TOP CONTRIBUTORS

Barbara Donnini

XLNX AT A GLANCE

P/E ► 19.4 AVG EV/EBITDA ► 15.6 AVG ROA ► 10.9% HIGH ROE ► 17.7% HIGH Debt to Equity ► 0.506 AVG Current Ratio ► 6.65 AVG Interest Coverage Ratio ► 28.3 HIGH

 

 

 

 

 

 

^[1] Xilinx (XLNX) designs and manufactures semiconductor chips. Semiconductor chips are electronic circuits that are built on a specific type of material. They are used in anything that is computerized or uses radio waves. Some of Xilinx's major customers include Sony, IBM, and Siemens. It sells products through sales representatives located primarily in the United States. ^[2].

A major risk to consider when investing in Xilinx is the current economy. Semiconductors are used in electronic devices, which are expensive. Many people cannot afford such luxuries during this recession and will not be spending as much in the electronics market. There is a "weaker demand for our products... that has resulted in excess and obsolete inventories..." (10K). Another thing to consider when investing in Xilinx is which products the chips will be inserted into. If a certain gaming system is not expected to do well and Xilinx has made the chip for it, expect stock to go down. Finally, Xilinx announced a "restructuring" in April 2009, meaning they plan on expanding their international operations and relocation certain administrative functions. Their expanse into foreign countries now causes their company to be partially based on the economics in these overseas lands. If there is an issue in any one of the countries they base in, (India, Singapore, Japan, Ireland, and Taiwan to name a few), profits may suffer. (10K)

Xilinx's major customers by category. (Click to enlarge.)

Company Overview

Xilinx operates as a "fabless" semiconductor company, which means they do not own or operate any of the wafer-making facilities. Wafers are needed to make the integrated circuits that Xilinx does produce and sell. Xilinx forms alliances with wafer manufacturers such as Toshiba, Samsung, Seiko, and United Microelectronics Corporation so that it can concentrate its efforts on research, development, marketing, and technical support for its integrated circuits.^{[3] [4]}

Xilinx is the current market leader in the production of PLDs and the manufacture of ASICs, both of which are types of integrated circuits. A programmable logic device (PLD) is standard component, meaning Xilinx sells many of them to many different companies, and the companies program them using their own software. ASICs are Application-Specific Integrated Circuits (ASICs), which are similar to PLDs in function but are custom-made for each client. So, generally, Xilinx's high-volume manufacturing customers purchase ASICs, while lower-volume manufacturing customers purchase PLDs.

Xilinx operates by selling their products to OEMs or distributors who eventually resell to an OEM. An OEM is an Original Equipment Manufacturer, or a company that produces hardware to be sold under another company's brand (http://en.wiktionary.org/wiki/OEM).

Business and Financial Metrics

Again, Xilinx is a producer of PLDs. In the past 3-5 years, Xilinx has been focusing more on the research side of their company. Their expenses on Research and Development in 2009, 2008 and 2007 were 355.4 million, 358.1 million, and 388.1 million, respectively. Also, in June 2008, they announced a functional reorganization pursuant to which they eliminated 249 positions, (7% of their global workforce) [10K]. Their total restructuring charges are 22.0 million dollars.

Xilinx's 2008 Market Cap (in millions) is at $5,830. We generally see a steady increase in revenue from 2006 to 2008, however Q1 and Q2 of 2008 were lower than the previous years. Overall, the company's total revenue increased from $1,726.3 million dollars in 2006 to $1,842.7 million dollars in 2007. However from 2007 to 2008, revenue decreased by $1.9 million dollars for a 2008 total of $1,840.8.

Revenue and Net Income Over Fiscal Years 2006, 2007, and 2008. (Click to enlarge.)

In July 2008, Xilinx reported earnings for its first quarter of fiscal 2009. It stated that management may be able to lower the ratio of operating expenses to revenue to 34% from 38%, and to do so cut 250 jobs ^[5]. Xilinx also reported a net revenue of 488.2 million dollars for this quarter. The company calls this record sales and says that their Industrial sector also reached a record level. ^[6]

(Click to enlarge.)

Business Segments

(Click to enlarge.)

Communications (44% of Revenue in 2009)

Xilinx's largest category, Communications, serves customers such as Cisco, Ericsson, and Motorola. Xilinx reported a year-to-year growth rate increase of 2% in this sector. Net revenues from this sector increased in fiscal 2009 compared to the prior year period primarily due to the strength in wireless communication applications^[9]. The company reported that sales to customers in the wireless space were particularly strong during 2009 as a result of next generation wireless activity in China. Finally, they explain that the reason there was a decrease in the Communications sector in 2008 was merger and consolidation activity in the market.

Industrial and Other (32%)

This is a broad category covering aerospace, broadcast, scientific, medical, and industrial services.^[10] Xilinx reported an increase in 2009 for this sector due to strong sales growth from aerospace and defense and industrial, scientific, and medical applications. They also reported, however, that this growth was "offset considerably by weakness in test and measurement applications." ^[11].

Consumer and Automotive (16%)

For the automotive sector, Xilinx provides silicon and IP products for in-vehicle infotainment, comfort and convenience, gateway and driver assistance systems.^[12] It supplies cost-effective products enabling for converged handsets, digital flat panel displays, and residential set top boxes. ^[13] In their annual report, Xilinx explains that this sector decreased in 2009 from the comparable prior year due to weaker sales from audio, video and broadcast and automotive applications, which was partially offset by an increase in sales from consumer applications ^[14]. ^[15]

Data Processing (8%)

Xilinx reported a decrease in net revenues for this end market in 2009. They claim it is mainly driven by decreases in sales from computing and data processing applications. ^[16].

Key Trends and Forces

Overseas Production Can Cause Shipment and Other Issues

Xilinx does not produce its own wafers, or semiconductor synthesizing material. Instead, the company prides itself in strategically forming alliances with, usually overseas, manufacturers that produce the needed materials and ship them. There are many potential downfalls with this strategy, as any overseas subcontractors cannot be directly controlled. Any type of fallout, whether natural disaster, government policy, worker uprising, etc., affects shipments and supply. The company would need to find alternative sources for their materials, which would be a huge setback.

The Market is Seeing New Competitors

There are multiple benefits to programmable logic, and according to CANACCORD, people are beginning to notice. A number of new competitors have been attracted to the ASIC market, specifically in the PLD sector, which poses a threat to Xilinx. According to the Semiconductor Industry Association, programmable logic is now one of the fastest growing segments of the semiconductor business, and for the last few years, sales for PLDs have increased at a greater pace than sales for the overall semiconductor industry. ^[17] In 2005, the semiconductor industry made over 90 million transistors for every man, woman and child on Earth, and by 2010, this number should be 1 billion transistors. ^[18] Although they currently hold the majority of shares in the market, any profits these new companies make is revenue that had potential to be Xilinx’s, and the company may begin to see slower growth rates.

Xilinx is Restructuring

In June 2008, the company announced a reorganization decision. Seven percent of their global workforce was eliminated and overall restructuring charges were 22.0 million dollars. Only 2.5 million were facility-related costs, whereas the other 19.5 million was paid in severance and benefits to expelled employees ^[19].

Interest Rate Risk

Xilinx's portfolio consists of fixed income securities with a fair value of approximately 1.24 billion as of March 2009 ^[20]. They place investments with high credit, quality issuers and limit the amount of credit exposure to any one issuer based upon the issuer's credit rating.

Competition

Xilinx's primary rival, Altera, held the top market share prior to 1998 however and both companies are in fierce competition, making the market essentially a duopoly. ^[21]. Although Xilinx currently holds the largest market share at 51%, Altera has been more efficient in their operational processes, and has reported excellent EBT margins that have surpassed XIlinx's over the past five years ^[22]. The semiconductor market is essentially a duopoly between Altera and Xilinx. Lattice comes in third holding 11% of the industry. Other, smaller, companies in the market are listed below:

Xilinx holds 51% of the market share of PLDs^[23]. It's primary rival, Altera, holds 49% of the market. (Click to enlarge.)

• Altera (ALTR)
• Lattice Semiconductor (LSCC)
• Actel (ACTL)
• QuickLogic (QUIK)
• Cypress Semiconductor (CY)
• Atmel (ATML)
• Chengdu Sino Microelectronics System

References

1. ↑ http://thedude.cc.gt.atl.ga.us/conferences/codesisss/committees.shtml CODESISSS, International Conference for Hardware/Software
2. ↑ CANACCORD Financial Research
3. ↑ http://www.xilinx.com/company/press/corp_fact_sheet.pdf Corporate Fact Sheet
4. ↑ http://investor.xilinx.com/phoenix.zhtml?c=75919&p=irol-irhome Investor FactSheet 2009
5. ↑ MorningStar
6. ↑ http://investor.xilinx.com/phoenix.zhtml?c=75919&p=irol-newsArticle&id=1175798 Xilinx 2009 Q1 Press Release
7. ↑ MorningStar
8. ↑ MorningStar
9. ↑ http://www.sec.gov/Archives/edgar/data/743988/000120677409001155/xilinx_10ka.htm Xilinx 10K
10. ↑ http://www.xilinx.com/esp/index.htm Xilinx Market Solutions
11. ↑ http://www.sec.gov/Archives/edgar/data/743988/000120677409001155/xilinx_10ka.htm Xilinx 10K
12. ↑ http://www.xilinx.com/esp/index.htm Xilinx Market Solutions
13. ↑ http://www.xilinx.com/esp/index.htm Xilinx Market Solutions
14. ↑ http://www.sec.gov/Archives/edgar/data/743988/000120677409001155/xilinx_10ka.htm Xilinx 10K
15. ↑ http://investor.xilinx.com/phoenix.zhtml?c=75919&p=irol-newsArticle&id=1175798 Xilinx Investor Report
16. ↑ http://www.sec.gov/Archives/edgar/data/743988/000120677409001155/xilinx_10ka.htm Xilinx 10K
17. ↑ http://www.xilinx.com/company/about/programmable.html
18. ↑ http://www.sia-online.org/cs/industry_resources/industry_fact_sheet
19. ↑ http://www.sec.gov/Archives/edgar/data/743988/000120677409001155/xilinx_10ka.htm Xilinx 10K
20. ↑ http://www.sec.gov/Archives/edgar/data/743988/000120677409001155/xilinx_10ka.htm Xilinx 10K
21. ↑ MorningStar
22. ↑ MorningStar
23. ↑ http://investor.xilinx.com/phoenix.zhtml?c=75919&p=irol-irhome Investor FactSheet 2009
24. ↑ MorningStar
25. ↑ http://investor.xilinx.com/phoenix.zhtml?c=75919&p=irol-irhome Investor FactSheet 2009
26. ↑ CANACCORD
27. ↑ http://media.corporate-ir.net/media_files/irol/21/212763/Q2_09/xlnxfactsheetQ2FY09.pdf
28. ↑ http://media.corporate-ir.net/media_files/irol/21/212763/Q2_09/xlnxfactsheetQ2FY09.pdf
29. ↑ http://www.altera.com/corporate/news_room/factsheet/nr-factsheet.html Altera Fact Sheet
30. ↑ http://phx.corporate-ir.net/phoenix.zhtml?c=83265&p=irol-newsArticle&t=Regular&id=1102964&
31. ↑ http://www.altera.com/corporate/news_room/factsheet/nr-factsheet.html Altera Fact Sheet
32. ↑ http://www.latticesemi.com/corporate/investorrelations/financialinformation/index.cfm?source=topnav Lattice Investor Relations
33. ↑ http://www.latticesemi.com/documents/doc29365x17.pdf Lattice US SEC Form
34. ↑ http://www.latticesemi.com/documents/doc29365x17.pdf Lattice US SEC Form