Why Is Xilinx (XLNX) Up 0.1% Since Last Earnings Report?

A month has gone by since the last earnings report for Xilinx (XLNX). Shares have added about 0.1% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Xilinx due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Xilinx’s Q4 Earnings & Revenues Surpass Estimates

Xilinx delivered fourth-quarter fiscal 2020 earnings of 78 cents per share, exceeding the Zacks Consensus Estimate by 2.63%. However, the bottom line was 26% lower than the prior-year quarter’s 94 cents.

Revenues declined 9% year over year to $756 million but beat the Zacks Consensus Estimate of $754 million. Weakness in the WWG business is a major overhang on the company.

The impact of the Huawei ban and other trade-related uncertainties along with the adverse impact of the coronavirus pandemic on the business hurt the top line.

Continued softness in the WWG business was a dampener in the fiscal fourth quarter.

Quarter in Detail

Product-wise, advanced product revenues declined 6% year over year, contributing 70% to total revenues. However, the revenues from core products (30% of total) decreased 14% from the year-ago quarter.

Despite the impact of a deteriorating wired and wireless business, Zynq-based revenues grew 2% on a year-over-year basis.

On the basis of end markets, WWG revenues (24% of total revenues) dropped 46% year over year. However, solid radio shipments and strength in optical transport networks and access were positives for this business.

Automotive, Broadcast and Consumer group (ABC) (16% of total revenues) increased 2% year over year. The automotive business suffered from macroeconomic and trade-related headwinds.

A&D, Industrial and TME (AIT) revenues (50% of total revenues) grew 15% on a year-over-year basis. The company witnessed increased revenues from emulation and prototyping customers in the TME market.

Data Center revenues (10% of total) surged 77% from the year-ago period, primarily owing to contributions from compute acceleration, driven by a mix of cloud and high-performance compute customers. Notable contribution from a hyperscaler deployment of an FPGA-based SmartNIC was a tailwind. Growing opportunity pipeline at DCG at a double-digit rate, particularly in video, HPC, database and fintech applications, was also a positive.

Geographically, the company registered a year-over-year decrease of 28% in the Asia Pacific, 4% in Japan and 11% in Europe. Meanwhile, revenues from North America grew 27% year over year.

Margins

Gross margin came in at 71%, up 350 basis points (bps) year over year.

Non-GAAP OpEx was $317 million, lower than the midpoint of the guidance range due to a reduction in hiring and discretionary spending.

The company posted non-GAAP operating income of $218.3 million, down 15.6% year over year. Operating margin contracted 220 bps to 29%.

Balance Sheet and Cash Flow

Xilinx exited the fiscal fourth quarter with cash, cash equivalents and short-term investments of approximately $2.27 billion compared with $2.43 billion sequentially.

The company has total long-term debt of $747.1 million.

Xilinx generated $345.4 million of cash from operations compared with $323.6 million in the previous quarter.

During the quarter, the company repurchased 5.7 million shares at an average price of $83 per share and paid out dividends worth $91 million.

Outlook

For the first quarter of fiscal 2021, the company expects revenues between $660 million and $720 million.

In the earnings call, management mentioned that the company forecasts the WWG business to grow in the fiscal first quarter.

However, lower AIT, ADC and DCG sales are expected to lead to a sequential decline in revenues in the fiscal first quarter.

Gross margin is forecast to be 68-70%. Operating expenses are projected in the range of $307-$311 million for the fiscal first quarter.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -17.75% due to these changes.

VGM Scores

At this time, Xilinx has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren’t focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Xilinx has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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