Analyst Conference Summary

conference date: January 23, 2019 @ 2:00 PM Pacific Time
for quarter ending: December 29, 2019 (third fiscal quarter 2019, Q3)

Forward-looking statements

Overview: Very strong revenue growth. 5G deployment has begun in Korea.

Basic data (GAAP):

Revenue was $800 million, up 7% sequentially from $746 million and up 34% from $599 million in the year-earlier quarter.

Net income was $239 million, up 11% sequentially from $216 million, and up from negative $12 million year-earlier.

Diluted EPS (earnings per share) were $0.93 (a record), up 11% sequentially from $0.84, and up % from negative $0.05 year-earlier.

Guidance:

For fiscal Q4 2019, ending in March, revenue expected to grow to $815 to $835 million. Gross margin should be around 68.5%. Communications, datacenter, TME, and wireless growth expected, but declines in auto, broadcast, consumer, and industrial.

Conference Highlights:

Victor Peng, Xilinx President and CEO, said "I am very excited to report yet another record revenue and earnings quarter. During the third fiscal quarter, we delivered revenues of $800 million, representing 34% year over year growth. Based on the guidance we are providing for the fiscal fourth quarter, we expect to exceed $3 billion in annual revenues for the first time in our history. In addition to the robust revenue growth, we also demonstrated strong profitability by posting over 60% growth in non-GAAP operating income and over 40% growth in non-GAAP diluted earnings per share year over year. We continue to execute to our strategy and drive growth across our portfolio." All end markets showed growth. Should have over $3 billion in revenue in fiscal 2019.

A dividend was declared of $0.36 per share to holders at close on February 6, payable on February 21.

Data Center and Test, Measurement & Emulation (TME) revenue growth was driven primarily by the Data Center business (ex-Cryptocurrency) and TME business. Design win momentum continued across multiple applications including big data acceleration, machine learning inference, video transcoding, network acceleration and storage controllers.

Zynq revenues grew approximately 80% y/y driven by a broad set of applications across multiple end markets, particular MPSoC.

New category is ACAP (Adaptive Compute Acceleration Platform) for applications including AI. Taped out Versal – the industry's first ACAP at the end of the quarter. Sampling will be in the second half of 2019. Built on TSMC's 7nm FinFET process technology, Versal is the first platform to combine programmability with domain-specific hardware acceleration and the adaptability essential for today's rapid pace of innovation

Non-GAAP results: net income $237 million, up 7% sequentially from $221 million, and up 42% y/y from $167 million. Diluted EPS $0.92, up 6% sequentially from $0.87, and up 42% y/y from $0.65.

Revenues by end market:

Data Center and TME 21% of total for $168 million. Up 14% y/y.

Communications 35% of total for $280 million. Up 41% y/y. 5G is ramping in Korea and prepping in China.

Industrial, Aerospace & Defense 27% of total for $216 million, up 17% y/y.

Automotive, Broadcast, and Consumer 15% of total for $120 million. Up 20% y/y. Consumer was down, Automotive flat, Broadcast up.

Channel 2% of total, or $16 million.

Revenue by product type:

66% Advanced products: UltraScale, Virtex-7, Kintex™-7, Artix™-7, UltraScale+ (these are at 28 nm, 20 nm, and 16 nm).

34% Core products. All the older, standard products.

Cash, equivalents and long-term investment balance was $3.55 billion, up sequentially from $3.37 billion. $1.22 billion long-term debt. Operating cash flow was $314 million. Depreciation $18 million. Capital expenditures $20 million. $1 million of stock was repurchased. Stock based compensation expense was $39 million. The dividend payment required $91 million. $500 million of debt is scheduled for repayment in fiscal Q4.

Revenue by geography: North America 28%; Asia 46%; Europe 18%; Japan 8%.

Cost of revenues (GAAP) was $248 million, leaving gross profits of $552 million. Operating expense total was $294 million, consisting of: research and development $189 million; selling, general and administrative $103 million; and amortization $2 million. Leaving operating income of $258 million. Interest and other expense was $1 million, and the income tax provision was $17 million.

Q&A:

5G range of content in deployment you are seeing? We are in virtually all pre-5G in both ratio and baseband. 5G will be larger overall than 4G. We believe we have innovated to do well, but there will be ASIC competition. Our 7 nano products should help with longevity in baseband.

ASSTs have been competitors, but we have been competing well against them. Zynq and move to standardized platforms give us an advantage.

Aerospace and defense backlog? Overall we are on track for an annual record. Varies because of timing of programs. We are seeing more rapid adoption of advanced tech. Our backlog in general is quite strong. A and D is a lumpy business, but we tend to grow y/y.

Communications margins? 5G production deployments are starting, which tends to bring margins down somewhat. We work on cost savings, but also rely on innovation to increase value and margins.

Tax rate in FY 2020? We thought we would be in 10 to 12% in 2019. We are not giving guidance, but believe tax rate should normalize over time.

China outlook? We monitor the China trade situation, it is hard to predict.

TME? There were some 5G tester sales. Softening might be in semiconductor testing. But it was strong.

5G ramp characteristics? We did not anticipate the ramp starting as early as it did, or the strength out of the gate. Compared to ASICs, new capabilities can be added rapidly. We expect 5G to be bursty, but growth in 2020 and beyond.

5G TAM, winners and losers? The TAM will be much larger than for 4G. We expect to gain market share. We have not heard of a credible competitive product and road maps for 7 nm. The radio is getting a new architecture, which is disruptive. More traditional solutions may be challenged by that.

Autonomous driving opportunity? That is more mid to long term. Today sales are about display, comfort.

We never saw cryptocurrency as a big component for us, not strategic. Clearly sales are lumpy.

We believe we can drive 10% or great growth sustainably. That is a break from our history. We are gaining market share.

Operating expense? We are taping out new products, both 7nm and older 16 nm, we need to spend to drive growth. Op ex growth was within guidance.

Portion of sales from China? Last year China was about one quarter of our overall revenue, this year it is higher. We have no customer accounting for greater than 5% of sales.

Intel competition? We are outcompeting them, but don't want to get arrogant.

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