Analyst Conference Summary

conference date: January 20, 2016 @ 2:00 PM Pacific Time
for quarter ending: January 2, 2016 (third fiscal quarter 2016, Q3)

Forward-looking statements

Overview: Came in at high end of guidance, better than I thought given the reports about China's economy.

Basic data (GAAP):

Revenue was $566.2 million, up 7% sequentially from $527.6 million and down 5% from $594 million in the year-earlier quarter.

Net income was $130.8 million, up 3% sequentially from $127.3 million, and down 22% from $168.5 million year-earlier.

Diluted EPS (earnings per share) were $0.49, up 2% sequentially from $0.48, and down 21% from $0.62 year-earlier.

Guidance:

Revenue is expected about flat sequentially for the March quarter (fiscal Q4). Gross margin 68 to 69%. Operating expenses $220 million. Other net expense $6 million. Share count (diluted) 267 million. Tax rate 13 to 14%.

Automotive segment is expected to have a record quarter, offsetting a drop in industrial. 20 nm sales goal is $25 million, led by consumer and communications.

Conference Highlights:

"New product sales were exceptionally strong during the quarter increasing 18% sequentially, enabling Xilinx to reach the high-end of our sales guidance. Both our 7-series and UltraScale families reached new sales records during the quarter, driven by a very broad base of end markets," said Moshe Gavrielov, Xilinx President and Chief Executive Officer.

End market strength was broadbased, although automotive was down slightly due to the timing of purchases. 6 of 8 end markets grew.

28 nm products set a new record for revenue, helped by a significant recovery in the communications market. 20 nm products exceeded the $20 million target.

Revenues by end market: Communications and Data Center 43%; Industrial, Aerospace & Defense 41%; Broadcast, consumer and automotive 16%.

Revenue by product:

47% New products: UltraScale, Virtex-7, Kintex™-7, Artix™-7, Zynq™ UltraScale+ , Virtex-6, Spartan-6
23% Mainstream products: Virtex-5 & 6, Spartan-3 and CoolRunner™-II
26% Base products: earlier Virtex, Spartan-II, Spartan, CoolRunner and XC9500
4% Support products: Configuration solutions, HardWire, Software & Support/Services

"The capabilities of the UltraScale+ product family, coupled with its first-mover advantage, make it uniquely suited for applications ranging from next generation ADAS and Industrial Internet-of-Things to 5G wireless." the industry's first 16 nm SoC shipped a quarter ahead of schedule. More 16 nm devices are on the way for 2016 and 2017.

Xilinx and IBM are now in a strategic collaboration for datacenter acceleration applications.

The Spartan-7 FPGA family for I/O intensive devices was announced.

68.5% gross margin, down sequentially from 70.1% due to production ramp costs and some lower mix.

Cash, equivalents and long-term investment balance was $3.6 billion. $1.0 billion long-term debt and $0.6 billion current debt. Operating cash flow was $290.3 million. Depreciation $13.0 million. Capital expenditures $6.1 million. $100.0 million of stock was repurchased. Stock based compensation expense was $31.5 million. The dividend payment required $79.7 million.

Inventories decreased in the quarter and are expected to be down again sequentially.

Revenue by geography: North America 32%; Asia 41%; Europe 17%; Japan 10%.

Cost of revenues (GAAP) was $178.5 million, leaving gross profits of $387.7 million. Operating expense total was $227.6 million, consisting of: research and development $141.4 million; selling, general and administrative $84.5 million; and amortization $1.8 million. Leaving operating income of $160.1 million. Interest and other expense was $5.1 million, and the income tax provision was $24.2 million.

There was a benefit from the reinstatement of the R&D tax credit, but a tax hit from changes in rules for overseas income.

The dividend of $0.31 per share will be payable on March 16, 2016 to holders of record on March 2, 2016.

In 2016 Zynq sales are expected to ramp in the automotive segment. 28 nm revenue should grow for the balance of fiscal 2016.

Q&A:

Still believe Xilinx passed the revenue bottom? Clearly we have had revenue challenges the past 2 years. Wireless was a particular challenge, as was Defense. Wireless hit a low last June quarter, and defense in September quarter. We see those markets in a recovery mode, though we don't expect it to be linear. We are in a strong technology cycle with 28 nm and 20 nm products.

Impact of Altera acquisition by Intel? In datacenters we have an emerging market. Intel is the market leader for servers, and they will try to leverage that. We will compete both with ARM and IBM spaces and in the x86 space. It is a growth market for us, but they have a clear advantage in the x86 space. In other markets customers will look for the best solutions, and we believe we have leadership, including with software, right now.

Industrial demand? In the past quarter industrial was up sequentially, but guidance is for industrial down, testing and measurement down, defense up. Most defense business comes from existing programs, including 65 nm products. We are seeing 28 nm growth in defense. For industrial it varies by geography, it was particularly soft in Asia and Europe.

Change of control provision in the 8K today? There is massive consolidation in the semiconductor industry. We can't comment on market rumors. We are just aligning our policies with the rest of the industry, based on a report from an external consultant.

Margin goals, longer term guidance? We are not giving guidance, but we clearly expect growth in the next fiscal year. We are getting good demand from customers based on our product superiority over the competition. Margins should stay in the 68% to 70% range.

Was wireless strength due to inventory increases? SD rollout in China is significant, but smaller than the TD rollout was. The improvement in wireless has been driven by that. We are waiting on a stronger rollout in India. We don't see anything that would get us back to the March 2014 revenue peak. 5G is the next big wave. We are being designed into the prototyping for 5G, but that won't go into production until around 2020. We are getting inventory back to our historic model.

Europe weakness, end markets there? That was partly from the automotive sector. Wireless was down in Europe, as was industrial. We expect Europe to bounce back next quarter, particularly in automotive.

At this point none of our customers are telling us there is competition for our 16 nm products. We are seeing interest for a broad set of uses, including industrial control. We will probably tape out more 16 nm designs than 20 nm designs. We plan to tape out 7 nm designs in 2017.

We are seeing tremendous interest from cloud and datacener providers for our products, which provide low power solutions to some computations. It is an early market, it may not be a major source of income for us for 5 years. We are not exclusive to Qualcomm in the ARM space.

PLD industry lack of revenue growth over the past 3 to 5 years, what could create growth going forward? Growth has been disappointing the past few years. We don't see regular double-digit growth. We do expect 2017 to be a growth year. ASICs and ASSPs are becoming less and less viable except in high-volume applications. That is an opportunity for us, but we need the right silicon and level of integration.

Could not say how big the datacenter business is presently. Automotive is about 7% of revenue, about doubling over the past few years.

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