Why Did Xilinx Shares Rise 9% despite Declining 3Q16 Revenues?
Xilinx's Fiscal 3Q16 Earnings Beat Estimates
Change-of-control provision sparks Xilinx acquisition rumors
Xilinx (XLNX), a leading supplier of programmable technologies and devices, just released its fiscal 3Q16 earnings. These earnings beat analysts’ expectations but posted weaker guidance for fiscal 4Q16. Despite posting declining revenues and profits in fiscal 3Q16, the company’s shares rose 9% to close at $46.78 on January 21, 2016. It was not the earnings, but another announcement by the company that drove its share prices.
Xilinx announced a “change-of-control provision” with five senior officials—including the company’s chief executive officer, Moshe Gavrielov—that protects them if the company’s ownership changes hands. This has sparked speculations that the company might be a possible acquisition target because rival Altera also announced a similar agreement before it was acquired by Intel (INTC).
In this series, we will look deeper into the acquisition news and also the company’s financial performance in fiscal 3Q16.
What makes Xilinx a good acquisition target?
Xilinx is a leader in the PLD (programmable logic device) market with a 49% share, followed by Altera at 38%, according to iSuppli. Programmed devices such as FPGAs (field-programmable gate arrays) are used by many customers to boost server speed. Unlike the expensive custom-made semiconductors, FPGAs can be customized according to its customers’ needs, as they can be programmed after they are manufactured.
Plus, Xilinx is currently trading at 14.5x its annual EBITDA (earnings before interest, depreciation, and amortization), even after including the recent spike in stock prices. It is valued slightly above $11 billion. Hence, if an acquisition does take place, it would be among the ten biggest semiconductor M&A (merger and acquisition) deals of all time. Also, it would be less expensive.
The semiconductor industry has witnessed some of the biggest M&A deals in 2015: Avago (AVGO) and Broadcom’s (BRCM) $37 billion deal and Intel-Altera’s $17 billion deal.
In the next part of the series, we will look at the potential acquirers of Xilinx. You can gain exposure in large-cap companies across multiple sectors, including technology through the SPDR S&P 500 ETF (SPY). SPY has a 0.84% exposure in INTC, 0.20% in AVGO, and 0.07% in XLNX.
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