Xilinx, Inc. (XLNX) posted a net income of $159 million or 58 cents per share in the first quarter of fiscal 2011, beating the Zacks Consensus Estimate of 53 cents. The net income for the quarter quadrupled from the net income of $38.0 million or 14 cents in the year-earlier quarter.
Sales of $594.7 million were up 12% sequentially and up 58% year over year. Customer demand remains healthy. This is the third consecutive quarter of growth for Xilinx, driven by growth in new product sales which increased 23% sequentially, due in large part by strong growth from Virtex-5 and the newest Virtex-6 family. Mainstream products accounted for 30% of total sales and increased 9% sequentially. Base products accounted for 27% of total sales and increased 4% sequentially.
California-based Xilinx designs and manufactures a broad range of high-performance, high-density programmable logic devices (PLDs) for electronic equipment manufacturers.
Coming to end-markets, communication sales increased 12% sequentially driven by growth in wireless and wireline sales. Industrial sales increased 21% sequentially with double-digit sequential increases from defense, industrial, scientific and medical and test and measurement.
Consumer and automotive sales increased 8% sequentially fueled by strength in audio, video, broadcast and consumer applications. Sales from data processing decreased as expected by management, due primarily to the timing of customer programs.
Geographically, sales from Europe were strong, recording 19% sequential growth driven by increases in most end-markets, particularly wireless communications. Asia-Pacific sales increased 11% sequentially, propelled by strength from wired and wireless communications, consumer and industrial applications.
North American sales increased 12% sequentially driven by defense, wire communications and industrial, scientific and medical applications.
Gross margin improved to 65 % from 61.8% in the year-ago quarter but was essentially flat on a sequential basis. Operating expenses decreased 5% sequentially due to lower R&D spending. Consequently, operating margin improved to 35% from 30% in the prior quarter and 15% in the year-earlier quarter.
The improvement in margins was driven by not only significant growth in revenues but also due to restructuring actions and cost reduction efforts undertaken by management over the last two years.
During the quarter, Xilinx generated $107 million of cash from operations and used $18 million on capital expenditures. Xilinx issued $600 million convertible senior notes. Of the total proceeds, management used $433 million to repurchase 16.3 million shares. Xilinx also paid $44 million in cash dividends.
Xilinx ended the quarter with cash, equivalents and short-term investments of $1.5 billion, up from $1.4 billion in the prior quarter. After the recent issuance, Xilinx has approximately $1.3 billion in convertible debt. On the call, management indicated that the overall supply chain remains tight.
Xilinx remained supply constrained throughout the quarter and did not experience any significant lead time improvements like its rival Altera Corporation (ALTR).
The primary factor which led to constraints in the supply chain was due to the ramp-up of foundries from a very low utilization to a high utilization level, resulting in production inefficiencies. As a result, management does not expect supply constraints to be fully resolved for at least a couple of more quarters.
Guidance
Going forward, management expects to see continued strength from Virtex-5 (one of its new products) along with growth from new Virtex-6 and Spartan-6 families. Sales from North America are expected to decline, which should be offset by increase in sales from other regions. Xilinx projects sales to be up 3% – 7% sequentially. This implies a revenue guidance of $612 – $636 million.
Gross margin is forecasted at 65%, +/- a percentage point. Operating expenses in the September quarter are expected to increase due to increased engineering hiring to support next generation programs, expenses associated with contract engineering services and higher variable in selling and compensation expenses related to higher revenues.
The top-line has been steadily moving up after bottoming out in June 2009. Xilinx is uniquely positioned to capitalize on incremental growth opportunities offered by its leadership in 65 nanometer (nm) and 40 nm products and innovative platform-based architectures. The company has also introduced more advanced 28 nm products.
Yesterday, rival Altera reported a solid quarter and beat expectations, driven by growth in both top-line and bottom line along with announcing a 20% increase in its quarterly dividend.
We reiterate our Neutral rating on XLNX stock supported by the Zacks #3 Rank. Investors were indifferent to the results and positive forecast. Shares of Xilinx are up 3.5% by afternoon trading Thursday.
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