John Pitzer, Analyst at Credit Suisse Group, recently downgraded Xilinx, Inc. (XLNX) to “neutral.” He says one of the key factors in his rating change was the LTE base station buildout in China and the fact China Mobile (CHL) has designed to build up to 600,000 TD-LTE base stations this year.
“The concern we had was that once you got to CQ2, we’d already be at a run rate to hit that 500,000 to 600,000-unit number and there wouldn’t be a lot of sequential upside from here, and that is the reason why we downgraded Xilinx,” Pitzer says. “It’s one of those things that in the semiconductor industry you get to a point where ironically good news becomes bad news and bad news becomes good news.”
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Pitzer says he does not expect to see Xilinx’s revenue fall apart, but he doesn’t anticipate much sequential growth from current levels. Based on the stock’s current valuation, he thinks earnings upside will be difficult.
“We think this not only because we don’t see a lot of sequential topline growth in the comms business from here, but the mix toward comms is also gross margin dilutive, and one of the things that I think surprise people for both Xilinx and Altera through earnings is that the comms revenue growth was strong, but they both missed their gross margin targets because of that mix toward comms,” Pitzer says.
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