California-based chipmaker, Xilinx Inc. (NASDAQ:XLNX) , reported better-than-expected earnings for fourth-quarter fiscal 2017, marking its 12th consecutive quarter of earnings beat. Quarterly earnings also marked a significant year-over-year improvement.
The company’s earnings of 57 cents per share came ahead of the Zacks Consensus Estimate of 54 cents. The figure also increased 5.6% from the year-ago quarter on the back of strong top-line growth.
Revenues
Xilinx reported fiscal fourth-quarter revenues of approximately $609.5 million, up 6.7% year over year. In addition, the figure came above the Zacks Consensus Estimate of $606 million. The quarter marked the sixth consecutive quarter of revenue growth. On a sequential basis, the company’s revenues grew roughly 4.1%.
The robust revenue growth was mainly driven by strong sales of the company’s 16nm, 20nm, and 28nm products. Notably, all the three products achieved record sales level during the quarter. The company also revealed that majority of the growth was contributed by solid performances in the automotive and test measurement and emulation markets.
On the basis of End Market, sales at the Communications & Data Center division inched up 1% from the prior-year quarter, but declined 3% sequentially. Sales at the Industrial, Aerospace & Defense division increased 14% on a year-over-year basis and 8% sequentially. Revenues at Broadcast, Consumer & Automotive decreased 4% year over year and 13% sequentially.
Product wise, revenues from Advanced products increased a whopping 36% year over year and 9% sequentially, driven mainly by strong sales of the 28-nm, 20-nm and 16-nm products. On the other hand, as expected, revenues from core products declined 11% from the year-ago quarter. However, the figure remained flat sequentially.
Geographically, on a year-over-year basis, revenues from North America, Europe and Asia Pacific increased 2%, 17% and 1%, respectively. On the other hand, revenues from Japan declined 7% year over year.
Margins
Gross margin for the quarter expanded 30 basis points (bps) year over year to 69.5% and came in at the higher-end of the company’s guidance range of 68–70%. The year-over-year improvement in gross margin was mainly driven by favorable end-market mix.
Operating expenses increased 15.2% to $250.2 million, which was $6 million higher than the company’s previous forecast. This was so because Xilinx accelerated some 16-nm tape-out expenses to extend its technology leadership and add some increased litigation expense. Moreover, as a percentage of revenues, operating expenses amounted to 41.1%, reflecting a 310 bps year-over-year increase.
Operating income declined 2.6% year over year to $164.4 million mainly due to higher operating expenses. In addition, operating margin contracted 270 bps as the benefit from improved gross margin was more than offset by higher operating expenses as a percentage of revenues.
Net income for the quarter came in at $153.4 million as compared with $145 million in the year-ago quarter.
Balance Sheet, Cash Flow & Shareholders’ Return
Xilinx exited the quarter with cash and cash equivalents, and short-term investments of approximately $3.32 billion compared with $3.25 billion in the previous quarter. The company has total long-term debt (excluding current portion) of about $995.2 million.
During the quarter, Xilinx generated cash of $306 million from operations and incurred $20 million as capital expenditure. Additionally, the company paid $81.8 million as cash dividends and repurchased shares worth $108.1 million during the quarter.
In fiscal 2017, Xilinx generated cash of $934 million from operations and incurred $51.8 million as capital expenditure. Furthermore, the company paid $333 million as cash dividends and repurchased shares worth $522 million during the fiscal.
Concurrent with the fiscal fourth-quarter results, Xilinx announced that its board of directors has raised the quarterly cash dividend to 35 cents from 33 cents. The raised dividend will be paid on Jun 1 to shareholders of record date as on May 16.
Guidance
For first-quarter fiscal 2018, the company expects revenues in a range $600–$630 million (mid-point $615 million). The mid-point of the company’s guidance for the fiscal fourth quarter is higher than the Zacks Consensus Estimate of $612.08 million.
Gross margin is anticipated to be between 68% and 70%. Operating expenses are likely to be around $242 million, which includes approximately $1 million of amortization of acquisition-related intangibles. Tax rate is projected to be between 12% and 15%.
Our Take
Keeping its earnings streak alive for the 12th successive quarter, Xilinx reported better-than-expected results, surpassing the Zacks Consensus Estimate on both counts. Also, the company’s top and bottom lines both increased year over year. Its revenue guidance for the fiscal first quarter is also impressive as it is higher than our estimate at the mid-point.
Shares of this California-based chipmaker rallied 4% higher in the after hour trade on the back of solid quarterly results and an encouraging guidance. Notably, the stock outperformed the Zacks categorized Semiconductor-Programmable Logic industry in the last one year. In the said period, shares of Xilinx gained 43.4%, outperforming 40.4% growth recorded by the Semiconductor-Pro Logic Device industry.
Rising demand for 28-nm, 20-nm and 16-nm nodes, driven by higher wireless deployments and strength in the wired communication segment, are expected to remain growth drivers. The company’s product launches should further aid revenues.
However, a slowdown in the Chinese economy, along with economic weakness in Europe and the Asia-Pacific region, could adversely affect Xilinx’s near-term results. Stiff competition from peers is another material headwind.
Stocks to Consider
Currently, Xilinx has a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader technology sector are STMicroelectronics (NYSE:STM) , Texas Instruments (NASDAQ:TXN) and Advanced Micro Devices (NASDAQ:AMD) , all carrying a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
STMicroelectronics, Texas Instruments and Advanced Micro Devices have long-term expected earnings growth rate of 5%, 9.6% and 6.3%, respectively.
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