Xilinx likely to be hit by weak demand in Q3: Earnings preview

(RTTNews) - Programmable logic devices manufacturer Xilinx Inc. (XLNX | Quote | Chart | News | PowerRating) is scheduled to release its third-quarter earnings on Wednesday, after the market closes. Citing much weaker than expected December sales from a broad base of end markets, the San Jose, California-based company in December revised its third-quarter revenue forecast and said it sees more sales decline than expected.

On average, 19 analysts polled by First Call / Thomson Financial expect the company to post earnings of $0.32 per share, with estimates ranging between $0.29 and $0.39 per share. Analysts' estimates typically exclude special items.

Wall Street analysts expect third-quarter sales of $445.64 million, representing a 6.1% decline from last year. In the prior-year quarter, the company's reported earnings were $0.35 per share on sales of 474.81 million.

Xilinx, founded in 1984, and currently with 3,415 employees, designs and manufactures a broad range of high-performance, high-density programmable logic devices, or PLDs, such as field-programmable gate arrays and complex-programmable logic devices. The majority distributor of Xilinx's products is Avnet Inc. (AVT | Quote | Chart | News | PowerRating), which reportedly accounted for 83% of the company's total accounts as of March 29, 2008.

Xilinx currently projects about 6% to 10% sequential decline in quarterly sales, while the previous forecast was a sales increase of 2% to decline of 2% sequentially. For the second quarter, the company reported sales of $483.5 million.

However, the company continues to expect sequential increase in its third-quarter sales from the wireless communications and defense end markets, and strong sequential sales growth in its Virtex-5 FPGA family, reflecting strong demand. For the quarter, gross margin is still expected to be at 63% to 64%.

In the preceding second quarter, Xilinx's net income fell from last year to $81.8 million, or $0.29 per share, hurt by impairment and restructuring charges.

Even though the December quarter is typically the strongest quarter for chipmakers, industry trend shows that demand for chips continues to be weaker. Chipmakers are struggling with falling global demand for chips due to a sharp pull back in consumer spending in light of the ongoing economic crisis.

In a January 2 statement, the Semiconductor Industry Association, or SIA, President George Scalise said, "The worldwide economic crisis is having an impact on demand for semiconductors, but to a lesser degree than some other major industry sectors. We expect the industry will remain the second largest exporter in the U.S. for 2008."

"Not all segments of the industry are being affected equally by the downturn. The memory market which has been under severe price pressure throughout the year has seen sales decline significantly while many other product sectors have year to date sales above 2007 levels," Scalise added.

Several other chipmakers too expect to feel the brunt of significantly lower demand, and have revised their expectations downward in recent times.

In December, semiconductor chip manufacturer Altera Corp. (ALTR | Quote | Chart | News | PowerRating) lowered its fourth-quarter revenue guidance due to lower than anticipated sales across all market segments. The San Jose, California-based company now expects fourth-quarter sales to be sequentially down between 9% and 12%, compared to a previous sales guidance in the range of up 1% to down 3% from third quarter of 2008.

Altera noted that inventory reductions by a broad range of end customers are occurring across all market segments. Analysts currently estimate sales of $318.74 million, while earnings are estimated to be $0.27 per share.

However, Altera expects fourth-quarter gross margin to be 69% +/- 0.5%, an increase from prior guidance of 68% +/- 0.5%, attributed to its ongoing cost savings initiatives and market segment mix. Altera, the world's second-biggest maker of programmable semiconductors, is slated to release its fourth quarter results on January 27.

Actel Corp. (ACTL | Quote | Chart | News | PowerRating), a manufacturer of flash- and antifuse-based field-programmable gate arrays, in December said it continues to expect that fourth quarter 2008 revenues will be flat to down 4% sequentially. Gross margin is expected to be around 59% to 60%. In its third quarter, the company posted net loss of $1.37 million or $0.05 per share, compared to net income of $1.79 million or $0.07 per share last year. Non-GAAP net income was $1.87 million, lower than last year, while revenues rose 11% to $53.22 million.

Another peer Lattice Semiconductor Corp. (LSCC | Quote | Chart | News | PowerRating) also said in December that it anticipates fourth-quarter revenue to be down approximately 12% to 16% sequentially. The company reported a net loss of $7.0 million or $0.06 per share in its third quarter, narrower than last year, with revenues of $57.6 million. Lattice is likely to release its fourth quarter results on January 29.

Among bigger players in the industry, Texas Instruments Inc. (TXN | Quote | Chart | News | PowerRating), a Dallas, Texas-based chipmaker, sharply cut its earnings and revenue forecast for the fourth quarter in December as demand fell for its chips. The world's second largest maker of mobile phone chips now expects fourth-quarter earnings to be in the range of $0.10 to $0.16 per share, compared to its earlier forecast of $0.30 to $0.36 per share. The company lowered its fourth quarter revenue outlook to a range of $2.30 billion to $2.50 billion from its prior outlook of $2.83 billion to $3.07 billion. Analysts expect Texas Instruments to earn $0.12 per share on revenue of $2.37 billion for the fourth quarter.

Texas Instruments' revision came after Nokia Corp. (NOK | Quote | Chart | News | PowerRating), the world's largest maker of mobile phones and TI's biggest customer, lowered its outlook for industrywide mobile device volumes for the fourth quarter and the full-year 2008 twice in three weeks. Texas Instruments is slated to release its fourth quarter earnings on January 26.

Broadcom Corp. (BRCM | Quote | Chart | News | PowerRating) recently lowered its revenue guidance for the fourth quarter, citing "significant pushouts and cancellations" by customers due to the current global economic environment.

Intel Corp. (INTC | Quote | Chart | News | PowerRating), the world's biggest chipmaker, has also lowered its fourth-quarter revenue forecast, citing significantly weaker than expected demand in all geographies and market segments.

Advanced Micro Devices Inc. (AMD | Quote | Chart | News | PowerRating), Intel's main rival in the microprocessor market, warned that it expects fourth quarter revenue to decline by about 25% sequentially, blaming weaker than expected demand across all geographies and businesses, particularly in the consumer market.

SIA in early January reported that worldwide sales of semiconductors declined 9.8% in November 2008 to $20.8 billion from last year's $23.1 billion. Sales were 7.2% lower than the $22.4 billion in October 2008. Excluding memory products, sales declined 4.8% from last year to $17.3 billion.

SIA President Scalise also said in the earlier statement that the Association has urged Congressional leaders to move quickly to pass legislation that will strengthen consumer confidence and stimulate government and industry investment that will drive near term economic growth.

In a January 9 research note, RBC Capital Mkts initiated its rating on Xilinx shares with 'Sector Perform'. In mid December, Jefferies & Co upgraded its rating on the company to 'Buy' from 'Underperform', while Global Crown Capital downgraded the rating to 'Neutral' from 'Overweight'.

XLNX closed Tuesday's regular trading session at $16.23, up $0.28 or 1.76%, on a volume of 10 million shares. In the past 52 weeks, shares have been trading in a range of $14.28 -$28.21.

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