Assignment:
Equity Analysis Project
Industry and Business Units
This analysis is basically an analysis of Xilinx Inc., commonly known as XLNX which is one of the largest manufacturers of semiconductors, with its headquarters in San Jose, California, United States and is one of the leading Multinational in the Information Technology Industry.
The company specializes in programmable logic devices and is the first company globally to adopt a fabless manufacturing model. (Xilinx, 2016). In a world where electronics have become an integral part of our lives, from household appliances to consumer goods, military systems to the vehicles that are being manufactured, semiconductors is an important innovation that not only allows low costs but also high performance of the electronics.
Information and Technology Industry is highly competitive. SWOT analyses for Xilinx Company have recently showed that the company faces stiff competition from other semiconductor manufacturers, the greatest threat being Altera Inc.
Apart from competitors, the company is often threatened by the rapid changes in technology, dependency on third party manufacturer and the frequent fluctuations in exchange rates. It also faces competition from the Analog Devices and the Linear Technology.
Although the IT industry appeared immune at the beginning of the economic recession in 2008, with the hope that consumers would still demand electronic appliances, mobile phones and laptops among others, by the second quarter of 2008 the industry had already began experiencing the negative impact the recession was having on the purchasing power of the consumers.
Big companies such as Apple had already started losing up to 10%. The semiconductor companies were also greatly affected by the economic recession. However, with the end of the depression in 2009, the consumer demand for IT goods rose again due to the increase in GDP and consumer income as well as the reduction in unemployment rates as the economy recovered from the recession.
In my opinion, the Information and Technology industry should be over weighted and the industry will continue to expand in the foreseeable future. It is evident from the S&P 500 that the IT industry will continue to grow with the rapid innovations and the increasing competition in the industry.
It is also clear that the consumer demand for electronic goods and technology intensive products continue increasing day in day out. More and more industries are venturing in the IT industry, increasing the competition and the need for each company to come up with unique features to stay in the market.
Let’s now take a close look at the Xilinx Inc., which is a vital company in the IT industry and is popular for the manufacture of semiconductors.
Xilinx Inc. was founded in the year 1984 and has over 3500 employees and 20000 customers. As stated earlier, the company has its headquarters in San Jose, California.
Over the years, the company has expanded greatly and opened additional offices in Longmont, Colorado and Dublin. It also has branches in Singapore, India (Hyderabad), Beijing and Shanghai both in China, Australia (Brisbane) and Tokyo in Japan. Primarily, it started out as a supplier of programmable logical devices and later graduated to the manufacture of Programmable Gate Array.
Today, the company is the provider of All Programmable FPGAs, SOCs, MPSOCs and 3D ICs. It aims at enabling a new generation of smarter, connected and unique networks and systems while at the same time adopting cloud computing. My study aims at analyzing Xilinx Inc. to come up with sensible recommendations on future stock ventures.
Analysis:
By March 2013, XNLX had already moved up in the S&P 500 market cap, ahead of Coca-Cola Enterprises (Forbes, 2013) and in December the same year was placed at A- from BBB+ and at the same time was removed from Credit Watch (Street Insider, 2013).Recently, XNLX has depicted a neutral to negative trend technically.
However, at the current price level i.e. $48.82 the company looks undervalued. The current price is below the company’s 52 week high prediction by 3.75%, which was estimated at $50.72. This means that the risk of investing in the company is rising.
The Price/ Earnings (P/E) ratio which is generally based on the greater of the present PE over the last three years from 2014 shows that XNLX is below the S&P 500 PE ratio which is 20.58.The Earnings per Share (EPS) for XNLX currently stands at 2.06 with a current yield of 2.75. (Marketwatch, 2016)
Although the company has met all the last four earnings estimates, the short term goals strategy adopted by XNLX from some end markets might be a hindrance to future stock growth. However, the company has already gained consumer loyalty and will continue to be a dominant player in the semiconductor manufacturing sector in the future.
Bearing in mind that the company not only faces stiff competition from some IT companies and other semiconductor companies as stated earlier but also some of the places where it’s located such as Japan are also prone to natural disasters such as Tsunamis and earthquakes there are still some unique characteristics about the company that will keep its customers loyalty and increase it sales.
Xilinx plans to launch a virtualized, programmable 5th Generation network which will be flexible and more efficient in networking (Sassan Ahmad, 2016).These and other innovations in Xilinx will allow it to dominate the market for a long time.
Summary and Recommendations:
In summary, the analysis has established that Xilinx Inc. is a multinational company offers both customer satisfaction and employment services.
The company, though risky to invest in as per the current prices as shown by the S&P500 analysis is still at an ideal place to invest in since despite the competition, it is still expected to be a major market player in the IT industry in the foreseeable future.
With the current market trends, I would recommend that investors should be careful while deciding to invest in Xilinx Inc. They should watch closely the stock prices and how they vary in order to avoid making loses. However, the company might be reducing sales but still meeting set targets, thus not a very risky venture.
Xilinx Inc. management should also put more focus on the strengths of the company such as expansion to growing nations, research and innovation capabilities and the strong financial performance of the company while at the same time watching to counter the weaknesses that are facing the company.
For instance, they should aim at decreasing debt obligations by trying to fund the company by the funds they generate and watch the competitors. This can be done by working around the clock to meet the growing demand of 3G and 4G technology and strategically acquiring more branches globally. This will ensure that the sales increase, raising the company’s overall position in the stock market and attracting more investors.
Bibliography
Forbes. (2013, Maarch 08). www.forbes.com. Retrieved July 21, 2016, from A Forbes Inc., Website:
http//www.forbes.com-xilinx-moves-up-in-market-rank-passing-Coca-cola Enterprises
Marketwatch. (2016, January 21). www.marketwatch.com. Retrieved July 21, 2016, from A Market Watch Inc. Website:
https://www.marketsolutions.com
Sassan Ahmad, P. (2016, June 13). www.xilinx.com. Retrieved July 21, 2016, from A Xilinx Inc.website:
https://www.xilinx.com-Toward-5G-Xilinx-Solutions-and-Enablers-for-next-generation-wireless-systems
Street Insider. (2013, December 13). www.streetinsider.com. Retrieved July 21, 2016, from A Street Insider Website:
https://www.streetinsider.com-s&p500-raises-xilinx-to "A-"-removes-from-credit-watch
Xilinx. (2016, January 21). Company Overview. Retrieved July 21, 2016, from
www.xilinx.com: http//www.xilinx.com
You must read the Equity Analysis project document and address 4 out of 5 key deliverables as outlined below:
1. SECTOR , INDUSTRY AND BUSINESS UNITS
2. ANALYSIS
3. RECOMMENDATION & SUMMARY
4. REFERENCES
Attachment:- equity_analysis_project__201608.zip