Xilinx's Acquisition of PetaLogix - Analyst Blog

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Xilinx, Inc. ( XLNX ), a world-leading manufacturer of high-performance, high-density programmable logic devices (PLDs), recently declared that it has acquired PetaLogix, a supplier of embedded Linux solutions. The company will now be able to offer the best in class, improved and modified Linux solutions to its clients with the help of PetaLogix's advanced PetaLinux technology. However, the financial terms and conditions of the agreement were not unveiled.

According to management, Xilinx shall now be able to establish itself more firmly in the vertical market through this venture, which will also substantially strengthen the company's position in the embedded market. PetaLogix is largely responsible for augmenting the demand of Xilinx's programmable techniques in the embedded market. Previously, PetaLogix was distributing Linux solutions for various processors such as MicroBlaze and PowerPC and now with the acquisition, it will provide Linux solutions and techniques to the Zynq-7000 All Programmable SoC.

Earlier, in the first quarter of fiscal 2013, the company's total sales amounted to $582.8 million, down 5% year over year, but up 4% sequentially, in line with management's guidance. The sequential growth was led by strength in the Asia Pacific region, particularly in communications applications. As expected, North America was weak due to softness in defense and industrial, scientific and medical. Gross margin decreased to 66.0% from 66.4% in the prior quarter but increased from 63.7% in the year-ago quarter, primarily due to a continued focus on yield improvement and cost reduction.

Earnings estimates for the company have declined significantly following a disappointing guidance for the second quarter of 2013, offsetting the better-than-expected results in the reported quarter. The company also stated that the backlog entering into the September quarter declined sequentially, which adversely affected the top line by $25 million. Consequently, management is highly cautious about the prevailing clouded fiscal scenario.

Since the company pertains to an industry where ominous competition is prevalent, it should stay wary of big players such as Lattice Semiconductor Corporation ( LSCC ) and Altera Corp. ( ALTR ) as it traverses through 2012.

The current Zacks Consensus EPS Estimates for Xilinx are 41 cents and $1.81 for the second quarter of fiscal 2013 and for the full year of fiscal 2013, respectively. The company currently carries a Zacks #3 Rank, which denotes a short-term (1-3 months) 'Hold' rating. We currently maintain an 'Underperform' recommendation on the stock.


 
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