Xilinx Shares Pop After Exceeding Earnings Estimates

Yesterday was a monster day for semiconductors, often seen as a leading indicator as they are highly cyclical.  I thought I’d go investigate one of the names causing a hubub this afternoon due to earnings results: Xilinx (NASDAQ:XLNX).  This is one of the largest and most well known semi names out there – about a $9B market cap.

The company beat expectations handily – the company reported 41 cents of EPS vs 37 cents expected.  Revenue was $500M vs $498M expected – a slight beat.  So they “won” the Wall Street game of expectations.  The stock was up sharply during the day due to other semiconductor names (+6%) to the low $35s, and in after hours spiked up to over $37.  A 52 week high no less.

That’s all good and dandy.  But I looked back a year to see how Xilinx looked then.  Why?  Because the “great results” just reported in the past few hours compared this way to a year ago:

Revenue fell 10% year over year.  Earnings fell 17% year over year.

Certainly the stock price must have been higher a year ago since the financials were much better, right?

Wrong.  Xilinx was about a $30 stock a year ago.  Hence, revenue and earnings are down materially year over year…. but the stock price is up substantially.  So we’re paying (and celebrating) the stock at a >20% premium for year over year degradation in its key financial metrics.  Which is why I am looking around the marketplace right now with buggy eyes.  A lot of the “good news” is vaporware.

But… XLNX beat expectations.  And that’s all that seems to matter most of the time on Wall Street.  So the key is not so much your actual financial data – but getting the analyst community to create a low enough bar, that you can jump over and sing songs of joy about once your earnings are reported.

(and yes certainly stock prices are supposed to be forward indicators of business … so this new stock price could be argued is forecasting much better data ahead, but you get my gist)

Competitors to Watch: Altera Corporation (NASDAQ:ALTR), Lattice Semiconductor (NASDAQ:LSCC), QuickLogic Corporation (NASDAQ:QUIK), Cypress Semicond. Corp. (NASDAQ:CY), Microsemi Corporation (NASDAQ:MSCC), Atmel Corporation (NASDAQ:ATML), ON Semiconductor Corp. (NASDAQ:ONNN), Sajan, Inc. (SAJA), Texas Instruments Inc. (NYSE:TXN), and TranSwitch Corporation (NASDAQ:TXCC).

Disclosure Notice

Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). Trader Mark also authors the blog Market Montage.

Featured Reading: Government Nears Robo-Signing Settlement With Major Banks>>

To contact the reporter on this story: Trader Mark at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com