Xilinx Revs Up, Takes One-Time Stock Option Charge
Staff Reporter -- EDN, July 26, 2006
Xilinx Q1 net revenues grew to $481.4 million, up 2percent sequentially from the prior quarter and up 19 percent from the same quarter a year ago. Xilinx's Q1 net income of $82.8 million, or $0.24 per diluted share, included stock-based compensation of $26.8 million. The company began expensing stock options in Q1, so equivalent stock-based compensation expense was not reflected in the year-ago period when the company's net income was $76.8 million, or $0.21 per diluted share.
Rival Altera released its results earlier this week, with double-digit sales increases both sequentially and year over year, but the company declined to release any earnings information pending the review of its historical stock option practices.
Xilinx said its own internal investigation of stock option practices revealed "minor differences between approval documentation and the recorded grant date of certain historical stock options" that resulted in a $1.5 million compensation charge, which the company included in its June quarter results. This one-time charge was not material to any particular quarter in the company's history, Xilinx said in a statement. That led observers to conclude that the stock options investigation won't lead to major issues for Xilinx.
"While the stock option investigation is not complete, Xilinx's one-time charge suggests likelihood of future restatement is low," said Baird U.S. Equity Research in a report following the earnings release.
Xilinx also reiterated the details surrounding last month's Spartan-3 recall.
Xilinx noted again that only one customer has confirmed failure of the product to date. The root cause of the problem with the product is packaging and assembly, not silicon, and Xilinx said its suppliers have corrected the problem.
Internal tests have determined that the recall's associated revenue impact is immaterial, since, Xilinx said, it has ample replacement inventory available for customer delivery. The majority of the recall's financial impact is related to a warranty reserve that impacted the company's gross margin for the June quarter by less than one percentage point.
Looking ahead to Q2, Xilinx expects revenues to be flat to down 5 percent from Q1. Xilinx expects gross margin to be 61 percent to 62 percent, including approximately $3 million of stock-based compensation charges. R & D and S G & A expenses are expected to increase two percent from Q1, including approximately $22 million of stock-based compensation. Other income expected to be approximately $20 million, and the tax rate is expected to be approximately 24 percent. Xilinx's fully diluted share count is expected to decrease to approximately 345 million shares.
