Analyst Conference Summary

conference date: July 19, 2007
for quarter ending: June 30, 2007 (fiscal Q1 2008)

Forward-looking statements

Overview: Slight improvement from March quarter, but at lowest end of April guidance range. EPS was up 17% from year-earlier mainly due to reduced share count.

Basic data:

Revenues were $445.9 million, up 1% from $443.5 million sequentially, but down 7% from $481.4 million year-earlier.

Net income was $84.3 million, down 4% sequentially from $87.6 million, but up 2% from $82.5 million year-earlier.

Diluted EPS was $0.28, up 4% sequentially from $0.27 and up 17% from $0.24 year-earlier.

Cash and equivalents ended at $1.2 billion.

Guidance:

For fiscal Q2 2008 (September quarter) revenues expected flat to slightly down sequentially. Gross margins 62 to 63%. Operating expenses up 2%. Tax rate 21%. Share count flat. $90 million for R&D.

Expect North America and Europe to be down slightly, Asia Pacific to be flatish, and Japan to be up. Communications to be seasonally down. Defense up. Consumer flatish.

Conference Highlights:

Failure to reach expectations was due to weak demand by industrial and data processing customers in Europe. Asia sales reached a record 29%. New product revenue grew 17% sequentially led by Virtex-5 FPGAs. Communications sales turned around to positive growth. Shipments accelerated at end of June.

Pleased with expense reductions and inventory management. 22% operating margin, up from 18% in March quarter. 62.2% gross margin. Lowest level of inventory days in three years. Accounts payable days outstanding jumped from 37 to 43 days.

Operating income was $97.5 million. Free cash flow was $111 million. 24% tax rate, higher than guidance.

Capital expenditures were $16 million. Depreciation was $12 million. Cost of revenue was $168.5 million. R&D $87.9 million. SG&A $90.2 million. Amortization $1.9 million. Total operating expenses were $180 million, down significantly.

By georgraphy North America had 39% of revenues; Asia Pacific 29%; Europe 22%; and Japan 10%. China was the growth driver in Asia.

By end market Communications had 45% of revenue, Industrial 32%, Consumer and Automotive 15%, and Data Processing 8%. Industrial did well driven by double-digit growth in defense.

By product category New products had 28%; Mainstream 50%; Base 16%; and Support 6%.

Now shipping all Virtex-5 LX, LXT and SXT devices and has working silicon for FXT. Spartan-DSP low-cost series began shipping.

Q&A:

June quarter linearity? Orders were strong in April, May was soft, June started soft but ended strong.

Operating expenses? Reduced by canceling an unnounced project. Using engineering resources more carefully. Reducing product costs, both current and in designs going forward.

Market share? If we lost any market share, it was minimal. New products that competitors cannot match should help us later this year.

Communications? Lots of activity in this field, for instance higher-speed networks including fiber-to-phone. Don't know if this quarter's uptick is the beginning of a trend.

Sales so far this quarter? September is traditionally weak, but December quarter should see improvement.

Flat panel market is soft. ASPs are coming down, and equipment ASPs are declining. But may see strength in consumer market in December quarter.

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