Analyst Conference Summary

conference date: July 22, 2015 @ 2:00 PM Pacific Time
for quarter ending: June 30, 2015 (first fiscal quarter 2016, Q1)

Forward-looking statements

Overview: Revenue towards lower end of guidance. Net income up sequentially but down 15% y/y.

Basic data (GAAP):

Revenue was $549.0 million, down 3% sequentially from $566.9 million and down 10% from $612.6 million in the year-earlier quarter.

Net income was $147.7 million, up 10% sequentially from $134.6 million, and down 15% from $173.6 million year-earlier.

Diluted EPS (earnings per share) were $0.55, up 10% sequentially from $0.50, and down 11% from $0.62 year-earlier.

Guidance:

Backlog is down heading into Q2 with wireless down and improvement hard to forecast.

Fiscal Q2 ending September 30 2015 revenues are expected to fall another 2% to 6% sequentially. Gross margin 69% to 70%. Operating expense near $217 million. Other expense $10 million. Share count (diluted) 268 million.

Conference Highlights:

Despite declining revenue profitability was good with a 71% gross margin. "Technology leadership on the 20 nm node is translating to sales leadership." 20 nm sales surpassed $10 million. The 28 nm Zynq-7000 family had exceptionally strong sales.

In the quarter Xilinx taped out its first 16 nm FinFET product, a Zynq MPSoC (multi-processor SoC). Xilinx announced it is collaborating with TSMC on 7 nm technology.

New product sales were down 10% in the quarter from 28 nm sales due to a weak wireless market. Decline in wireless sales was broad across customers in both China and the U.S. Automotive sales were strong.

Revenues by end market: Communications and Data Center 38%; Industrial, Aerospace & Defense 44%; Broadcast, consumer and automotive 18%.

Updated revenue by product to reflect the changes to types of products.

Revenue by product:

38% New products: UltraScale, Virtex-7, Kintex™-7, Artix™-7, Zynq™-7000, Virtex-6, Spartan-6
25% Mainstream products: Virtex-5, Spartan-3 and CoolRunner™-II
34% Base products: earlier Virtex, Spartan-II, Spartan, CoolRunner and XC9500
3% Support products: Configuration solutions, HardWire, Software & Support/Services

70.0% gross margin, up sequentially from 69.9%, from improved product mix. 32.5% operating margin.

Cash, equivalents and long-term investment balance was $3.6 billion, flat sequentially. $1.0 billion long-term debt and $579 million current debt. Operating cash flow was $183 million. Depreciation $13 million. Capital expenditures $8 million. $100 million of stock was repurchased. Stock based compensation expense was $26 million. The dividend payment required $80 million.

Revenue by geography: North America 34%; Asia 36%; Europe 16%; Japan 11%.

Cost of revenues (GAAP) was $160.0 million, leaving gross profits of $389.1 million. Operating expense total was $210.6 million, consisting of: research and development $126.6 million; selling, general and administrative $82.1 million; and amortization $1.8 million. Leaving operating income of $178.5 million. Interest and other expense was $10.5 million, and the income tax provision was $20.3 million.

The dividend of $0.31 will be payable on August 26, close of record is August 6.

In 2016 Zynq sales are expected to ramp in the automotive segment. 28 nm revenue should grow for the balance of fiscal 2016. 20 nm sales should ramp to about $15 million in fiscal Q2.

Q&A:

What do you think the cause of the low overall demand? We see the weakness mainly in wireless. It has been choppy and less predictable than we had thought. We think demand will increase, but we can't predict when. All of the other verticals are holding up for us. Our share position in wireless is still strong, so we hope that will hold up when demand resumes. We hear positive statements from customers and carriers.

Industrial end market outlook? This is part of the joint strike fighter program. It is the end of that 2 year producement. We are winning the redesign for the next round, but shipments won't begin until at least 2016.

Intel ownership of competitor? Our markets are highly diversified. Our customers need significant support and have long life cycles. We expanded our market share at 28 nm and believe we are gaining share at 20 nm. We are working with TSMC to be very competitive on technology leadership. We also have software leadership and SoC leadership. We are committed to continuing to be the leader in the market. We think the Intel deal bodes well for us.

Are you seeing any reaction from your customers on Intel/Altera? We are focused on our leadership. We believe 7 nm tapeout with TSMC will be available in 2017. Customers generally are happy to be with us, the largest FPGA business, and focused on this particular business.

Do you need a custom ARM core? We were first at 28 nm and 16 nm with SoCs with ARM cores. ARM is the best solution except for the datacenter market, but even there it will be Intel vs. the rest of the world, and we will partner with the rest of world. We are happy with the ARM roadmap.

We just don't know if wireless spending will come back in the 2nd half, or to what extent. We are not revising our forecasts at this point.

20 nm ramp yields? We don't expect it to be as big (high volume) as 28 nm was because 16 nm is coming in so fast. We are pleased with the 20 nm design wins so far.

Embedded vision vs. ASICs? We have design wins, at least 12, that are going into production. We don't have the plurality of the market, but are off to a good start. For a differentiated solution, we are the leader. The Zynq MPSoC is in good position for the follow-on designs. We expect to be a significant winner in this market.

What other 16 nm products are near tapeout? The Zynq offering has multiple models, so it covers 70% to 80% of the market. It does not cover the low end market. The initial product is relatively high-end, but it will not be the ultimate high-end product at 16 nm.

Are you skipping 10 nm? The gap between 7 nm and 10 nm at TSMC is significant. For our business a refresh every 3 years works best, and on our cadence that hit the 7 nm mode. [So yes, Xilinx appears to be skipping 10 nm]

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