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Morningstar | Xilinx Provides Monster Fiscal 2019 Guidance; Raising FVE to $65, Don't Discount Competition. See Updated Analyst Note from 26 Jul 2018

Xilinx reported fiscal first-quarter results ahead of expectations, while raising full fiscal 2019 revenue growth guidance to a midpoint of 12% due to broad-based strength. Given the cyclical forces prevalent in the multitude of end-markets to which narrow-moat Xilinx is exposed, it has been difficult for the firm to drive sustainable top-line growth, as this would mark the first double-digit growth year since fiscal 2014. We view the data center and automotive-centric FPGAs sold by Xilinx as being the key to mitigating the cyclicality to which it is normally susceptible. Shares rose sharply during after-hours trading and we are raising our fair value estimate to $65 per share from $60 per share, thanks to the superior near-term outlook.

First-quarter revenue rose 14% year-over-year to a record $684 million, with growth in communications, industrial, automotive, broadcast, and consumer offsetting declines in data center, cryptocurrency, aerospace, and defense. Advanced products grew 21% over the prior year, thus driving gross margin expansion 100 basis points to 69.8% over the same period last year. Management expects second-quarter revenue to be at a midpoint of $710 million, which would imply another record quarter. On July 17, the firm acquired DeePhi Technology, a Beijing-based startup specializing in optimization for artificial intelligence neural networks. We note Nvidia, Intel, and Xilinx are locked in an arms race to develop superior products for the training and inferencing aspects of deep learning. Since we remain in the beginning stages of FPGA adoption for accelerating AI workloads, it is too early to deem Xilinx or Altera (Intel) the clear leader. Ultimately, both should carve their own niches, in our view, with Intel-Altera likely having a strong foothold in the data center, Xilinx at the edge, with considerable potential overlap between the two.

For further insight into our views on the AI prospects for chipmakers, please see our Technology Observer “Accelerator: Rise of the Machine (and Deep) Learning Phenomenon.”