Analyst Conference Summary

conference date: October 18, 2007 @ 2:00 PM Pacific Time
for quarter ending: September 29, 2007 (fiscal Q2 2008)

Forward-looking statements

Overview: Nearly flat revenues sequentially and still in a slump from year-earlier, but still very profitable with sequentially increasing net income..

Basic data:

Revenues were $444.9 million, down slightly sequentially from $445.9 and down 5% from $467.2 million year-earlier.

Net income was $89.7 million, up 6% sequentially from $84.3 million but down 5% from $93 million year-earlier.

EPS (earnings per share) were $0.30, up 7% sequentially from $0.28 and up 11% from $0.27 year-earlier.

Guidance:

December quarter (Q3 fiscal 2008) revenues are expected to grow 2% to 6% sequentially. Gross margins between 62% and 63%. Operating expenses flat sequentially. Tax rate 21%. Consumer and automotive are expected to increase. Industrial up driven by defense. Communications believed to be flatish, but is difficult to forecast.

Conference Highlights:

Quarter showed typical summer seasonality.

Asia-Pacific sales reached record levels and represented 30% of total revenues. North America accounted for 38% of revenues; Europe 22%; Japan 10%.

Quarter featured reduction of inventories and operating expenses.

Communications segment had 45% of revenues; Industrial 30%; Consumer and Automotive 17%; data processing 8%.

Virtex-4 FX family sales were strong.

Cost of revenues was $170.1 million. Operating expense was $180.4 million, composed of R&D $88.3 million, SG&A $90.2 million, and amortization of intangibles at $1.9 million. Leaving an operating income of $94.4 million. Interest income was $19.5 million. $24.2 million was provided for income tax.

Cash and equivalents ended at $1.22 billion. $134 million in free cash flow. Inventories declined to $128.9 million. $150 million, 6 million share-repurchases in quarter.

Gross margin was slightly below guidance because of one time items and a large order for a low-margin consumer item. Aiming for operating margin of 24% by end of fiscal year.

A strong backlog of orders was established in September.

CPLDs grew 8% to reach 10% of total revenues.

Wireline revenue grew strongly in America, but wireless declined as expected. There was softness in the defense sector, which was a surprise.

Q&A:

Further margin improvements? Looking for that, but depends on many factors.

Storage area? Don't expect much further decline, which was a result of changes in industry.

Communications? Appears that there is beginning to be more investment in infrastructure, so we expect to see more growth in wireline business, but could be lumpy. Wireless has been negative because of 3G base station deployment slowdown. Our customers expect this sector to start growth again sometime next year.

Mainstream business? Very based on customer demand. We compete on the new products business, which we expect to do well in Q4.

Trend forward? Very cautious, but there are some indicators that the trend is up going forward.

Process cost savings? 65nm went well, largely because it was just a shrink from 90nm. But 45nm involves new processes, so we can't count on getting as good of a ramp when we move there.

Aren't FPGAs just used for prototyping and low volume production? It is changing because of lowered costs from 65nm process, so manufacturers are starting to just stick with what they use in the prototypes for larger volumes.

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