Forget Trade War Uncertainty; Xilinx Is Still a Buy
The semiconductor industry has been hit particularly hard by the U.S.-China trade war. With a significant amount of the manufacturing process headed up in the east, but headquarters mostly based in the California Bay Area, chipmakers have been hit with a volley of body blows: cross-border tariffs, a Chinese economic slowdown, and a White House crackdown on Chinese telecom equipment manufacturers ZTEin 2018 and Huawei in 2019.
Despite the significant disruption, Xilinx (NASDAQ:XLNX) has continued to shine. The programmable chipmaker is benefiting from multiple secular tailwinds blowing strong at its back and helping it plow through the treacherous waters of international trade. After the company’s fiscal 2020 first-quarter report (the three months ended June 29, 2019), the stock still looks like a best-in-show pick.
Same story, different day
Granted, Xilinx’s last quarterly performance wasn’t perfect. Sales to Huawei were suspended during the middle of the quarter to comply with the trade ban, and a digital memory customer started going through a product transition. That slowed down the top-line rate of growth and put pressure on gross profit margin on product sold.
At the end of the day, though, Xilinx has a lot going for it. Some shipments of older chips to Huawei resumed — as they did for other American chip makers like Micron — toward the end of the quarter, but Huawei simply isn’t so important as to completely derail Xilinx. There are other wireless infrastructure providers out there as 5G mobile networks start to slowly roll out, and Xilinx’s semiconductors are a key component for all of them. When adding in the company’s other growth stories in the automotive space, data centers, and anywhere artificial intelligence can be applied, there is more than enough to keep the upward trajectory easily intact.