Analyst Conference Summary

conference date: July 26, 2017 @ 2:00 PM Pacific Time
for quarter ending: June 30, 2017 (first fiscal quarter 2018, Q1)

Forward-looking statements

Overview: Solid quarter.

Basic data (GAAP):

Revenue was $615 million, up 1% sequentially from $609 million and up 7% from $575 million in the year-earlier quarter.

Net income was $167 million, up 9% sequentially from $153 million, but up 3% from $163 million year-earlier.

Diluted EPS (earnings per share) were $0.63, up 11% sequentially from $0.57, and up 3% from $0.61 year-earlier.

Guidance:

For September quarter revenue expected between $605 and $635 million. Gross margin 69% to 71%. Operating expenses $253 million. Other income $4 million. Tax rate 10% to 14%.

For the quarter Com & Date expected down; Industrial & etc. up; Broadcast & etc. up.

Conference Highlights:

Moshe Gavrielov, Xilinx President and Chief Executive Officer, said "Our focused investment in software, integration and technology leadership has driven a fundamental transformation, allowing Xilinx to expand from a supplier of FPGAs to an innovator of All Programmable devices and programming models." Sales in June increased for the 7th sequential quarter. There was a one-time tax item that helped net income.

Test & emulation led revenue growth. Largest surge driven by 16 nm products, but 20 nm and 28 nm also had strong sales.

The dividend will be $0.35, for shareholders of record on August 10, 2017, and payable on August 30, 2017.

16 nm Zinq and Virtex products are now shipping to over 530 customers. The Ultrascale+ family is expanding to include High-Bandwidth memory (HBM). FPGAs from Xilinx are being deployed by Baidu to accelerate its cloud services. RF SOC for future 5G deployment is sampling.

Revenues by end market: Communications and Data Center 41%; Industrial, Aerospace & Defense 42%; Broadcast, consumer and automotive 17%.

Getting ready to bring FPGAs to Amazon AWS.

Revenue by product type:

52% Advanced products: UltraScale, Virtex-7, Kintex™-7, Artix™-7, UltraScale+ (these are at 28 nm, 20 nm, and 16 nm)

48% Core products. So all the older, standard products.

68.8% gross margin, down sequentially from 69.5%.

Cash, equivalents and long-term investment balance was $3.65 billion, up sequentially from $3.4 billion. $1.74 billion long-term debt. Operating cash flow was $191 million. Depreciation $11 million. Capital expenditures $10 million. $67 million of stock was repurchased. Stock based compensation expense was $32 million. The dividend payment required $82 million. $750 million debt was issued in the quarter at 2.95% for seven years, and $458 million convertible debt due in 2017 was redeemed.

Has $615 million left in authorization to buy back shares and plans to use it during the next few quarters.

Revenue by geography: North America 29%; Asia 43%; Europe 19%; Japan 9%.

Cost of revenues (GAAP) was $615 million, leaving gross profits of $423 million. Operating expense total was $243 million, consisting of: research and development $153 million; selling, general and administrative $89 million; and amortization $1 million. Leaving operating income of $180 million. Interest and other expense was $2 million, and the income tax provision was $15 million.

Q&A:

FPGAs for datacenters progress? We have been working with Amazon for over one and a half years. It is now online, targetting traditional hardware FPGA designers. The real potential is in accelerating for software developers. It now has an abstraction wrapper to allow that. It should be rolled out by Amazon in about one month. It won't happen overnight, it could take about six months to be accepted by the market. This is the highest engineering priority for our company.

5G early deployment revenue, and timeline into full deployment? We agree that 5G real deployment would not start until 2020. It is a massive expansion in bandwidth. Hardware requirements will be huge. So it will have more "area under the curve" than prior cellular rollouts. We hope to capture significant parts of the early deployment, but then later it would be on 7 nm. Until 2020 we expect wireless revenue to move sideways.

Automotive as % of total? About 7%. Adas appication has been substituting for our legacy infotainment business. It has been growing, from about 4% of our business a few years ago.

Adas breadth, design wins, positioning for autonomous vehicles? We have been investing in this market. Current revenue is mainly from 28 nm node. We have about 100 models at 25 manufacturers, used in a lot of applications. Now some apps are transitioning to 16 nm products. It is very early for this field. We expect to see a CPU cluster plus many inputs, we are targetting our 7 nm products for the non-CPU elements. Security is a big issue for autonomous vehicles.

Competition, stuggle of Altera within Intel? It is an ongoing transition. PLAs used to have a well-defined auxilary roll. Now SOCs with programmable logic are moving to the center of systems. Moving to heterogeneous computing, where we are a good match for AI. So we are seeing different competition. 60% of our revenue is in the historic competition. 40% is in different competitors like Broadcom in wireless, and ASICs in wired. In auto and datacenters the competition is the big semiconductor company SOC solutions, so we are not attacking frontally, but using FPGAs as a differentiator. It is forcing us to spend a lot on ease of use, which we did not have to do for hardware designers in the past.

Consumer market? We are seeing some interesting opportunities, but now it is a small market for us.

Industrial, Aero and Defense expected growth in September quarter? We expect strength across the board.

We are not counting on the Baidu partnership for significant revenue in 2018. Most datacenter acceleration revenue in the shorter run would be from Amazon. We hope they can show the value of our accelerators. We believe we have a competitive advantage over the Intel products.

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