Tuesday, chipmaker Xilinx (XLNX) announced that it was cutting its current-quarter (third quarter) revenue forecast thanks to weaker-than-expected sales to some of its larger communications customers. This announcement comes during a series of quarters in which the company has seen record sales, thanks to rising demand stemming from a perceived economic rebound.
One analyst calls this news, "evidence of a cyclical inventory correction that we'd been expecting and have talked about previously." Nevertheless, the same analyst said that it could take longer than Xilinx had previously estimated for inventory to come back to better levels.
The reaction from investors was swift and severe, as Xilinx dropped 5.2% to nearly $27 per share, with the stock closing at $27.12. The problem I see with Xilinx is that there is no guarantee that the equity will make its way back to its one-time perch atop the $50 level. There is too much competition in the sector and too many unknowns surrounding the economic situation. Yes, the economy may eventually recover and products using Xilinx chips may start to see sales pick up, but it could take some time. That said, if you are bullish toward Xilinx, now may be a good time to buy the stock at a good price.