Xilinx ( XLNX) dropped its sales forecasts Wednesday into the same target range as Altera ( ALTR), its major competitor in the programmable chipmaking arena, but that doesn't necessarily mean the companies are now on equal footing.
Let's recap: Xilinx and Altera both lowered their financial targets on Dec. 8, but Altera said at the time its new estimate reflected a sequential decline of 9% to 12%, while Xilinx predicted a decline of 5% to 8%. On Wednesday, Xilinx squared its target with Altera, projecting a sales decline of 11% to 12%. Things seem pretty much even when looking merely at sales expectations, but investors should be looking beyond those to inventory forecasts. Those are what are driving sales targets lower. Xilinx made no comment about inventory in its Wednesday press release, but the company had said on Dec. 8 that its inventory would swell to 170 days from its previous target of 156 days -- flat with its September quarter. With a reduced sales forecast, investors now can likely count on inventory surpassing 170 days. The company said turns -- orders placed and fulfilled during the same quarter -- were weaker than expected during December. Altera, on the other hand, expects supplies to hit the four-month mark, or roughly 120 days, during the December quarter. When Altera started the quarter, it predicted inventory in the range of 3.3 to 3.7 months, or between 99 and 111 days. Make no mistake: Inventory for both companies will increase in the December quarter, but there will be a point in the future when that reverses, and it appears Altera might be better positioned to get down to target inventory levels before Xilinx. A.G. Edwards analyst David Wong estimated Wednesday that Xilinx's inventory could inflate to 180 days. He said in a morning research note that end-market weakness and high inventories are hurting both companies but that Altera faces less inventory risk.