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Xilinx’s High Margins Make It Outlier in Semiconductor Downturn

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Xilinx’s gross margin

Xilinx (XLNX) is witnessing strong revenue growth with the growing adoption of FPGAs (field programmable gate arrays) in the data center and communications markets. The demand is strong for its new high-margin products, which are driving its profit margins.

In the fourth quarter of calendar 2018, Xilinx’s non-GAAP (generally accepted accounting principles) gross margin stood at 69%, way above NVIDIA’s (NVDA) and Intel’s (INTC) gross margins of 56% and 61.7%, respectively. Xilinx has a higher gross margin, as it does not cater to the lower-margin consumer market. On the other hand, NVIDIA and Intel earn more than 50% of their revenue from the consumer markets of PC and gaming.

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Xilinx’s operating margin

In the fourth quarter of calendar 2018, Xilinx’s non-GAAP operating margin stood at 32.9%, above NVIDIA’s margin of 21.7% but below Intel’s margin of 35.3%. Xilinx expects to maintain its operating margin above 30% in the first quarter of calendar 2019. However, Intel’s operating margin is expected to fall to 29% as macroeconomic weakness reduced its revenue and increased operating expenses.

EPS

Xilinx’s non-GAAP EPS have risen in the double digits for four consecutive quarters, whereas NVIDIA’s EPS fell by 50% in the fourth quarter of calendar 2018 after growing in the strong double and triple digits for more than two years. NVIDIA’s and Intel’s EPS are expected to slide in the first half of 2019, whereas Xilinx’s EPS are expected to rise.

Xilinx is growing revenues and earnings when other chip makers are reporting declines, which makes it an outlier. This growth comes as the company starts realizing the benefit from 5G (fifth generation) and data center opportunities.

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