Wall Street surprisingly punished Xilinx (NASDAQ: XLNX) stock after the company's recent earnings report for the fourth quarter of fiscal 2019, overlooking its terrific top- and bottom-line growth, which is being driven by the deployment of fifth-generation (5G) wireless networks.
Xilinx's revenue jumped 30% year over year to $828 million in the fourth quarter, beating Wall Street estimates. Adjusted earnings per share shot up 34% to $0.94: roughly in line with what analysts were looking for. What's more, the midpoint of Xilinx's first-quarter revenue guidance of $835 million to $865 million was well ahead of the $841 million analyst estimate.
Despite these solid results, a pair of Wall Street analysts downgraded Xilinx after the earnings report, hurting investor sentiment and causing the stock price to sink. But this could be an opportunity for investors to buy more Xilinx stock, since the 5G catalyst that's driving its results is just getting started.
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Don't miss the obvious catalyst
Revenue in Xilinx's communications business shot up a whopping 74% year over year last quarter, thanks to 5G deployments, which kicked off earlier than the company had expected. This segment accounted for 41% of Xilinx's total revenue in the fourth quarter.
Following the initial deployments in South Korea, demand for Xilinx's chips is growing, as 5G deployments accelerate in more regions across the globe. This will result in higher infrastructure spending and expand Xilinx's addressable market. IDC, for instance, estimates that the market for 5G network infrastructure will be worth $26 billion in 2022, up from just $528 million in 2018.
Unsurprisingly, Xilinx is preparing to take advantage of the potential growth by expanding its chip offerings to address the requirements of 5G. The company's radio frequency (RF) system-on-chip (SoC) portfolio now supports the entire sub-6-gigahertz (GHz) spectrum, which is a critical requirement for 5G deployment.
Such product development moves should help Xilinx land more 5G content. That's because 5G networks require more radios as compared with 4G, creating a bigger end-market opportunity for Xilinx. Xilinx executives said on a conference call with analysts that they are witnessing "more than our typical share of baseband revenues in this very early phase of 5G deployment."
The company has created a product road map to ensure that its 5G catalyst lasts for a long time, as the field-programmable gate arrays (FPGAs) that Xilinx makes eventually will be replaced by application-specific integrated circuits (ASICs).