Xilinx Positioning Itself As A One-Stop-Shop

Last month, both Xilinx (NASDAQ:XLNX) and Altera (NASDAQ:ALTR) cut their guidance for the third quarter. Earlier in the year, Xilinx was on an acquisition spree, buying AutoESL, Omiino, Modelware, and Sarance Technologies. Let’s take closer look at the recent performance of programmable logic device (PLD) market leaders, Xilinx and Altera.

Altera’s Financials
Altera reported annual revenue of $1.95 billion in fiscal 2010, about the same as fiscal 2009. Fiscal 2010 net income was $782.9 million, up from $251 million in fiscal 2009.

In its recent quarterly results, Altera reported second quarter revenue of $548.4 million, up 17% y-o-y and 2% q-o-q. Net income was $214.6 million or $0.68 per share versus $180.6 million or $0.58 per share last year and$224.1 million or $0.68 per share last quarter.

Gross margin was 70.9%, 1.7 points lower than the first quarter. Altera ended the quarter with $3.3 billion in cash and increased its quarterly cash dividend to $0.08 per share, up from the previous dividend of $0.06 per share.

New product sales increased 131%. By market, telecom and wireless increased 30%. Industrial, military, and automotive grew 11% and computer storage networking increased 30%. By region, sales in Americas grew 11%, Asia Pacific grew 13%, EMEA grew 32%, and Japan grew 11%.

Per the latest guidance, Altera expects sales to decline 3% to 1% sequentially owing to weaker demand in several verticals, including telecom and wireless (particularly in markets outside Asia). It had earlier expected sales to be up 2% to 6% sequentially. Gross margin is expected to be 69% to 70%.

The stock is trading around $34.18 with market cap of about $11.07 billion. It hit a 52-week high of $44.32 on March 3.

Xilinx’s Financials
Xilinx reported annual revenue of $2.37 billion in fiscal 2011, up 29% over fiscal 2010. Fiscal 2011 net income was up 80% to $641.9 million. Last year, market research firm iSuppli expected the PLD market to reach $4.7 billion, up 43% from 2009 levels driven by wired communications and industrial market applications.

In its recent quarterly results, Xilinx reported first quarter revenue of $615.5 million, up 3% y-o-y and 5% q-o-q. Net income was $154.4 million or $0.56 per share compared to $158.6 million or $0.58 per share in 2010 and$160.1 million or $0.59 per share last quarter. Gross margin was 63.7%. Xilinx ended the quarter with $2.9 billion in cash and investments and a net cash position of $1.6 billion. In March, Xilinx raised its quarterly cash dividend from $0.16 to $0.19.

New product sales were exceptionally strong, increasing 17% sequentially, driven by strong demand for its 40-nm Virtex-6 and Spartan-6 field programmable gate array (FPGA) families launched in 2009. Xilinx also started shipping its 28-nm Virtex-7 FPGA family in the quarter. From an end market perspective, communication sales were down 2% y-o-y and increased 1% sequentially. Industrial and other sales were up 8% y-o-y and data processing sales were up 28% y-o-y. Consumer and automotive sales were down 1% y-o-y. By region, revenue in North America was down 6%, Asia Pacific was up 6%, Europe was up 4%, and Japan was up 29%.

Per the latest guidance, Xilinx expects sales to decline 7% to 10% sequentially. That would equate to a range of $554 million to $572 million, below analysts’ consensus of $589.8 million. The company had earlier expected sales to be up 1% to down 3% sequentially. Gross margin forecast remains unchanged at approximately 63%. The stock is trading around $29.48 with market cap of about $7.8 billion. It hit a 52-week high of $34.12 on February 11.

Recent Acquisitions at Xilinx
In January, Xilinx acquired optical transport chip vendor Omiino and design tool firm AutoESL Design technologies. In May, it acquired Modelware a provider of traffic management/packet processing silicon intellectual property (IP) cores. This was followed by the acquisition of Sarance Technologies, a supplier of ASIC and FPGA IP cores targeted at the packet processing space. Financial terms of the deals were not disclosed.

Xilinx says these acquisitions give it a complete portfolio to address service provider, enterprise, and data center logic IC needs. Xilinx says its overall strategy is to provide major customers with a ‘one-stop-shop’ for wired communications logic IC needs, including optical transport, traffic management, packet processing and high-speed Ethernet solutions. The recent acquisition spree is definitely a great move from Xilinx and counters the Avalon acquisition by Altera earlier in the year.