Chipmaker Xilinx (XLNX, Financial) posted not-so-impressive results. Some investors might be scared away by the poor performance by Xilinx. Still, investors should consider Xilinx’s well-diversified business as well as higher dividend yield. With the growing LTE platform, the company is positioned to benefit from China Mobile's roll out in the future.
LTE Goodness on the Way
Xilinx has a robust outlook and therefore looks promising. Many companies in this sector are lined up to benefit from the LTE roll out. Xilinx is a supplier to Huawei and ZTE, which are among those companies which are expecting growth from LTE. This is great news for Xilinx and the company is expected to post decent results in the future. In addition, China Mobile had selected nine vendors last year to deploy its network and both Huawei and ZTE were among the winners. Going forward, Xilinx should see strong business from its Chinese customers as deployment of LTE gains pace.
According to ZDNet, China Mobile is projected to spend around $13.5 billion on its LTE network, covering more than 350 cities by the end of the year. The carrier plans to build more than 500,000 base stations by the end of 2014, and this should spur demand for Xilinx’s programmable chips.
With the studies going on the electronic market, some analysts have revealed that the programmable logic devices (PLD) market is expected to rise 10% this year to $4.7 billion. The 28-nanometer platform is expected to account for a fourth of PLD revenue, and Xilinx commands 70% of this platform.
The 28-nanometer chip platform has benefited Xilinx. This is expected to be a primary growth driver for the company. It has contributed about 22% of the new product revenue to Xilinx.
Product Innovation
In addition to this, Xilinx is focusing on strengthening its product line by introducing a 20-nanometer chip platform. Having addressed a wide range of applications such as data centers, defense systems and wireless connectivity, the company is expecting good demand for its new products and further innovations in these products might lead the company to more profitability in the future.
The Manufacturers Alliance for Productivity and Innovation (MAPI) is also giving an upbeat forecast. Manufacturing production is expected to rise 3.1% this year, bettering last year’s growth of 2.1%. On the other hand, traditional manufacturing is expected to improve 3% as against 2% growth seen in 2013.
But it might face stiff competition from its peer Altera as it is aggressively developing its own class of 20-nm and 14-nm chips. Also, Altera is moving aggressively to hurt Xilinx’s margins, outpacing it from its market position. Altera expects that it will be able to make a serious dent in Xilinx’s market position in the future with its 14-nm chips, and it will capture around 50% of the industry’s revenue in five years' time.
But Xilinx is staying confident in its moves and advances it has undertaken. Its initiatives are moving on well and the company is also getting satisfactory response from it. In defense, Xilinx has also invested aggressively in R&D to explore more profitable opportunities.
Conclusion
Xilinx looks well positioned for the future; though it saw weakness in its results, the robust moves by the company might offset the headwinds. With the LTE roll out, Xilinx is hoping to benefit. More upswing is expected in the industrial market, automotive sales, etc. As such, Xilinx should be able to continue its steady and stable performance.
