UPDATE: Xilinx Lowers 1Q Revenue View On Supply Constraints

Xilinx Inc. (XLNX), in a reversal of the generally optimistic sentiment recently building in the chip sector, now sees fiscal first-quarter sales below the low end of its prior projections because of supply constraints on some devices.

The company, which designs logic chips that are programmed to perform specific chores in products, said it now expects sales for the quarter ended Saturday to be down about 5% from the prior quarter. It had said in April that it expected sales in a range of down 4% to up 4% sequentially.

Xilinx shares fell 4.7% to $19.60 premarket. The stock is down about 14% over the past year, a slimmer decline than most of its semiconductor peers. The sector as a whole has struggled from a sharp slump in demand in recent months.

San Jose, Calif.-based Xilinx's chips are used in products such as cellphone base stations, network routers, DVD players and cable modems. About 40% of its business comes from the communications market, and about 30% stems from the industrial segment.

Xilinx's outlook cut follows more bullish expectations from rival Altera Corp. (ALTR). In early June, Altera, which also makes logic chips, backed its second-quarter projection for a 2% to 7% sequential rise in revenue.

Altera shares were down 2.7% to $15.95 premarket.

In addition to Altera, several other chip names have offered hopeful comments concerning the state of the chip market.

Analog chip giant Texas Instruments Inc. (TXN) surprised Wall Street by raising its second-quarter outlook during its regularly scheduled mid-quarter update June 8. Also in mid-June, National Semiconductor Corp. (NSM) topped analyst expectations when reporting its fiscal fourth-quarter results, with Chief Executive Brian Halla adding that business conditions improved throughout the quarter.

Xilinx, meanwhile, raises a red flag for Altera and the rest of the chip sector as investors question whether the revision represents the start of a more bearish theme set to continue through second-quarter earnings season, or remains specific to Xilinx, said Jefferies & Co. analyst Adam Benjamin.

"I'm inclined to keep this as a one-off right now because it's so inconsistent with everything we heard throughout the quarter. But it's something that bears watching," he said.

The company said the reduction in its sales outlook was because of supply constraints on some Virtex-5 devices that are in high demand. It said it expects most of the issue to be resolved in the current quarter.

Xilinx, for its part, said in April that it would cut about 6% of its staff, freeze salaries and work to improve efficiency, following actions by other companies in the sector to reduce costs amid the downturn.

-By Jerry A. DiColo, Dow Jones Newswires; 212-416-2155; [e-mail]

(Kerry Grace Benn contributed to this report.)