Analyst Conference Summary

conference date: July 24, 2019 @ 2:00 PM Pacific Time
for quarter ending: June 29, 2019 (first fiscal quarter 2020, Q1)

Forward-looking statements

Overview: Very strong 24% y/y revenue growth.

Basic data (GAAP):

Revenue was $850 million, up 3% sequentially from $828 million and up 24% from $684 million in the year-earlier quarter.

Net income was $241 million, down 1% sequentially from $245 million, and up 27% from $190 million year-earlier.

Diluted EPS (earnings per share) were $0.94, down 1% sequentially from $0.95, and up 27% from $0.74 year-earlier.

Guidance:

For fiscal Q2 2020 ending September 29, 2019, Xilinx expects revenue between $800 and $850 million. Gross margin 65% to 66% GAAP, 66% to 67% non-GAAP. Operating expenses $326 million GAAP, $322 non-GAAP. $11 million other income. 0% tax rate due to accounting rules, but should normalize in later quarters. Guidance dose not include impact of acquisition of Solarflare, but does take into account U.S. export restrictions. Wired, industrial, and AED are expected to decline, but wireless and datacenter to grow.

Not reiteraing 2020 guidance due to China trade issues.

Conference Highlights:

Victor Peng, Xilinx President and CEO, said "We were able to achieve the mid-point of our revenue guidance for the first fiscal quarter, despite export control restrictions that impacted shipments to one of our customers in China. We were able to generate $850 million in revenues for the quarter, representing 24% year over year growth. This clearly demonstrates our focused execution and is strong evidence of the resilience and diversity of our business model. We also had strong profitability with 27% growth in earnings per share during the same period. Revenues from our Zynq products grew 68% year over year and represented nearly a quarter of overall revenues, as we continued our transformation to a platform company." Saw continuing high demand from largest customers for 5G deployments.

In May Xilinx suspended all shipments to Huawei, but since then started shipping the lower-end products again. Cannot predict government action.

A dividend was declared of $0.37 per share to holders at close on August 7, payable on August 27.

In the quarter Xilinx announced a definitive agreement to acquire Solarflare Communications, a leading provider of high-performance, low latency networking solutions for customers spanning FinTech to cloud computing. This acquisition will enable Xilinx to combine its industry leading FPGA, MPSoC and ACAP solutions with Solarflare's high-speed network interface card (NIC) technology and Onload application acceleration software, to enable a new converged SmartNIC platform. Expected to close in fiscal Q2.

During the first quarter, Xilinx entered into an agreement to acquire NGCodec, a powerful, differentiated video encoding technology provider that, when paired with a Xilinx acceleration platform, delivers greater visual quality at lower bandwidth requirements than any other solution in the market. Twitch Interactive, an Amazon subsidiary, achieved 30X greater performance over CPUs with a Xilinx powered solution using a VP9 encoder IP from NGCodec. The transaction closed in the first week of the second quarter.

During the quarter (Q1) Xilinx announced that it has started sampling its 7nm Versal AI Core series and Versal Prime series devices to key customers through its early access program. Versal is the industry's first adaptive compute acceleration platform (ACAP), a revolutionary new category of heterogeneous compute devices with capabilities that far exceed those of conventional CPUs, GPUs, and FPGAs. Built on TSMC's 7nm FinFET process technology, Versal is the first platform to combine programmability with domain-specific hardware acceleration.

Non-GAAP results: net income $249 million, up 3% sequentially from $242 million, and up 30% y/y from $192 million. Diluted EPS $0.97, up 3% sequentially from $0.94, and up 29% y/y from $0.75.

Revenues by end market (changed end market categories):

Industrial, Aerospace & Defense and TME 39% of total for $332 million, up 10% y/y.

Automotive, Broadcast, and Consumer 15% of total for $128 million. Up 10% y/y. Weaker than expected China auto sales.

Wired and Wireless 41% of total for $349 million. Up 66% y/y. 5G is ramping in Korea and now in China, but hurt by less Huawei business.

Data Center 5% of total for $42 million. Down 13% y/y. Hurt by less Huawei business.

Channel 0% of total, or $0 million.

Revenue by product type:

69% Advanced products: UltraScale, Virtex-7, Kintex™-7, Artix™-7, UltraScale+ (these are at 28 nm, 20 nm, and 16 nm).

31% Core products. All the older, standard products.

Cash, equivalents and long-term investment balance was $2.94 billion, down sequentially from $3.18 billion. $1.25 billion long-term debt. Operating cash flow was $298 million. Depreciation $24 million. Capital expenditures $29 million. $445 million stock was repurchased. Stock based compensation expense was $43 million. The dividend payment required $94 million.

Revenue by geography: North America 23%; Asia 51%; Europe 18%; Japan 8%. Asian revenue was 45% year earlier.

Cost of revenues (GAAP) was $287 million, leaving gross profits of $563 million. Operating expense total was $312 million, consisting of: research and development $204 million; selling, general and administrative $107 million; and amortization $0.4 million. Leaving operating income of $251 million. Interest and other income was $12 million, and the income tax provision was $21 million.

Q&A:

Huawei significance as customer? It is very important. We have no 10% customers. We hit the midpoint of the guidance because we were able to ship for half the quarter. But there was impact.

We have a lot of growth drivers, including 5G, aside from Huawei. So we are moving forward with our investments.

The non-GAAP gross margin guide is basically flat, based on the expected mix. We still have a very meaningful wireless business, without Huawei.

Datacenter makeup, traditional v. new? Huawei has a significant cloud business, they are not just wireless. On a percentage basis datacenter is a big growth driver. We see it as a big opportunity for growth. We already have a good backlog for Q2. The new devices are driving datacenter revenue growth.

The Asia region growth is largely due to 5G deployment.

ASIC displacement issue? We are planning on the fact we will see some displacement, it is factored into guidance.

Industrial did see some small inventory build in Q1. A significant customer is pausing TME buys in Q2, we expect it to bounce back in the second half of the year.

We don't believe customers can just swap out of Huawei, thus keeping up demand for us.

Did Huawei build inventory of your product prior to the export ban? We did not see that. To do 5G you need our most advanced parts, which we know how they shipped.

In automotive we are seeing good design-in to new systems, so long term we still see growth in the segment.

5G in America or Japan? Japan is going to start. North America is moving more slowly, nothing immanent.

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