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Will Fiscal 1Q17 Earnings Bring Good News for Xilinx Investors?

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Xilinx moves ahead of Altera in terms of technology

In the previous part of the series, we saw that IoT (Internet of Things) is driving mergers and acquisitions in the semiconductor space. So far, the dominant FPGA (field programmable gate array) maker Xilinx (XLNX) hasn’t been swept up in an acquisition. However, it’s been rumored to be a lucrative acquisition target since rival Altera was acquired by Intel (INTC).

The acquisition slowed Altera’s growth efforts, and Xilinx grabbed this opportunity to move to advanced manufacturing nodes before Altera. It also partnered with server chip manufacturers IBM (IBM) and Qualcomm (QCOM) to supply FPGAs for their server chips, replicating what Intel plans to do with Altera but without an acquisition cost. Xilinx expects this advantage over Altera will improve its revenue from a 7% YoY (year-over-year) decline in fiscal 2016 to 4% to 8% growth in fiscal 2017. However, it expects the start of the year to be slow.

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Revenue

For fiscal 1Q17, Xilinx expects revenue to be sequentially flat but up 4% YoY at around $571 million, almost in line with the analyst estimate of $571.3 million. However, the company has exceeded the analysts’ estimates in two of the past four quarters by an average of 0.3%. If the company maintains this trend, it’s likely to report revenue of $572.96 million in fiscal 1Q17.

EPS

For fiscal 1Q17, analysts expect the company to report EPS (earnings per share) of $0.55, slightly higher than the $0.54 reported in fiscal 4Q16 but the same as in fiscal 1Q15. However, the company has exceeded the analysts’ estimates in three of the past four quarters by an average of 2%. If the company maintains this trend, it’s likely to report an EPS of $0.56.

Even though the revenue is expected to rise 4% YoY in fiscal 1Q17, EPS is likely to remain flat as the company goes through a major technology transition to TSMC’s (TSM) 16-nanometer node. The transition will increase Xilinx’s operating expenses and lower its margin in fiscal 1Q17. We’ll look into the company’s margins in the next part of the series.

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