Analyst Conference Summary

conference date: July 30, 2020 @ 2:00 PM Pacific Time
for quarter ending: June 30, 2020 (first fiscal quarter 2021, Q1)

Forward-looking statements

Overview: Could have been worse, given the economy. Revenue was at midpoin of revised guidance.

Basic data (GAAP):

Revenue was $727 million, down 4% sequentially from $756 million and down 14% from $850 million in the year-earlier quarter.

Net income was $94 million, down 42% sequentially from $162 million, and down 61% from $241 million year-earlier.

Diluted EPS (earnings per share) were $0.38, down 42% sequentially from $0.65, and down 60% from $0.95 year-earlier.

Guidance:

For the September quarter (fiscal Q2) Xilinx expects:
revenue between $730 and $780 million.
Gross margin 68.5% to 71.5% GAAP; 69.5% to 72.5% non-GAAP.
Op ex $326 to 340 million GAAP; $322 to $336 million non-GAAP.
Other expense $15 million.
Tax rate 0% to 4%.

Conference Highlights:

Victor Peng, Xilinx President and CEO, said "Our fiscal Q1 revenue was well above the initial guidance despite ongoing business challenges from COVID-19 and global trade issues. Results were driven by strength in the Data Center Group (DCG), Wired and Wireless Group (WWG), and the Industrials market, offsetting expected headwinds in consumer-oriented end markets, including Automotive and Broadcast. The outperformance was due to a combination of strength in multiple end markets, as well as some order acceleration driven by recent additional U.S. government trade restrictions on sales of certain Xilinx products to some customers based, or with operations, in China." Supply chain is doing well, non-Chinese employees are working from home, but there has been some demand impact. Believes in strongest competive position ever based on new products.

In Q2 2020 Xilinx released the new Virtex UltraScale+ VU57P FPGA for latency-sensitive workloads where fast data throughput and fast memory are key requirements. Xilinx issued $750 million in 2030 Notes with net proceeds to be used for general corporate purposes, which lowered its cost of capital.

In May 2019 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 $0.38, due stockholders of record on August 13, 2020 and payable on September 3, 2020.

Vitis AI is 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.

Alveo U25 SmartNIC is the first internally developed SmartNIC solution. SmartSSD is also gaining traction with hyperscale customers.

Versal production shipments are expected in FY 2021, but samples are already generating revenue and feedback is very positive. In April 2020 Xilinx announced a strategic engagement with Samsung on a second generation 5G radio design that includes beamforming technology leveraging the 7 nm Versal platform.

Non-GAAP results: net income $160 million, down 17% sequentially from $193 million, and down 36% y/y from $249 million. Diluted EPS $0.65, down 17% sequentially from $0.78, and down 33% y/y from $0.97

Revenues by end market:

Industrial, Aerospace & Defense and TME 45% of total, down 2% y/y. Defense was relatively strong, saw a burst of medical device orders.

Automotive, Broadcast, and Consumer 12% of total. down 29% y/y. Seeing some signs of auto recovering in 2H.

Wired and Wireless 32% of total. Down 33% y/y.

Data Center 12%. Up 104% y/y. Increased hyperscale adoption.

Channel -1% of total.

Revenue by product type:

68% Advanced products: UltraScale, Virtex-7, Kintex™-7, Artix™-7, UltraScale+ (these are at 28 nm, 20 nm, and 16 nm).

32% Core products. All the older, standard products.

Cash, equivalents and long-term investment balance was $3.0 billion, up sequentially from $2.27 billion. $1.5 billion long-term debt, up from $1.25 billion. Operating cash flow was $245 million. Depreciation $32 million. Capital expenditures $15 million. $54 million stock was repurchased. Stock based compensation expense was $50 million. The dividend payment required $92 million.

Revenue by geography: North America 26%; Asia 54%; Europe 13%; Japan 7%.

Cost of revenues (GAAP) was $226 million, acquisition related amortization $7 million, leaving gross profits of $494 million. Operating expense total was $318 million, consisting of: research and development $210 million; selling, general and administrative $105 million; and amortization $3 million. Leaving operating income of $176 million. Interest and other expense was $12 million, and income tax was $69 million.

Q&A:

CIV rule change impact? It is hard to quantify, perhaps low tens of millions. In Q2 we see little further effect.

RFSOC ramp opportunity? That is a significant win with a North American deployment. It should continue to deliver good revenue.

Datacenter business driver? Smart NIC as well as compute and Cintex adoption. It might be bursty quarter to quarter, but looks good. Smart NIC hyperscale and enterprise opporutnity is strong, they need higher bandwidth, offload and processing. SolarFlare already had a position in financial technology, now branching out.

ASIC transition behind company statement? That was for 5G infrastructure designs. Not saying we will never see an ASIC transition again.

We expect rollouts of RFSOC in all geographic markets.

We are asking for licenses from the government for CIV, we have gotten some, we hope for more. It is not just Chinese companies, it includes multinationals with production in China.

Split for datacenter use? Most datacenters do not continously buy, they do a buy and then it is a while before another order. Networking v. acceleration, we don't break out, but we saw good wins in both areas. Right now a lot of good activity for smart NIC.

7 nm migration? Versal production expected at the end of this year. Multiple customer engagements. So we are just beginning to transition to 7 nm. We are still getting design wins at 16 nm. But our advantage is architectural innovation.

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