Analyst Conference Summary

conference date: April 22, 2015 @ 2:00 PM Pacific Time
for quarter ending: March 31, 2015 (fourth fiscal quarter 2015, Q4)

Forward-looking statements

Overview: Revenue down sequentially and y/y, with a further drop likely in Q2.

Basic data (GAAP):

Revenue was $566.9 million, down 5% sequentially from $593.5 million and down 8% from $617.8 million in the year-earlier quarter.

Net income was $134.6 million, down 20% sequentially from $168.5 million, and down 14% from $156.0 million year-earlier.

Diluted EPS (earnings per share) were $0.50, down 19% sequentially from $0.62, and down 6% from $0.53 year-earlier.

Guidance:

Revenue in Q2 (fiscal Q1 2016) is expected to be sequentially down zero to 4%, with gross margins between 69% and 70%. Operating expense near $210 million, other expense $12 million, tax rate 13% to 14%.

Backlog heading into quarter was up sequentially, but that is likely to be offset by further weakness in the China wireless market.

For full fiscal 2016 lowered expense guidance: R&D $530 to $540 million; SG&A $340 million to $360 million. Amortization of intangibles $8 million. Other expense $33 million.

Conference Highlights:

The quarter was hit by a $24 million restructuring charge.

In fiscal 2015 28 nm product sales increase significantly, and across all end markets. In fiscal Q4 (March quarter) 28 nm sales exceeded $160 million.

In partnership with TSMC, Xilinx began shipping 20 nm products in volume and will tape out its first 16 nm device in the June quarter. Xilinx believes it is more than 1 year ahead of rivals in shipping 20 nm parts.

Xilinx development software allows its FPGAs to be programmed in C, C++ and OpenCL to target datacenters, software defined networks and industrial IoT (Internet of Things).

Revenues by end market: Communications and Data Center 39%; Industrial, Aerospace & Defense 42%; Broadcast, consumer and automotive 17%; Other 2%. Sequentially this represents a major shift from communications to broadcast, consumer and automotive.

Automotive subsegment grew revenue 30% during fiscal year 2015 as a whole and set a record in the March quarter. But the communications segmement declined, including a 7% sequential decline in the March quarter, with the decline all in wireless. Wireless weakness was in North America and China.

Revenue by product:

49% New products: UltraScale, Virtex-7, Kintex™-7, Artix™-7, Zynq™-7000, Virtex-6, Spartan-6
29% Mainstream products: Virtex-5, Spartan-3 and CoolRunner™-II
19% Base products: earlier Virtex, Spartan-II, Spartan, CoolRunner and XC9500
3% Support products: Configuration solutions, HardWire, Software & Support/Services

69.9% gross margin, up sequentially from 69.7%. % operating margin, sequentially from 32.0%.

Cash, equivalents and long-term investment balance was $3.6 billion. $0.99 billion long-term debt and $576 million current debt. Operating cash flow was $166 million. Depreciation $14.4 million. Capital expenditures $6 million. $175 million of stock was repurchased. Stock based compensation expense was $20.0 million. The dividend payment required $70 million.

Revenue by geography: North America 32%; Asia 37%; Europe 21%; Japan 10%.

Cost of revenues (GAAP) was $170.4 million, leaving gross profits of $396.5 million. Operating expense total was $238.0 million, consisting of: research and development $131.9 million; selling, general and administrative $79.2 million; restructuring $24.5 million; and amortization $2.4 million. Leaving operating income of $158.5 million. Interest and other income was $1 million, and the income tax provision was $24.9 million.

The dividend was increased $0.02 to $0.31 per share.

Expects to hire in the June quarter, following the restructuring in March quarter.

Q&A:

Full year fiscal 2016 revenue guidance held steady despite the early low point? It is still our target. We expect revenue to grow during the year with the return of communications growth.

China wireless build, is it a pause or an inventory issue? It is always a little of both. We have delay in the FD ramp. Wireless is just weak as cap ex is modified, we think the FD ramp is just slower than previous projections.

Why is the wired business not growing? We were pleased with 28 nm growth in the quarter. It is some of the older stuff that was weak in some sub-applications. As new products build throughout the year we expect good growth in the wired communications segment.

Altera combination with Intel? Whether it happens are not, we are confident as we continue to distance ourselves from the competition. We won at 28 nm, we are ahead in 20 nm, and we are confident of success at 16 nm. Our new software tools are enablers for business expansion. We believe acquisition of Altera by Intel would benefit us because we would be the only major company with a focus in our area.

North America wireless market? It continues to be weak for us. Sprint deployment has slowed down. We don't think the weakness is permanent. AT&T & Verizon now are mainly just add ons and extension. In Europe we don't expect any bump until late in the fiscal year.

Confidence about better second half of year, particularly wired? At some point there is a mismatch between infrastructure requirements and end demand. We have a strong wired product portfolio. The infrastructure has been shortchanged for too long. We are seeing high-end 28 nm designs finally moving to production, after about a year's delay.

The Intel proposal does highlight the potential for PLDs in datacenters.

We are already seeing some orders for FD builds from OEMs in China, and even some shipping. But we don't have orders for the second half of the year because our lead times are much shorter than that.

Tower sharing? We have not seen that factor yet.

Price increases, including Europe? "It has not been as big of a deal as I was fearful of." It may have affected some smaller customers.

Zynq? This is a complex product and it took some time for it to be adopted, but now we are seeing lots of devices designed with Zynq and revenue is ramping.

Lead times? No significant change in lead times. Wafers are coming to us at the usual rate.

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