Clouds of Question Form Over Xilinx (XLNX, ALTR, AVT, LSCC, MSCC)

Xilinx, Inc. (NASDAQ: XLNX) is making its shareholders fell as though they bought Cry-Linx rather than Xilinx this evening.  Investors need to know that there may be much more to the story than what the company has so far communicated.

Xilinx just gave some updated guidance to its December quarter and by the sound of this all you probably figured out that it was lower.  The company said that the quarterly sales are now expected to be down in a range of 7% to 9% sequentially, even worse than the prior guidance for a decline of “flat to down 4% sequentially.” It did maintain gross margin guidance of roughly 65%.

The reasoning behind this is also going to drive away many supporters because of the comments, and some may question the credibility of the claims.  Xilinx noted, “The decreased sales guidance is primarily related to weaker than anticipated sales to a few large communications customers, specifically in the wireless segment.”

Isn’t the wireless segment supposed to be the growth segment right now?  There is a chance that this is a blip, but a cynic would say that wireless customers are going elsewhere other than Xilinx.  The claim from Xilinx is that it “expects sales growth to return to the communications segment in the March quarter based on current backlog and forecasts from its large customers.”  This is a story that may be a story alright.

Xilinx shares closed up 1% at $28.39, but shares are down about 5.4% at $28.39 in the after-hours trading session.  Its 52-week trading range is $22.75 to $29.40.

Altera Corp. (NASDAQ: ALTR) is often considered “the other Xilinx” by investors although Altera’s market cap is $11.2 billion versus $7.36 billion for Xilinx.  Altera closed down 0.5% at $35.81 versus a 52-week range of $20.89 to $38.14 and its shares are down 3.3% at $34.64 in the after-hours.

We took a look through the Xilinx 10-K and the company had noted, “We expect increased competition from our primary PLD competitors, Altera Corporation, Lattice Semiconductor, and Actel Corporation from the ASIC market.

Investors should also know the following from its 10-K: “Avnet, Inc. (NYSE: AVT) distributes the substantial majority of our products worldwide. No end customer accounted for more than 10% of our net revenues in fiscal 2010, 2009 or 2008. As of April 3, 2010 and March 28, 2009, Avnet accounted for 83% and 81% of the Company’s total accounts receivable, respectively. Resale of product through Avnet accounted for 49%, 55% and 61% of the Company’s worldwide net revenues in fiscal 2010, 2009 and 2008, respectively.”

We are not going to jump the gun here on deciding exactly which component of the wireless customers are pushing orders back because Xilinx is involved in many aspects of communication.  Carriers are always trying to push out cap-ex spending when they can and sometimes even when they should not.  Still, either this is a sign of broader problems or the company is losing business and not communicating that properly.  Either scenario is bad for investors.

Interestingly enough, Lattice Semiconductor Corporation (NASDAQ: LSCC) closed up 3% at $5.93 and its last seen print was up 1% at $5.99. Actel was recently acquired by Microsemi Corporation (NASDAQ: MSCC).  Microsemi closed up 1.8% at $23.75 and is indicated as unchanged in the after-hours session.

JON C. OGG