SAN FRANCISCOProgrammable logic vendor Xilinx Inc. continues to face the risk of double ordering by customers due to growing lead times for some of its parts, according to a Wall Street analyst.
Christopher Danely, an analyst at J.P. Morgan, noted in a report circulated Tuesday (May 18) that Xilinx (San Jose, Calif.) recently stated that lead times for some Virtex-5 FPGAs have extended to more than 10 weeks, above last quarter's range of four to six weeks. Danely said his firm also remains concerned about recent comments from Cisco Systems Corp. regarding inventory build in the communications supply chain.
Danely and a handful of other Wall Street analysts have in recent weeks repeatedly expressed concerns about inventory buildup from programmable logic vendors Xilinx and rival Altera Corp. Other analysts, including Paul McWilliams, editor of the technology investment newsletter Next Inning Technology Research, maintain that these fears are off base.
Xilinx Chief Financial Officer Jon Olson addressed the issue of inventory during an analyst conference call following the company's fiscal fourth quarter earnings report last month. 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.
Danely was one of several analysts who raised estimates for Xilinx' fiscal 2011 revenue and profit following the fiscal fourth quarter report in April. But, at the time, Danely also noted that he was officially concerned about a possible build up of Xilinx inventory in the channel.
On Tuesday, Danely wrote that he still likes Xilinx long term due to its superior revenue growth and earnings-per-share growth relative to other large semiconductor firms. But he said he has short term concerns about Xilinx following the comments by Cisco. According to Danely, Cisco's inventory purchase commitments increased 30 percent from $3.3 billion in the January quarter to $4.3 billion in the April quarter, following a 19 percent increase in the January quarter.
"We believe Xilinx is at risk of double ordering," Danely wrote. At times when lead times for parts grow exorbitant, OEMs will place orders with multiple sources and use the parts they get first, canceling the other orders.
Danely reiterated J.P. Morgan's "neutral" rating on Xilinx stock and share price target of $25. Xilinx traded at $24.07 near the close of trading Tuesday, down nearly 3 percent from Monday's closing price.