California based chipmaker Xilinx, Inc. (XLNX) recently decreased its guidance for the December quarter.

Xilinx now expects sales for the December quarter to decline by approximately 7% – 9% sequentially compared to the previous guidance of sales being flat to down 4% sequentially.

The new guidance implies sales between $563.9 million – $576.3 million, down from the previous guidance of $594.9 – $619.7 million and the Zacks Consensus Estimate of $605 million. Xilinx slashed its sales guidance primarily due to weaker-than-anticipated sales to a few large communications customers, specifically in the wireless segment.  

Based on current backlog and forecasts from large customers, Xilinx expects sales growth to return to the communications segment in the March quarter. Xilinx continues to expect gross margin of around 65%, in line with the previous guidance.

Earlier in October, Xilinx reported lackluster results for the second quarter.  We believe Xilinx lost market share to prime rival Altera Corporation (ALTR) in 2010. Altera’s lead in the 40 nanometer (nm) technology node can bring about a market loss for Xilinx in the coming years as well. In addition, Altera seemed to have an edge in the 28nm node.

Capital spending by carriers in China is also expected to slow down in 2011, leading to an inventory correction across the semiconductor space, which should impact Xilinx as communications is the largest end market that it serves. 

The current Zacks Consensus Estimate for fiscal 2011 is $2.37, with no movement in the last thirty days. With the cut in guidance by management, we expect downward revisions in the Zacks Consensus Estimate in the coming days.

Shares of Xilinx lost 3.56% in after-hours trading with the cut in guidance to close at $27.38 after having gained 1.00% in regular trading.

We recently downgraded our recommendation on Xilinx to Neutral from Outperform. Xilinx currently has a Zacks #4 Rank, which translates to a short-term rating of Sell, primarily due to near-term pressure on the stock.

 
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