Having a well-diversified semiconductor company in your portfolio can help your returns improve. Why? Because semiconductors are the basic building blocks of a number of things around us, ranging from a tiny calculator to an aircraft, and so, having a company which makes chips that are sold to various end-markets is a good idea.
One such company is Xilinx, Inc. (NASDAQ:XLNX), which makes programmable chips that are used across various end-markets such as communications, automotive, industrial, defense, etc. The company has been on a roll this year, appreciating a tad over 30%, while also paying a dividend that yields 2.20% annually.
This solid run this year has stretched the company’s trailing P/E to almost 25 times, which might look expensive, but is still below the industry average of 26 times. But, the business has been picking up pace of late and Xilinx, Inc. (NASDAQ:XLNX)’s latest results, which were released around mid-July, indicate that there’s more room to run.
The recently-reported first quarter results revealed that Xilinx beat estimates quite handsomely, as I’d expected. Although revenue was almost flat from last year at $579 million, it was miles ahead of the $549.3 million consensus estimate. On earnings, the company comprehensively beat the estimate of $0.47 per share by earning $0.56 a share in the quarter.
Remarkably, profit of $157 million in the quarter was around 20% up from the year-ago period, even though revenue was flat, signifying that Xilinx’s efforts to improve gross margin are bearing fruit and tricking down to the bottom line.
With such a solid performance in the bag, Xilinx, Inc. (NASDAQ:XLNX) didn’t disappoint with its guidance either. Well, when the end-markets are doing well and the company is doing its best to tap them with its impressive product development moves, then there’s no reason why Xilinx, Inc. (NASDAQ:XLNX) shouldn’t do better in the future.
Innovation driving growth
The company’s new product families, especially the 28-nanometer, the 40-nanometer, and the 45-nanometer chips, have been on a tear. Sales of new products jumped an impressive 75% in the previous quarter from last year as they found more traction in the market. But, the company isn’t stopping here and is looking to push the envelope with a 20-nanometer product family as well.
Xilinx, Inc. (NASDAQ:XLNX) is intent on staying ahead of the competition, and its latest innovations, such as the industry’s first ASIC-class programmable architecture known as UltraScale, are focused on delivering better performance.
Telecom — A big catalyst
Armed with its cutting edge chips, Xilinx, Inc. (NASDAQ:XLNX) is looking to capture the growing communications and data center market (which accounts for 44% of overall revenue), which should present it with a big opportunity given the expansion of LTE networks by various telecom carriers. More importantly, the company is banking on the two most important telecom markets in the world — North America and China — to benefit from LTE expansion.
For instance, LTE rollout in the U.S. has been heating up, with the likes of AT&T Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ) occupying pole position and others, such as Sprint Nextel Corporation (NYSE:S), trying to make a dent in the market. Sprint Nextel Corporation (NYSE:S)’s acquisition by SoftBank has given it more resources to expand its LTE network, and SoftBank will be giving Sprint $16 billion to spend on the expansion over the next two years.