SAN FRANCISCOTwo Wall Street analysts raised their estimates for sales by programmable logic vendor Xilinx Inc. following the company's strong fiscal fourth quarter earnings report earlier this week. But some concerns persist about inventory builds, double ordering and constrained foundry capacity.
Mosesmann raised Raymond James' estimate for Xilinx' calendar year 2010 revenue to $2.25 billion from $2.09 billion. He raised his firm's price target for Xilinx shares to $48 from $40. Mosesmann rates Xilinx a "strong buy."
J.P. Morgan analyst Christopher Danely raised his estimate for Xilinx' fiscal 2011 revenue to $2.21 billion from $2.18 billion, and his earnings per share estimate for fiscal 2011 to $1.97 from $1.85, due to higher revenue and margins.
On Wednesday (April 28), Xilinx posted a net income of $148.5 million on record revenue of $529 million for the quarter ended April 3, beating consensus analyst expectations. It was the second consecutive quarter in which Xilinx recorded record quarterly sales.
But Danely cautioned that he believes Xilinx is at risk of double ordering because lead times have extended for some Virtex-5 devices to over 10 weeks, above the four to six week range for the fiscal third quarter. Danely also expressed concerns about inventory build for Xilinx because the company estimates that revenue from the communications end market is expected to be 31 percent above the 2008 peak, though revenues at top communications OEMs are expected to rise only 6 percent above the previous peak.
"We are now officially worried about an inventory build for Xilinx," Danely said.
Danely and other analysts recently expressed concerns about inventory build for No. 2 programmable logic player Altera Corp., largely because Altera is predicting revenue growth for some markets that is dramatically greater than the company's revenue for those markets during the prior peak and is greater anticipated revenue growth by the top players in those markets.
But Mosesmann said inventories at Xilinx were up only 1.3 percent from the previous quarter and, including distributors, declined to 79 days from 85 days last quarter. Normal range is 90 to 100 days, Mosesmann said.
"Management indicated that by and large there is no OEM inventory accumulation, however a few customers may have been building some buffer inventory due to the sudden lead-time expansion, which interestingly is not happening to rival Altera," Mosesmann wrote. He said the difference is likely explained by the fact that the companies use different foundries for current products.
Xilinx Chief Financial Officer Jon Olson addressed the issue of inventory during an analyst conference call following the quarterly report Wednesday. Olson said Xilinx' growth has come from new products and that the company has done a lot of work with customers to try to determine if they are buffering inventory. "By and large, the response is that they're not buffering inventory and sell-through is good," Olson said.
In his research note, Mosesmann also noted that tight wafer supply at the 65-nm node constrained Xilinx' fiscal fourth quarter inventory by $10 million to $11 million.
Olson said the tight supply has generally impacted its Virtex-5 products, though there has been some tightness with Virtex-4 parts also. "Even at 90-nanometer technologies, we've had some tightness with the foundries," Olson said.
Olson said Xilinx' two foundry strategy has helped the company blunt the impact of the constrained capacity, securing a little more capacity at one foundry. "But quite frankly, they're both very tight," he said.