lead to additional replenishment in the event that the demand outlook improves.

“While we like XLNX's continued product leadership in its target markets, too many of its major end-markets appear challenged and are limiting a return to secular growth trends,” the report added.