Analyst Conference Summary

conference date: January 31, 2008 @ 2:00 PM Pacific Time
for quarter ending: December 31, 2007 (4th quarter 2007)

Forward-looking statements

Overview: Still treading water.

Basic data:

Revenues were $323.2 million, up 2% sequentially from $315.8 million, and up 2% from $317.4 million year-earlier.

Net income was $65.5 million, down 6% sequentially from $68.9 million and down 33% from $96.9 million year-earlier.

EPS (earnings per share) were $0.20, flat sequentially and down 29% from $0.28 year-earlier.

Guidance:

Sequentially, revenues in Q1 are expected flat to up 2%. Gross margin 64% to 65%. $130 million in operating expenses. Expect consumer segment to decline seasonally, with industrial and communications flat to up slightly.

2008 full guidance is unchanged.

Conference Highlights:

Revenues exceeded prior guidance due to better than expected demand in communications, broadcast, and military. Demand was also broadly based by product segment and geography. Costs were kept slightly below guidance.

New product sales increased 56% y/y and 9% sequentially. [OI: but not a very useful indicator, as new product sales mostly replace legacy product sales].

Results included a previously announced $5.2 million restructuring charge.

26 million shares were repurchased in the quarter at a cost of $509.3 million. $1.0 billion in cash and equivalents were left end-of-quarter.

It was a challenging year due mainly to softening demand. 65nm FPGAs are being well-received. Zero power CPLD family introduced.

Cost of sales was $116.0 million. Gross margin was $207.1 million. R&D expense $72.7 million; selling general administrative expense $69.3 million, for total operating expense of $142.0 million, leaving income from operations at $65.1 million. Interest income was $11.4 million. Income tax provision $11.0 million. Capital expenditures were $9.5 million.

FPGA revenues grew 4% sequentially and 3% y/y.

CPLD revenues declined 1% sequentially and 1% y/y.

64.1% gross margin, up 0.3% sequentially due to better product mix.

Cash and investments ended at approximately $1 billion, down about $190 million sequentially. 26 million shares were repurchased for $509 million. $250 million was drawn from the credit facility. Repurchase program expected to be completed by 2Q 2008.

Inventories declined sequentially from a 3.3 month supply to a 3.0 month supply.

Book to bill was 1.0, backlog was highest for 2007.

December was particularly strong, driven by military and Japanese telecom demand. Asia Pacific demand was weak. Consumer weakened as expected as holiday build ramped down, but it was the bright spot for 2007 overall. Testing equipment was weak in 2007.

Power is now the crucial issue and favors shifting use to PLDs from ASSPs and ASICs. We started working on reducing power requirements early and created a new approach for Stratix III.

45nm products will be introduced this year.

Q&A:

Confidence in Q1 despite macroeconomic concerns? 59% turns expected, lower than expected, because we had a strong backlog going into quarter. Business was strong in January and book to bill has been just above 1 so far.

Low inventory levels? No, is low because we want 3 months supply and strong business towards end of quarter drew it down. Believes customers are more likely to minimize inventory rather than adding a buffer.

China communications was weak in Q3 and Q4. Customers expect demand to strengthen as we move through the year. In Japan they have been adding 3G capacity.

SG&A expense? Believes will be flattish throughout 2008.

Consumer build usually resumes in Q2.

Stratix III is selling well, has lots of design wins due to its low power consumption, and will move to 45nm later this year. Largest has 1.3 billion transistors, which may be bigger than anything in the semiconductor industry.

Outlook beyond Q1? Don't want to give guidance because of economy unknowns.

Long term we are going to drive costs as low and operating margins as high as possible.

Hardcopy revenues? About 4.5% of total revenues. Older HardCopy products will ramp down this year, but new products are ramping up. Expect to grow in 2008, but more in 2009 after design wins. We had a good rate of tape outs in 2007.

No definitive cash plans other than countering share dilution after the current stock buyback is completed.

Military applications are expected to be strong in 2008, and industrial sector. Medical sector should come back in 2008 too. Test and measurement was down Q2 and Q3, up a bit in Q4, but should increase in 2008 due to new standards.

30% operating margin target? Depends on revenue and other variables. Not in 2008, but should not take 5 years either.

The growth opportunity is not to shift market share back and forth between PLD makers, but to grab ASIC market share.

Guidance is still conservative about communications sector.

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