Xilinx Inc. (XLNX) Investment Memo
Meera Equities 08.10.2020
Investment Thesis
5G computing speeds are faster than the human blink of an eye. The speed and utility offered by 5G networks will enable the next generation of technology and the IoT. Xilinx is a global leader in dynamic technology infrastructure.
Company Description
Xilinx engages in the design & development of programmable logic semiconductor devices and related software tools.
Qualitative
Overview
Sector: Electronic Technology
Industry: Semiconductors
Competitors: QCOM, ALTR, QUIK, LSCC, TXN, IBM
Strategy
Displace application specific integrated circuits (ASICs), application specific standard products (ASSPs), and traditional programmable logic devices (PLDs) with next-generation electronic systems.
The focus will be on enabling “building the adaptable intelligent world" with an emphasis on data centers, accelerated growth in core markets, and adaptive computing.
Business Model: Plug & Play Platform
Xilinx’s FPGAs are use agnostic and can be programmed to tailor the client’s needs.
Once on Xilinx’s unified software platform clients benefit from heterogeneous computation, cloud to edge deployment, and AI enablement.
Market: Original Equipment Manufacturers (OEMs) & Electronic Manufacturing Service Providers (EMS)
Sales are generated by independent distributors, independent sales representatives, or Xilinx’s direct sales organization.
Moat: Market leader in Field Programmable Gate Arrays (FPGAs)
Developing effective FPGAs requires complex software tools and specialized engineering teams.
FPGAs are standard components that can be tailored for multiple applications and as a result, have high switching costs.
ASIC & ASSP hardware has a lower unit cost (specialized production at volume) but high fixed costs as deployment increases on next-generation technology nodes.
X-Factor: Software / Development Tools
Xilinx provides design tools and software stacks tailored to a user’s profile.
Xilinx benefits from the network effects of its software - the more customers that are on Xilinx’s software platform, in turn, attracts more customers.
The market-leading software suite is more valuable than the market-leading hardware.
Cash Cow: Wired & Wireless Group (WWG)
Q2 2020 revenue $320.5M, accounting for 38% of overall net revenue.
Driven by continued deployment of 4G LTE networks and accelerated global deployment of 5G wireless networks.
Growth Opportunities
Data Center Group
Q1 YoY net revenue increase of 104%
Making investments to further enable innovation and deployments in compute accelerations, computational storage, and network acceleration.
5G
Xilinx CEO Victor Peng believes there will be three generations of 5G technology.
Xilinx is continuing to innovate on platform transformation hardware & Software.
Automotive
Xilinx’s AI framework adds actionable insights along the entire AI value chain.
FPGAs are frequently larger and benefit applications that aren’t as volume-intensive and require changes on the fly.
Quantitative
Risks
Xilinx does not manufacture their own semiconductors and is dependent on its partners to continuously deliver a high-quality product.
Xilinx has a very large presence in China and is subject to macroeconomic & geopolitical conditions, in addition to competing against state-funded firms.
The semiconductor industry is cyclical and is highly correlated with overall economic conditions.
Learn Something
Company Materials: 10-K | 2019 Keynote Presentation
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