Analyst Conference Summary

conference date: October 16, 2013 @ 2:00 PM Pacific Time
for quarter ending: September 28, 2013 (second fiscal quarter 2014, Q2)

Forward-looking statements

Overview: Continued revenue growth.

Basic data (GAAP):

Revenue was $598.9 million, up 3% sequentially from $579.0 million and up 10% from $543.9 million in the year-earlier quarter.

Net income was $141.5 million, down 10% sequentially from $157.0 million but up 15% from $123.4 million year-earlier.

Diluted EPS (earnings per share) were $0.49, down 13% sequentially from $0.56, but up 75 from $0.46 year-earlier.

Guidance:

December quarter (Q3 fiscal 2014) sales are expected to be flat plus or minus 2% sequentially, with gross margin near 69%. $225 million operating expense and $9 million other expense. Tax rate 13%, share count 291 million fully diluted.

Conference Highlights:

28 nm product sales continued to ramp, to over $80 million in the quarter, well above expectations. Kintex-7 sales led growth. Vivado Design Suite software is seeing strong adoption.

Revenue was at high end of guidance.

Gross margin was 69.5%, considerably up from 65.5% year-earlier. Expects margins to stay near 69% in the next few quarters.

A $0.03 tax benefit to EPS was more than offset by a $0.09 litigation related charge.

Revenues by end market: Communications and Data Center 43%, ; Industrial, Aerospace & Defense 38%; Broadcast, consumer and automotive 16%; Other 3%. The Industrial A&D market set a record, driven by machine vision applications.

Zynq-7000 family "is now participating in approximately 40% of wireless designs and is rapidly gaining traction in data center applications."

Revenue by product:

36% New products: Virtex-7, Kintex™-7, Artix™-7, Zynq™-7000, Virtex-6, Spartan-6
34% Mainstream products: Virtex-5, Spartan-3 and CoolRunner™-II
27% Base products: earlier Virtex, Spartan-II, Spartan, CoolRunner and XC9500
3% Support products: Configuration solutions, HardWire, Software & Support/Services

45nm products also increased in the quarter. All geographies except Europe had increased sales. Wireless sales were strong on new LTE activity in China.

Working with TSMC has resulted in good 28 nm yields. Believes this node will be the most successful in Xilinx's history. Believes a generation ahead of competition [Altera]. 20 nm products are exciting customers. Working on 16 nm FinFet process with TSMC.

The backlog entering the December quarter were up. Wired and wireless applications are expected to be up in the quarter. Consumer decreases will more than offset increases in automotive. Industrial A&D will be down slightly in all three subcategories. Predicting over $90 million in 28 nm sales in the quarter.

Cash, equivalents and long-term investment balance was $3.7 billion. Convertible debenture liability was $930.1 million. Operating cash flow was $255 million. Depreciation $14 million. Capital expenditures $8 million. $70 million of stock was repurchased.

Cost of revenues (GAAP) was $182.8 million, leaving gross profits of $416.1 million. Operating expense total was $252.4 million, consisting of: research and development $125.0 million; selling, general and administrative $96.3 million; amortization $2.4 million. Leaving operating income of $163.8 million. Interest and other expense was $11 million, and the income tax provision was $11 million.

Q&A:

Decline in older product revenues? Wireless older products, while LTE China business is picking up, with beginning in September quarter. Offset is a large European customer taking 65 nm, having given the new slot to our competitor. It was because our 40 nm product family was late that we lost the socket.

LTE rollout in China? We don't see European manufacturers picking up much share in LTE in China. One of our Chinese customers is a 40 nm and 28 nm combination shifting to 28 nm, the other Chinese customers are all 28 nm.

Dollar value of Ericsson loss? Even with the European customer loss, wireless went up in the September quarter. We are seeing wireless growth in China in both December and March quarters. The pace depends on how fast the OEMs ship into China Mobile. So really just a one quarter at a time visibility. It looks like about a 4 quarter rollout cycle.

Lead times for Vertex-7 and Kintex-5? We are doing well at 28 nm, ramping faster than anticipated, so it has created some tension on lead times. But it should not impact revenue growth, we have capacity support at TSMC.

Kintex and Zynq are the two families of 28 nm products shipping to China for the LTE base station. rollout. Really Kintex is ideal for the roll, but Zynq has additional capabilities that some customers wanted to use.

28 nm prototyping revenue? Prototyping was just about 10%. We have the biggest parts, it is a regular business and we love it, but it is a small part of our business.

Gross margins, what would bring that back to the lower range? It is around visibility and where we are competing with ASICs and ASSPs. We are not foreshadowing that it will go down, we just can't promise to keep the margins as high given our lack of visibility in new business.

The China 200,000 base station number would indicate that the peak for sales would be the middle of 2014.

Dates for 20 nm and 16 nm sampling? Taped out at 20 nm in June. We believe we have a multi-month lead over competition. First product will be Kintex, followed by Vertex. 16 nm tape out will be in 2014. [did not give sampling date estimates]

Patent case loss? Lost before a jury in Q4 fiscal year 2012 in East Texas. It took the judge until this quarter to add $28 million to the jury $15 million judgement. Judge asked to work out a royalty scheme with the winning party. Xilinx's intention is to appeal. So a P&L charge for $44 million, despite the appeal ahead. We think the court was wrong.

Intel 14nm process statement, impact on competition? We feel incredibly gratified by the quality of relation with TSMC. We had great delivery on 28 nm. We think we have a bigger lead at 20 nm. We are comfortable with our decision to go with TSMC at 16 nm.

Op ex expenses went up because the share price went up, affecting both bonuses and stock-based compensation. We are also hitting accelerated mask costs.

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