Analyst Conference Summary

conference date: April 27, 2016 @ 2:00 PM Pacific Time
for quarter ending: March 31, 2016 (fourth fiscal quarter 2016, Q4)

Forward-looking statements

Overview: Came in ahead of guidance, better than I thought given the reports about China's economy. Raised the dividend.

Basic data (GAAP):

Revenue was $571.1 million, up 1% sequentially from $566.2 million and up 1% from $566.9 million in the year-earlier quarter.

Net income was $145.0 million, up 11% sequentially from $130.8 million, and up 8% from $134.6 million year-earlier.

Diluted EPS (earnings per share) were $0.54, up 10% sequentially from $0.49, and up 8% from $0.50 year-earlier.

Guidance:

For the June quarter (Q1 fiscal 2017) revenue is expected to be near flat sequentially, with gross margins between 69% and 70%. Operating expenses $220 million and other expense $5 million. Diluted share count 266 million. Tax rate 14%. Entering the quarter with backlogs down slightly. Communications & datacenter will grow, but industrial and A&D will decline due to program timing.

For full fiscal year 2017 sees 4% to 8% annual revenue growth driven by communications and datacenter, including a wireless recovery. Automotive will grow, but at a reduced rate. Gross margin 68% to 70%. Op ex up 7% to 9% mostly for R&D including 16 nm tape outs. 14% tax rate. Low single digit growth in EPS y/y.

Conference Highlights:

28 nm & 20 nm products set a new record for revenue. Xilinx is confident about ongoing revenue growth.

"Momentum from our new products continued in the fourth fiscal quarter of 2016 with sales from 20nm products significantly exceeding $25 million and sales from the 28nm product family achieving record levels," said Moshe Gavrielov, Xilinx President and CEO. "Although fiscal 2016 experienced volatility from the wireless communications segment, Xilinx delivered its third consecutive generation of products to market ahead of the competition, enabling substantial PLD share gains."

Revenues by end market: Communications and Data Center 43%; Industrial, Aerospace & Defense 40%; Broadcast, consumer and automotive 17%.

Automotive had another record quarter. It has grown over 60% in two years.

Revenue by product:

49% 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
24% Base products: earlier Virtex, Spartan-II, Spartan, CoolRunner and XC9500
4% Support products: Configuration solutions, HardWire, Software & Support/Services

Xilinx commenced shipments of several products in its 16nm UltraScale+ portfolio covering all three families: Virtex, Kintex and Zynq. Shipment was ahead of schedule. Seeing large design wins against ASIC solutions. Will accelerate 16 nm tape outs. and product family for datacenters, 5G, and automotive. Planning on 7 nm with TSMC.

"Xilinx announced strategic collaborations with Qualcomm Technologies, Inc. and IBM to accelerate data center applications. These collaborations are expected to enable higher performance and energy-efficient data center applications through Xilinx FPGA-enabled workload acceleration. Target applications include machine learning, network functions virtualization (NFV), genomics, high performance computing and big data analytics."

69.2% gross margin, up sequentially from 68.5% due to production ramp costs and some lower mix.

Cash, equivalents and long-term investment balance was $3.34 billion. $1.0 billion long-term debt and $0.6 billion was current debt. Operating cash flow was $123 million. Depreciation $12 million. Capital expenditures $15 million. $143.2 million of stock was repurchased. Stock based compensation expense was $27.5 million. The dividend payment required $78.9 million.

Inventories decreased substantially. Accounts receivable increased.

Revenue by geography: North America 32%; Asia 38%; Europe 21%; Japan 9%.

Cost of revenues (GAAP) was $175.8 million, leaving gross profits of $395.3 million. Operating expense total was $217.2 million, consisting of: research and development $135.6 million; selling, general and administrative $80.3 million; and amortization $1.2 million. Leaving operating income of $178.1 million. Interest and other expense was $8.3 million, and the income tax provision was $24.8 million.

The dividend of $0.33 per share will be payable on May 18, 2016 to holders of record on June 8, 2016.

Analyst day will be May 23, 2016.

Q&A:

Softness in automotive? Would not use "softness," but rate of growth, which has been high, won't be as high. On the industrial side we are seeing slower growth. There are no inventory issues with respect to automotive.

Timing for 7 nm? Datacenters are an emerging market, but should grow fast over the next 5 years to become a multi-hundred million dollar market. We have design wins at 20 and 16 nm. We expect to get wins in 7 nm too. It typically takes a year to move from tape out to production, then longer to deploy into various markets. Could see datacenter revenue from 7 nm in 2019 or 2020.

Industrial A&D subdued outlook details? We had one large program that ended last year. Since then we have had incremental improvements. It just won't compare well to Q1 last year. When the F35 redesign kicks in it might pick up. We have seen softness in industrial in some APAC countries.

Broadcast end market trends? The distribution aspect is moving towards server and common platforms, and is starting to bleed into communications. The camera business is driven by technology trends, and is strong due to 4K demand.

Operating expense guidance? We have a once-in-a-lifetime opportunity on execution. We are now at 3 generations of leadership. The semiconductor market is changing rapidly. A lot of applications that once could work with ASSPs or ASICs now need to shift to PLDs. So we have a larger TAM coming to our technology leadership. We decided to spend more money on the opportunity, mainly in R&D, while keeping a 30% margin and returning cash to investors.

Intel's CPU + FPGA package threat? The market is evolving and just starting, it was well-serviced by GPUs in the past. The industry understands that for critical applications FPGAs can give a 10x or more increase on a per watt basis. We expect the market to bifurcate into an Intel/x86 camp and everyone else. We are the only game in town for everyone else. The hyperscale customers say that a non-integrated solution that they control is more attractive than one from Intel. But it is a 5 year time frame for the transition.

We have so overachieved on the functionality at 16 nm that we are doing more tape outs., which are millions of dollars each. At some point after this spurt expense growth should go back to normal.

Operating expenses will be higher in the second half, but will start increasing in the second (fiscal) quarter.

It the 16 nm tape out part of a competitive dynamic? We believe we have at least a one year lead, so we feel we should exploit that. We have now done six tape outs.

Wireless in China has improved since the peak in the June 2015 quarter. We are also seeing LTE deployment in India. The industry thought last year their would not be a race to 5G, but apparently now there is, which should be a large market from 2020 onward.

We are participating in small cells, but it has not grown as much as was hyped a few years ago. We don't see it as a big offset to the macro stations.

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