Xilinx: How Big A Factor Is Altera In Lowered Outlook?

In case you missed it, as I obviously did, programmable chip maker Xilinx (XLNX) this morning cut its revenue outlook for the current quarter, the fiscal Q2 ending this month, citing weakness in the communications and industrial markets for its chips.

Xilinx now sees revenue falling 7% to 10% from the prior quarter, versus a prior expectation sales would rise by 1% to 3%.

That would equate to a range of $554 million to $572 million, below analysts’ consensus of $589.8 million.

The stock dropped $1.43, or almost 5%, to $30.02.

Estimates from bulls and bears are coming down today, but the key question is less the current quarter badly Xilinx is being hurt by competitor Altera (ALTR), which almost everyone suspects is a factor in the outlook. Altera cut its own outlook two weeks ago.

Hans Mosesmann, Raymond James: Reiterates an Outperform rating and cuts his price target a dollar to $39. “While the revised outlook is consistent with a number of competitors (including fellow PLD supplier Altera), the magnitude of the reduction was more pronounced than we expected (and Altera�s reduction of ~500 bp).” Xilinx may be facing increasing competition from rival Altera for parts using a 40 nanometer process technology, he thinks. “Note that 40nm revenue was only ~10% of total revenue in the June quarter, and we believe the lag vs. Altera should become more apparent as 40nm product ramps.” He thinks revenue growth will be weak in the December quarter, as well, rising perhaps only 2% versus usual seasonal growth in the mid-single-digits on a percentage basis.

David Wong, Wells Fargo: Reiterates an Outperform rating and a valuation range of $34 to $40. While cutting estimates, Wong thinks the worst news of the chip market is already in many semi stocks, including Xilinx. “Despite ongoing indications of demand softness, and consensus estimate reductions for many chip stocks in recent weeks, the SOX index is trading above 370, significantly higher than its recent trough points in the 326-331 range seen in early August.” He makes just brief mention of Altera as an issue without going into discussion about the matter.

Sandeep Shyamsukha, Auriga: Reiterates a Hold rating on Xilinx, and cuts his price target a dollar to $34. He, too, sees trouble from Altera’s process lead, although, “We continue to remain optimistic that XLNX will stabilize and potentially regain market share with 28nm products.” Xilinx also is suffering from not having as much share of China’s market for chips, and as a result of inventory clearing, as a result of “larger levels of inventory build in high end FPGA following the Japan Earthquake.”

Glen Yeung, Citigroup: Reiterates a Hold rating and a $34 price target. Like Mosesmann, he notes that the magnitude of the cut in outlook was surprising. He’s inclined to take Xilinx at face value that inventories are the main issue: “Recall that 8/31 we first highlighted Industrial as a point of weakness, noting we saw risk to Xilinx estimates as Industrial & Other accounts for ~33% of sales. Xilinx has seen some pull ins/push outs by customers as the company has seen inventory adjustment following the earthquake.” And Yeung does acknowledge that Xilinx appears to be making progress in refining its 28-nanometer process technology. Nevertheless, “We continue to prefer Altera given its 40nm design market share (driving continued revenue share growth) and execution of cost controls.”