Xilinx Gains on Guidance
Updated from March 8
Xilinx
(XLNX) - Get Report
boosted its sales targets for its fourth quarter and said inventory reductions remain on track. The stock rose Wednesday as a brokerage upgrade fanned the momentum.
Xilinx said during its scheduled midquarter update after the bell Tuesday that it expects sales to be between $372.8 million and $383.8 million, for a sequential increase of 5% to 8%. The company does not provide earnings expectations, but it still expects gross margins of 62%, flat with the previous quarter.
Analysts had expected earnings of 18 cents a share on sales of $367 million, on average, according to Thomson First Call. At the start of the quarter, Xilinx predicted sales between $358.5 million and $372.8 million, for a sequential increase of 1% to 5%.
Xilinx shares rose 81 cents to $31.87 Wednesday as Wachovia upgraded them to outperform from market perform. Rival
Altera
(ALTR) - Get Report
rose 25 cents to $21.08.
Xilinx and Altera make programmable microchips, also known as PLDs, or programmable logic devices, which are used in a wide variety of end markets, such as communications, storage and servers, and consumer and industrial. PLDs carry basic levels of functionality that customers can then overlay with their own proprietary software and technology to suit their needs.
Xilinx predicted inventory would decline to below 150 days compared with an earlier prediction of inventory falling to 150 days in the fourth quarter, from 174 days in the third quarter. The company's goal for inventories is around 120 days.
Xilinx's announcement helped lift other chip stocks off of their closing lows. Anxious investors have held a benchmark chip exchange-traded fund, the
Semiconductor HOLDRS
(SMH) - Get Report
, beneath $35 for the past two weeks on mixed signals from within the industry. The ETF also tried and failed to breach $35 in mid November and early December.
Novellus Systems
(NVLS)
released what was mostly a positive midquarter update on March 1, but its
shares declined on margin concerns.
Texas Instruments
(TXN) - Get Report
stated on Monday that the vast majority of its operations were tracking as expected during the current quarter, but
shares fell on concerns about a product line that accounts for only a little more than 5% of sales.
And there's more to come: Altera hosts a midquarter update on Wednesday afternoon, and Thursday will bring a midsession third-quarter report from
National Semiconductor
(NSM)
.
Intel
(INTC) - Get Report
will host a midquarter update later that afternoon.
However, not everyone is concerned about prospects for the chip industry this year.
"Looking forward, I think it will be a decent year for these companies as long as demand holds up," said Sunil Reddy, portfolio manager and head technology analyst with Fifth Third Asset Management, speaking before Xilinx's announcement. "It doesn't even have to be great, but if it's just OK, then that should be fine."
Reddy is focused on inventories continuing to trend lower, but he said expectations for many chip companies remain pretty anemic, citing expectations for industrywide growth for semiconductors at 3% to 5% for the entire year. Reddy noted that seems too low considering that PC demand continues apace and any upside to corporate IT spending would provide upside to chip sales.
As for Xilinx and Altera, Reddy said he's more concerned with overall demand for PLDs than a specific bet on either company.
"You need to believe the PLD story to buy either one of those companies," he said. "Altera does seem to have a good product cycle going, but, overall, it's tough to say that one company will do better than the other for the next couple of years; the difference might only be 5% or 10%."