What to read in Xilinx’ and Altera’s third quarter results

This week Xilinx and Altera released their September results (Q2FY10 and Q3FY09 respectively). The bottom line is shown below (all numbers in $M).

Source: Xilinx and Altera financial reports, and Yahoo! Finance

Xilinx’ quarterly income of $64M (0.23$/share) beats Wall Street’s expectation of 0.19$/share. Altera’s quarterly income of $56.7M (0.19$/share) meets Wall Street’s expectation. Both companies expect a 6-10% revenue increase for Q4’09 from previous quarter. Xilinx expects its Q4’09 gross margin to improve to 62-63%, and Altera sees his to be 67-68%.

Both companies are benefiting equally of an improving economy. Altera is seeing a large part of its revenue coming from new products (60% for Q3’09), as opposed to Xilinx (31% in Q3’09).

I would give a slight edge to Altera, given its recent offer of high-performance new devices, and its operation margin consistently ahead of Xilinx’. One day Xilinx should be able to close the 3-4% operation margin gap it has with Altera, but until then it will not be as efficient and dynamic as Altera. I will discuss in another post how Xilinx can close this gap.