Last week I published a post about why I am bullish on the tech sector. In this post I want to higlight one of the best stocks in the tech sector that is being fuelded by the resurgence of technology spending this year, which bodes well for the sector, our success has come from targeting the very best companies in a given industry. In this case, one stock in particular – in a subset of the tech sector – is already seeing a huge boost in sales (the company’s earnings recetly quadrupled) and is likely to beat expectations by a wide margin in the months ahead. Their biggest problem is keeping up with demand.
The company is a leading innovator in the semiconductor industry with more than 2,000 patents. Earnings are rising rapidly on a huge boost in sales. Operating margins are cavernous.
And the outlook for the future? Let me put it this way: Its biggest problem is keeping up with demand.
No Sign of Recession Here…
The company we are talking about is Xilinx, Inc. (Nasdaq: XLNX).
Based in San Jose, CA, Xilinx is a global leader in the semiconductor industry. It pioneered the fabless manufacturing model – which involves outsourcing silicon wafer production – and ranks among the world’s leading patent holders.
Today, Xilinx is the world’s No. 1 provider of programmable logic devices (PLDs). These are chips that can be programmed after being shipped. Customers then don’t have to worry about constantly replacing computer chips as new needs arise or technologies develop. Instead, they can just reprogram existing ones.
According to market analyst iSuppli Corp., Xilinx now controls more than half of the world market for programmable logic devices. These are the innovation platform of choice for Xilinx customers: the more than 20,000 companies that design tens of thousands of electronic products.
PLDs are more expensive and consume more energy than ordinary chips. That means Xilinx must often educate customers with a cost/benefit analysis.
Yet it still isn’t a particularly tough sell. Most of its customers are technologically savvy telecom gear makers. Customers like how they can:
• Deliver innovative new products to market in a matter of weeks
• Drastically reduce research and development costs
• Change or upgrade product features and functions as needed to meet new market demands and adapt to changing industry standards
Things Are Only Just Beginning to Heat Up for Xilinx
Smart phones, video sharing and the prevalence of 3-D video are driving demand for more bandwidth.
Historically, chipmakers developed custom integrated circuits for every application. But the pileup of multiple applications in handheld devices is making the flexibility of PLDs enormously appealing.
Cost alone will force device makers to switch to more advanced technologies. And Xilinx is ready for them.
The chipmaker recently rolled out its 7 series that consumes 50% less power than its last version. It also employs a unified architecture that makes it easier to scale technology up or down and reduces R&D costs.
I don’t want to put you to sleep with a lot of technical talk. So let me sum it up by saying that every 4
company is interested in operating more efficiently and less expensively. That’s what Xilinx enables them to do.
In this economic downturn, companies are aggressively seeking ways to cut costs. That, in turn, is boosting Xilinx’s bottom line.
Last quarter, profit at Xilinx soared 43%. Operating margins top 32%. And management is earning a healthy 30% return on equity.
In fact, the biggest problem at Xilinx is meeting demand. After the downturn in late 2008, foundries cut back their capacity and the rebound has taken them by surprise. Many now can’t keep up. So Xilinx is using multiple foundries and double ordering to keep pace.
Then again, scrambling to meet demand is the kind of problem most businesses would like to have right now.
