Analyst Conference Summary


conference date: October 23, 2019 @ 2:00 PM Pacific Time
for quarter ending: September 28, 2019 (second fiscal quarter 2020, Q2)

Forward-looking statements

Overview: Good 12% y/y revenue growth, but warning about business conditions in next couple of quarters.

Basic data (GAAP): Solid quarter despite trade concerns.

Revenue was $833 million, down 2% sequentially from $850 million and up 12% from $746 million in the year-earlier quarter.

Net income was $227 million, down 6% sequentially from $241 million, and up 5% from $216 million year-earlier.

Diluted EPS (earnings per share) were $0.89, down 5% sequentially from $0.94, and up 6% from $0.84 year-earlier.


For fiscal Q3 (December quarter) sees revenue between $710 and $740 million. Non-GAAP gross margin 67% to 69%, with about $330 million in operating expenses.

For full fiscal year 2020 expects revenue between $3.21 and $3.28 billion, with 66.5% to 68.5% non-GAAP gross margin and $1.3 billion op ex.

Guidance now excludes any contribution from Huawei.

Conference Highlights:

Victor Peng, Xilinx President and CEO, said "We were able to exceed the midpoint of our revenue guidance for the fiscal second quarter amidst a challenging business environment driven by global trade disputes. Overall, the first half of our current fiscal year remained strong despite the impact of continued business restrictions related to Huawei which was offset by higher than expected 5G product demand from other global communications OEMs and stronger than expected growth in our data center business. However, we are seeing a combination of headwinds in the second half related to continuing business restrictions, weaker demand for communications products and macro-related weakness offsetting strong overall growth in data center and improvement across our core vertical markets. For fiscal 2020, we believe that third quarter will be our low point and we expect to see a return to sequential revenue growth in our fourth quarter. Despite the weaker third quarter, we expect fiscal year 2020 revenues to grow approximately six percent compared to fiscal year 2019, which represents the midpoint of our guidance."

Expects fiscal Q3 to be a bottom, with revenue to resume growth in Q4. Expects wireless business to grow in Q4 while wired remains weak. Also macroeconomic headwinds.

In May Xilinx suspended all shipments to Huawei, but since then started shipping the lower-end products again. Cannot predict government action, but has not yet received requested approvals for allowing more items to ship. Shipped about $50 million, mostly in Q1.

A dividend was declared of $0.37 per share to holders at close on November 12, payable on December 3.

In the previous quarter Xilinx announced a definitive agreement to acquire Solarflare Communications, a leading provider of high-performance, low latency networking solutions for customers spanning FinTech to cloud computing. This acquisition will enable Xilinx to combine its industry leading FPGA, MPSoC and ACAP solutions with Solarflare's high-speed network interface card (NIC) technology and Onload application acceleration software, to enable a new converged SmartNIC platform. Solarflare closed July 31 and contributed $50 million in revenue in the quarter.

Xilinx announced Vitis, a unified software platform that enables a broad new range of developers - including software engineers and AI scientists - to take advantage of the power of hardware adaptability. The Vitis unified software platform automatically tailors the Xilinx hardware architecture to the software or algorithmic code without the need for hardware expertise.

Versal is the industry's first adaptive compute acceleration platform (ACAP), a revolutionary new category of heterogeneous compute devices with capabilities that far exceed those of conventional CPUs, GPUs, and FPGAs. Built on TSMC's 7nm FinFET process technology, Versal is the first platform to combine programmability with domain-specific hardware acceleration.

Non-GAAP results: net income $240 million, down 4% sequentially from $249 million, and up 8% y/y from $221 million. Diluted EPS $0.94, down 3% sequentially from $0.97, and up 8% y/y from $0.87.

Revenues by end market (changed end market categories):

Industrial, Aerospace & Defense and TME 36%, up 7% y/y.

Automotive, Broadcast, and Consumer 16%. Up 9% y/y.

Wired and Wireless 38% of total. Up 24% y/y.

Data Center 10%. Up 24% y/y.

Channel 0% of total.

Revenue by product type:

74% Advanced products: UltraScale, Virtex-7, Kintex™-7, Artix™-7, UltraScale+ (these are at 28 nm, 20 nm, and 16 nm). 61% y/y growth for Zinq family.

26% Core products. All the older, standard products.

Cash, equivalents and long-term investment balance was $2.52 billion, down sequentially from $2.94 billion. $1.25 billion long-term debt. Operating cash flow was $224 million. Depreciation $22 million. Capital expenditures $34 million. $155 million stock was repurchased. Stock based compensation expense was $50 million. The dividend payment required $93 million. Authorized an additional $1 billion share repurchase.

Revenue by geography: North America 28%; Asia 51%; Europe 15%; Japan 6%.

Cost of revenues (GAAP) was $293 million, leaving gross profits of $540 million. Operating expense total was $337 million, consisting of: research and development $223 million; selling, general and administrative $112 million; and amortization $2 million. Leaving operating income of $204 million. Interest and other income was $12 million, and the income tax benefit was $11 million.


Q4 growth confidence? Q3 has some coincidental headwinds occuring. For Q4 we are tracking trends that give us good visibility.

Base stations in China? We see the base station path going as expected. Huawei is not our only base station customer in China, but it is having a large impact.

Why Huawei shipments not restored? We applied to the Department of Commerce for licenses, which have not come through.

Huawei had an FAAS as a service program that we stopped shipping to.

Our view of 2021 is that 5G will be a bigger deployment for us.

Core business flat for Q3, vs. TI seeing softness last night? We do see trade, macroeconomic softness. Our channel has softened. But we expect auto to strengthen. We see a broad set of markets recovering in Q4.

Wireless weakness was not just Huawei. We had another particular customer that started taking a more cautious 5G approach than expected.

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Disclaimer: My analyst call summaries may include both condensations of statements made by company representatives and my own analysis. They are not covered by any warranty. I cannot guarantee anything said by company representatives is true. I try not to make errors, but it is possible. This is journalism, not financial advice.

Copyright 2019 William P. Meyers