This investment will put Sprint Nextel Corporation (NYSE:S)’s LTE rollout in a higher gear and enable it to move into more markets apart from the 90 cities that are currently covered by its LTE network. Sprint has the required spectrum and as it spends on base stations, the demand for programmable chips which Xilinx, Inc. (NASDAQ:XLNX) supplies should improve further.
Similarly, in China, the deployment of LTE by China Mobile Ltd. (ADR) (NYSE:CHL) and China Telecom is expected to drive growth further. Xilinx believes that LTE activity in China will result in revenue gains later this year, and this is a reasonable expectation when we take a look at the moves that China Mobile Ltd. (ADR) (NYSE:CHL) is making.
Late in June, China Mobile Ltd. (ADR) (NYSE:CHL) launched a big LTE tender for supply of equipment for 207,000 base stations in 31 provinces, and it happens to be the biggest one ever in the telco’s history, according to China Daily. The same source reports that China Mobile would be bumping up its capital expenditure budget by almost 50% this year to $30 billion, with half of it expected to be spent on the carrier’s TD-LTE initiative.
More goodies
After the communications business, industrial, aerospace & defense is the next most important segment for the company with revenue share of 37%. In the previous quarter, sales from this segment improved 10% on a sequential basis, primarily driven by a government defense program. This segment is expected to improve in the ongoing quarter as well, but it should be taken into account that this segment is affected by the strength of the economy.
As reported by Bloomberg Businessweek, a Senate panel recently approved a defense spending bill for next year, with a focus on overturning the impact of sequestration. In addition, semiconductor companies are witnessing strong demand in the industrial and automotive end-markets, according to JPMorgan (sign-in required).
The bottom line
Considering these, Xilinx, Inc. (NASDAQ:XLNX)’s guidance for a sequential improvement in revenue to $579 million to $596 million in the second quarter was not surprising, and furthermore, this guidance was well ahead of the $562.6 million analyst estimate at the mid-point.
So, with further improvements expected going forward and a solid guidance to back up that expectation, I believe that Xilinx’s appreciation can continue and there’s no reason why investors should cash out by just taking a look at the P/E ratio.
The article A Few Solid Reasons Why This Stock Should Be in Your Portfolio originally appeared on Fool.com and is written by Harsh Chauhan.
Harsh Chauhan has no position in any stocks mentioned. The Motley Fool owns shares of China Mobile. Harsh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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