Analyst Conference Summary

conference date: January 28, 2020 @ 2:00 PM Pacific Time
for quarter ending: December 31, 2019 (third fiscal quarter 2020, Q3)

Forward-looking statements

Overview: Another Trump casualty. Slower 5G build and worldwide trade made it a difficult quarter, only hit midrange of guidance.

Basic data (GAAP):

Revenue was $723 million, down 13% sequentially from $833 million and down 10% from $800 million in the year-earlier quarter.

Net income was $162 million, down 29% sequentially from $227 million, and down 32% from $ million year-earlier.

Diluted EPS (earnings per share) were $0.64, down 28% sequentially from $0.89, and down 31% from $0.93 year-earlier.

Guidance:

Fiscal fourth quarter (March 2020 quarter) revenue is expected to grow 6% on a sequential basis as a result of strength in core vertical markets and a moderate resumption of growth in the data center business. Greater than expected weakness in the wired and wireless business expected due to a slowdown in both 5G and wired infrastructure deployments and ongoing global trade headwinds. Non-GAAP gross margin is expected to improve.

Conference Highlights:

Victor Peng, Xilinx President and CEO, said "As expected, our fiscal third quarter was a challenging quarter and our revenue came in near the midpoint of our guidance. Given the revenue headwinds we experienced during the quarter, we took actions to reduce our operating expenses which delivered earnings greater than our expectations. We expect some of these headwinds in our wired and wireless business to be persistent, resulting in revenue growth lower than our prior expectations. We are, therefore, taking several actions to further reduce our operating expenses this quarter. These are difficult actions, but we believe the decisive steps we are taking to reset our operating expenses will allow us to drive our growth strategy and technology roadmap while enabling a more appropriate level of operating profitability." Xilinx continues to see great long term opportunities.

Xilinx expects to reduce its global workforce by approximately 7%. Other measures being taken to reduce operating expenses include reducing discretionary spend and targeting additional operating efficiencies across the business. As a result of these measures, Xilinx expects to generate non-GAAP cost and operating expense savings of approximately $17M to $20M in Q4. Xilinx expects to incur a GAAP pre-tax charge of approximately $25M to $30M in Q4 of fiscal 2020 primarily related to severance pay expenses.

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, due stockholders of record on Feb. 11 and payable on Feb. 20, 2020.

In December, Xilinx announced that Vitis AI was available for download. Combined with the Vitis unified software platform, Vitis AI empowers software developers with deep learning acceleration. Vitis AI integrates a domain-specific architecture (DSA) and configures Xilinx hardware to be optimized and programmed using industry-leading frameworks such as TensorFlow and Caffe.

Xilinx announced Vitis, a unified software platform that enables a broad new range of developers - including software engineers and AI scientists - to take advantage of the power of hardware adaptability. The Vitis unified software platform automatically tailors the Xilinx hardware architecture to the software or algorithmic code without the need for hardware expertise.

Versal production shipments are expected in FY 2021, but samples are already generating revenue and feedback is very positive.

Non-GAAP results: net income $171 million, down 29% sequentially from $240 million, and down 28% y/y from $237 million. Diluted EPS $0.68, down 28% sequentially from $0.94, and down 26% y/y from $0.92.

Revenues by end market (changed end market categories):

Industrial, Aerospace & Defense and TME 40%, down 10% y/y.

Automotive, Broadcast, and Consumer 19%. Up 10% y/y.

Wired and Wireless 31% of total. Down 18% y/y. Baseband ASIC transition hurt.

Data Center 9%. Up 8% y/y. But that was better than expected.

Channel 1% of total.

Revenue by product type:

70% Advanced products: UltraScale, Virtex-7, Kintex™-7, Artix™-7, UltraScale+ (these are at 28 nm, 20 nm, and 16 nm). 61% y/y growth for Zinq family.

30% Core products. All the older, standard products.

Cash, equivalents and long-term investment balance was $2.43 billion, down sequentially from $2.52 billion. $1.25 billion long-term debt. Operating cash flow was $324 million. Depreciation $26 million. Capital expenditures $34 million. $261 million stock was repurchased. Stock based compensation expense was $50 million. The dividend payment required $93 million.

Revenue by geography: North America 28%; Asia 48%; Europe 16%; Japan 8%.

Cost of revenues (GAAP) was $240 million, leaving gross profits of $483 million. Operating expense total was $324 million, consisting of: research and development $212 million; selling, general and administrative $110 million; and amortization $3 million. Leaving operating income of $166 million. Interest and other income was $6 million, and income tax was $4 million.

Q&A:

Baseband transition to ASIC completed? There was an impact in the last quarter, in the current quarter the problem is a slowdown in deployments across multiple geographies. Huawei is still a big headwind. Even if it is taken off Trump's list, revenue is not likely to return to prior levels.

Wireless program delay at a customer? It was not as big of an issue as deployment slowdown over multiple OEMs overall.

5G outlook changed? Huawei is significant, but even aside from that 5G is a much larger opportunity than 4G.

RFSoC? Mainly carriers did their initial deployments and are now pausing, not related to any particular technology. RFSoC, we are in the early stages of deployment.

We have early development boards out for Versal. Lots of evaluations, not just datacenter. For instance high-res cameras and image recognition.

Restructuring? RIF plus attrition. Does not think this will degrade the long-term opportunity. We are doing a 7 nm tape out in the quarter, which will offset some of the restructuring savings.

Cannot predict when a second wave of 5G deployments will take place.

16 nm chips is setting records. We outdid the competition. 7 nm is just in the sampling stage, but we expect demand to eventually be strong.

Solarflare had record, if modest, revenue in the quarter.

Competition with Intel? Our core market growth has accelerated, partly from share gain. Xinq is very strong. It takes time to play out in some markets. We expect to continue to take share.

Great than 10% customer in the quarter? We have no meaningful revenue from Huawei, and we took it out of guidance last quarter. We do not share details on customers.

OpenIcon Analyst Conference Summaries Main Page

Search

More Analyst Conference Pages: