Analyst Conference Summary

conference date: October 24, 2018 @ 2:00 PM Pacific Time
for quarter ending: September 29, 2018 (second fiscal quarter 2019, Q2)

Forward-looking statements

Overview: Record revenue and raised guidance yet again. Starting to see 5G revenue ramp.

Basic data (GAAP):

Revenue was $746 million, up 9% sequentially from $684 million and up 19% from $627 million in the year-earlier quarter.

Net income was $216 million, up 14% sequentially from $190 million, and up 24% from $174 million year-earlier.

Diluted EPS (earnings per share) were $0.84 (a record), up 14% sequentially from $0.74, and up 25% from $0.67 year-earlier.

Guidance:

For fiscal Q3 2019 (ending December 31, 2018) revenue expected between $760 and $780 million, at 69% gross margin and with $295 million in GAAP op ex or $290 millon non-GAAP

For full fiscal year 2019 revenue expected between $2.95 and $3.0 billion, with gross margin of 69% to 70% and operating expenses of $1.145 to $1.165 billion GAAP or $1.13 to $1.15 billion non-GAAP. Tax rate 10 to 12% GAAP or $9% to 11% non-GAAP. Diluted Share count 256 million.

Conference Highlights:

Victor Peng, Xilinx President and CEO, said "Driven by broad-based strength across Communications, Data Center & TME as well as Automotive, Broadcast & Consumer businesses, we are raising our revenue guidance for the full year to approximately 20% growth, compared to the prior year. Building on our history of innovation, we recently announced Versal, the industry's first Adaptive Compute Acceleration Platform, or ACAP, that delivers powerful acceleration for any application. In addition, we launched Alveo, a portfolio of accelerator cards that dramatically increase performance in industry standard servers. Alveo, now shipping in production, provides customers with breakthrough performance improvement at low latency and unprecedented adaptability across key data center applications." Built on TSMC's 7-nm FinFET process technology, the Versal portfolio is the first platform to combine software programmability with domain-specific hardware acceleration and the adaptability necessary to keep pace with today's rapid pace of innovation. Versal accelerates a broad range of applications, including machine learning inference, across multiple end markets ranging from the cloud to network to edge and endpoint.

Zynq based revenues grew approximately 70% y/y driven by a broad set of applications across multiple end markets, including ADAS in Automotive. Now represents 18% of sales.

Resumed shipments to ZTE. Announced use of Xilinx products in many new devices and services. Completed acquisition of DeePhi Tech.

The dividend will be $0.36, for shareholders of record on November 13, 2018, and payable on December 4, 2018.

New category is ACAP (Adaptive Compute Acceleration Platform) for applications including AI.

Non-GAAP results: net income $221 million, up 15% sequentially from $192 million, and up 27% y/y from $174 million. Diluted EPS $0.87, up 16% sequentially from $0.75, and up 30% y/y from $0.67.

Revenues by end market:

Data Center and TME 21% of total for $157 million. Up 28% y/y.

Communications 35% of total for $261 million. Up 33% y/y. Increased as both wireless and wired businesses benefitted from LTE upgrades, early 5G deployment in Korea and preparation for 5G deployment in both China and North America.

Industrial, Aerospace & Defense 25% of total for $187 million, down 5% y/y.

Automotive, Broadcast, and Consumer 16% of total for $127 million. Up 17% y/y.

Channel 3% of total.

Revenue by product type:

64% Advanced products: UltraScale, Virtex-7, Kintex™-7, Artix™-7, UltraScale+ (these are at 28 nm, 20 nm, and 16 nm).

36% Core products. All the older, standard products.

Cash, equivalents and long-term investment balance was $3.37 billion, sequentially from $3.36 billion. $1.2 billion long-term debt. Operating cash flow was $313 million. Depreciation $16 million. Capital expenditures $14 million. $23 million of stock was repurchased (at $66.08 average). Stock based compensation expense was $35 million. The dividend payment required $91 million.

Revenue by geography: North America 22%; Asia 44%; Europe 20%; Japan 8%.

Cost of revenues (GAAP) was $232 million, leaving gross profits of $515 million. Operating expense total was $282 million, consisting of: research and development $183 million; selling, general and administrative $98 million; and amortization $1 million. Leaving operating income of $233 million. Interest and other income was $6 million, and the income tax provision was $23 million.

Q&A:

Communications business, particularly with China? China is an important market, but we saw growth with all of our important customers in that segment. 5G deployment is accelerated in Korea. We expect the large ramp to start earlier than 2020, which was our older expectation.

Zynq ramp visibility? Sales are broad-based. We think we are taking away from other types of solutions. Most of the revenue for Zynq is still at 28 nm. We are increasing our headcount to support this and drive the ecosystem, partners like AMD and Samsung.

Is 5G just prototyping so far? We are now in proof of concept and early production. We see wireless for the year ending very strong. But things will be bursty at times. We are well positioned for the biggest wireless rollout of all time.

We will return some cash to shareholders and reinvest some.

We did get some revenue at the end of the quarter for the Alveo board. It will take a while to ramp to a significant level. Samsung is a customer, as is a major memory supplier. It will be meaningful revenue in 2020.

Both communications endmarkets still have revenues below the highs in past years during rollout peaks. But also communications is becoming a smaller percent of overall revenue as we diversify.

We are seeing growth in automotive, and we expect it to continue, but it is only 7% of our business. Our high-value auto products tend to still be in the ramping phase.

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