uploads/2016/12/Series-177-A11-1.png

Inside Xilinx’s Growth Potential in Industrial and A&D

By

Updated

Industrial and A&D

While Xilinx (XLNX) reported revenue declines in the communications and data center markets in fiscal 2Q17, the declines were more than offset by a 7% sequential growth in the industrial and A&D (aerospace and defense) markets, which accounted for 41% of the company’s revenue in fiscal 2Q17.

Industrial, in particular, is a wide market, spanning across the medical, factory, surveillance, robotics, and transportation markets, and Xilinx dominates the industrial IoT (Internet of Things) market with an 80% share.

Article continues below advertisement

Revenues from industrial and A&D

After witnessing strong growth in fiscal 3Q16 with the launch of its 16 nm (nanometer) products, revenues from industrial and A&D have been falling as the weak macroeconomic environment has slowed industrial growth. Delays in orders from aerospace and defense companies have also affected Xilinx’s revenues.

But things spiked in fiscal 2Q17 as Xilinx reported record high revenues in test, measurement, and emulation and witnessed rejuvenated demand in A&D markets. The company expects the revenue from industrial and A&D to fall in fiscal 3Q17 as demand from test, measurement, and emulation slows.

Industrial sensitivity

The industrial market is highly sensitive to global macroeconomic factors. The recent election of Donald Trump as the next US President may bring some relief to semiconductor companies that have high exposure to the industrial space. Trump has claimed that he will bring production back to US, which would increase industrialization, and if that happens, demand for industrial IoT (Internet of Things) would likely spike.

Article continues below advertisement

Meanwhile, slowing growth in the industrial space saw analog IC (integrated circuit) suppliers opt for mergers and acquisitions to boost growth. In 2016, Linear Technology (LLTC) acquired Analog Devices, while Microchip (MCHP) acquired Atmel, and ON Semiconductor (ON) acquired Fairchild. This further ignited rumors of a possible acquisition of Xilinx.

Aerospace and defense

Revenue from A&D largely relies on the US defense budget. Analysts believe that Trump will pump money into defense, which would increase Xilinx’s revenues in this space.

But while growth has been slow in the industrial and A&D space, things are heating up for Xilinx in the Broadcast, Consumer, and Automotive spaces. Continue to the next part for details.

Advertisement

More From Market Realist