Analyst Conference Summary


conference date: April 25, 2007 @ 2:00 PM Pacific Time
for quarter ending: March 31, 2007 (4th quarter fiscal 2007)

Forward-looking statements

Overview: Weak quarter as expected. Guiding to improvements in June quarter.

Basic data:

Revenues were $443.5 million, down 2% sequentially and down 6% from year-earlier.

GAAP Net income was $87.6 million, flat sequentially and down 21% from year-earlier.

GAAP EPS was $0.27, up 4% sequentially but down 16% from year-earlier.

$1.8 billion in cash, but has $1 billion in new debt (see below).


June 2007 (Fiscal Q1 2008) quarter revenues expected up 1% to 5% sequentially. Gross margins 62%. R&D $92 million; SG&A $94 million. Operating expenses down 4 to 5%. Tax rate 21%. Share count to increase to 302 million.

Conference Highlights:

Knew would be challenging quarter. Decreased revenue was from declines in defense, wireless and consumer applications. Wireline was up slightly. Japan was notably weak.

On June 7 guidance will be updated by a press release.

Stock based compensation expense of $20.1 million was included in GAAP net income.

By geography North America represented 39% of revenue; Europe 24%; Asia 26%; Japan 11%.

By end market communications was 44% of revenue; industrial 30%; consumer and automotive 16%; data processing 10%.

By product cycle 24% were New; 52% Mainstream; 18% Base; 6% Support.

62.1% gross margin, up 1.1% sequentially. Will continue to benefit from 65 nm rollout.

$79.4 million operating income. Included $5.9 million charge for leased building no longer occupied.

$43 million in free cash flow.

Capital expenditure was $63 million, unusually high due to Singapore facility build, to be $20 million in next quarter, then return to normal levels of $10 to $15 million per quarter.

Tax rate was 13%, lower than expected due to R&D tax credit.

Issued $1 billion convertible note for cash for stock buy back. 3.125% coupon rate.

Net cash is now $800 million, down from $1.8 billion.

Distributor inventory levels rose slightly.

March orders started weak but ended strong. Vertex 5 did very well. Vertex 4 saw sequential decrease. CPLDs grew at double digit rates. Test and measurements sector did well. Year-over-year all sectors did well except wireless.

Entering Q2 with a modest increase in backlog. Expect wireless and defense to show growth in Q2.


Communications segment visibility? Mergers are stabilising; seeing slight growth and expect to see it going forward.

Confidence in guidance? Had three negative quarters in fiscal 2007. Committed to expense reductions by Q4 FY2 2008. Target is get back to 24% operating margin by second half of year.

Communications design wins? Lots of design activity in wireless space: new networks, routers, video servers. Will win vast majority of designs with V5 and built in tranceivers.

Japan was weak because DoCoMo delayed 3g infrastructure build outs.

SG&A spending? Our strategy is to innovate, so R&D in high teens with mid-to high teens for SG&A.

Spartan 65 nm? Not ready to make announcements; engineers are working on it.

3G in China? Don't have details at that level. Delay for 3G is because Chinese government is developing its own standard. Xilinx can do any of the technologies that could be chosen.

Vertex 5 rollout? Designed for infrastructure applications. Most clients are not yet in volume production. This is third quarter for shipping V5, design momentum is picking up tremendously, revenue is ahead of Vertex 4 rollout pattern.

ASIC switches to FPGAs? Continuing transition which is speeding up with 65 nm; cost for ASICs is getting high unless done in high volumes.

Still believe 2nd half of calendar 2007 strong? Yes.

SG&A higher than guidance? Biggest item is imparement charge on lease obligation. If you take out one-time charges we beat the forecast we gave.

If defense and telecom come back, won't gross margin be higher? A variety of factors lead to the 62% guidance.

Not through with telecom consolidations yet. Siemens Nokia merger is new and will have to be worked through. But believes past the low point due to mergers.

Capital expenditures? Don't anticipate anything unusual after Singapore facility expenses.

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Disclaimer: Our analyst summaries may include both our condensations of statements made by company representatives and our own analysis. They are not covered by any warranty. We cannot guarantee anything said by company representatives is true. We try not to make errors, but it is possible. Before making or terminating an investment you should always verify any factual basis of your decision.

Copyright 2007 William P. Meyers