Analyst Conference Summary

conference date: April 26, 2017 @ 2:00 PM Pacific Time
for quarter ending: March 31, 2017 (fourth fiscal quarter 2017, Q4)

Forward-looking statements

Overview: Solid revenue and EPS growth y/y. Increased the dividend to $0.35 per share (from $0.33). Revenue above midpoint of prior guidance.

Basic data (GAAP):

Revenue was $609 million, up 4% sequentially from $586 million and up 7% from $571 million in the year-earlier quarter.

Net income was $153 million, up 8% sequentially from $142 million, but up 6% from $145 million year-earlier.

Diluted EPS (earnings per share) were $0.57, up 10% sequentially from $0.52, and up 6% from $0.54 year-earlier.

Guidance:

June quarter, Q1 fiscal 2018, revenue between $600 and $630 million. Gross margin 68% to 70%. Operating expense $242 million. Other income $1 million. Tax rate 12% to 15%.

Sequentially in the quarter communication segment expected up; industrial & military flat; broadcast, consumer, auto slightly down.

Conference Highlights:

"In the March quarter, we achieved a major milestone when sales from our 28nm product family significantly surpassed $200 million, setting a PLD industry record," said Moshe Gavrielov, Xilinx President and Chief Executive Officer.  "Our newest products, manufactured on the 20nm and 16nm nodes, experienced similar success during the quarter.  Our 20nm products generated $60 million in sales driven by a broad base of applications.  At the 16nm node, we are now shipping 14 unique products to more than 450 customers.  Our execution at the 28nm, 20nm and 16nm technology nodes has enabled our '3-peat' leadership over the competition."

The dividend was increased $0.02 per share to $0.35, for shareholders of record on May 16, 2017, and payable on June 1, 2017.

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

Revenue by product type:

49% Advanced products: UltraScale, Virtex-7, Kintex™-7, Artix™-7, UltraScale+ (these are at 28 nm, 20 nm, and 16 nm)

Advanced products led growth at 9% sequentially up 45% y/y, and hit a new revenue record. But accelerated a tape-out and so increased expenses above prior projections.

51% Core products. So all the older, standard products.

"Amazon Web Services (AWS) announced the general availability of Virtex UltraScale+ FPGAs in the Amazon Elastic Compute Cloud F1 instances. F1 provides programmable hardware acceleration with FPGAs and enables users to optimize their compute resources for the unique requirements of their workloads. F1 instances will be used to solve complex science, engineering and business problems that require high bandwidth, enhanced networking and very high compute capabilities."

The Zynq family surpassed 10% of total sales in the quarter, achieving a new record.

Xilinx announced a major expansion of the 16nm portfolio with All Programmable RF SoC product family, a disruptive integration and architectural breakthrough for 5G wireless with RF class analog technology. This family provides a 50-75% power and footprint reduction for 5G, cable and wireless backhaul applications. [But 5G deployment is probably at least 2 years away -- WPM]

69.5% gross margin down sequentially from 69.6%.

Cash, equivalents and long-term investment balance was $3.4 billion, up sequentially from $3.25 billion. $1.0 billion long-term debt and $0.45 billion was current debt. Operating cash flow was $306 million. Depreciation $12 million. Capital expenditures $20 million. $108 million of stock was repurchased. Stock based compensation expense was $32.7 million. The dividend payment required $82 million.

Has $680 million left in authorization to buy back shares.

Revenue by geography: North America 31%; Asia 42%; Europe 19%; Japan 8%.

Cost of revenues (GAAP) was $186 million, leaving gross profits of $424 million. Operating expense total was $250 million, consisting of: research and development $164 million; selling, general and administrative $85 million; and amortization $1 million. Leaving operating income of $173 million. Interest and other expense was $2 million, and the income tax provision was $18 million.

Long-term operating margin target is 30%.

Q&A:

AI and inferencing market, FPGA vs. other types of chips? Will provide much more information on this May 22. Our advantage is flexibility, which is greater than for ASICs, CPUs and GPUs. Benchmarks are changing in this rapidly evolving field. Depends on if application requires floating point; FPGAs compete better in non-floating point.

Acceleration opportunity vs. 6 months ago? Last year we projected $200 to $300 million in 2020 timeframe. We were already talking to Amazon and other hyperscale customers. To make them successful we had to prioritize the software environment, and we moved quicker than we had planned, and so did Amazon. But it is still too early to predict revenue in 2020, but its impact in the next 18 months is likely to be small.

We are in a good position to be deployed eventually in automated driving. We believe the programmability of our products puts us in a good position. Our automotive numbers are already hitting records. We see auto a possibly our most rapidly growing market over the next year.

Zynq growth? The first Zynq was at the tale end of 28 nm rollout. We had three initial markets, but mainly wireless. Industrial controls, we have a mountain of design wins. Auto is growing fast. The newer, 16 nm parts have a range including a low end. At 7 nm it will be a very broad family. It could grow from 10% to 20% of our business much faster than it took to reach 10%.

We expect datacenter to grow meaningfully in Q2.

Broad deployment of 5G is expected to start in 2020, but we already have design wins and so we believe we will do well there. In 2020 sales could surpass $150 million per quarter.

Defense segment? We had a good quarter, it has generally been on an upward trend due to ramping of 28 nm design wins. It is our third largest market. In the June quarter we expect some program-specific weakness.

Microsoft is currently using the Intel/Altera product, we believe our product is better. The Amazon case allows for a whole new set of applications. Their focus is on ease of use to enable a new ecosystem. Thousands of customers have applied. But it is too early to provide numbers.

We believe auto will be down in the June quarter because of an inventory build in the record quarter we just had. Long term we think auto will be grow.

We are very happy with TSMC. They are the best.

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