Analyst Conference Summary

conference date: July 17, 2013 @ 2:00 PM Pacific Time
for quarter ending: June 29, 2013 (first fiscal quarter 2013)

Forward-looking statements

Overview: Mixed picture, with revenue up nicely sequentially but down 1% from the year-earlier quarter. Earnings were strong.

Basic data (GAAP):

Revenue was $579.0 million, up 9% sequentially from $532.2 million, but down 1% from $582.8 million in the year-earlier quarter.

Net income was $157.0 million, up 20% sequentially from $130.6 million, and up 21% from $129.8 million year-earlier.

Diluted EPS (earnings per share) were $0.56, up 19% sequentially from $0.47 and also up 19% from $0.47 year-earlier.

Guidance:

September quarter (fiscal Q2) sales are expected to be up 0% to 3% sequentially, with a gross margin around 69%. Operating expenses expected near $225 million. Other expense net around $9 million. Tax rate 14%. Share count (diluted) near 284 million.

Fiscal year op ex $495 million R&D, $385 million SG&A, $10 amortization, total $890 million for the fiscal year, due to increased revenue.

Conference Highlights:

A quarterly cash dividend of $0.25 will be payable on August 28, 2013 to stockholders of record of August 7, 2013.

Better than expected PLD (programmable logic device) sales were broadly based, led by new products. Aerospace and defense, as well as wired communications, had particularly strong growth. Gross margin set a new record at 69%, with an operating margin of 33%. Margin improvements reflected expense discipline and an improved product mix.

Sales of newer 28 nm products exceeded $50 million, and the first 20 nm product has been taped out. In addition will create 16 nm FinFET FPGA devices with TSMC for production in 2014.

Revenues by end market: Communications and Data Center 44%, with wireless sales growth contrasting with flat wireless sales; Industrial, Aerospace & Defense 37%; Broadcast, consumer and automotive 16%; Other 3%.

Revenue by product:

30% New products: Virtex-7, Kintex™-7, Artix™-7, Zynq™-7000, Virtex-6, Spartan-6
36% Mainstream products: Virtex-5, Spartan-3 and CoolRunner™-II
30% Base products: earlier Virtex, Spartan-II, Spartan, CoolRunner and XC9500
4% Support products: Configuration solutions, HardWire, Software & Support/Services

Sales from all geographies increase sequentially.

Cash, equivalents and long-term investment balance was $3.5 billion, up $110 million sequentially, with no debt excepting $926 million in convertible debentures. Operating cash flow was $144 million, down sequentially from $174 million and down from $163 million year-earlier. $11 million for capital expenditures and $14 million for depreciation. $11 million was paid out in dividends. Convertible note dilution was $11 million, due to higher stock price.

Cost of revenues (GAAP) was $179.7 million, leaving gross profits of $399.3 million. Operating expense total was $206.3 million, consisting of: research and development $111.5 million; selling, general and administrative $92.4 million; amortization $2.4 million. Leaving operating income of $192.9 million. Interest and other expense was $9.9 million, and the income tax provision was $26.0 million.

In the September quarter new 28 nm products are expected to continue to drive growth, with mainstream products flat. Communications flat with wireless up and wired down. China LTE should contribute materially to sales in December quarter. Industrial, aerospace and defense expected up. Broadcast down, consumer and automotive up, for overall flat segment. 28 nm device revenue should exceed $60 million.

Believes new products position Xilinx to gain market share against traditional PLDs and ASICs (application specific ICs).

Q&A:

Gross margins going forward, beyond guidance? We clearly have been focusing on margin improvements. Some came earlier than anticipated. We expect it to be around 69% for the next few quarters. The variance would be from product mix.

Newer process nodes? 28 nm is the broadest and deepest node we have ever had. It benefits some applications more than others, with communications and asic prototyping benefiting the most so far. We expect wired communications to pick up further, with other markets benefiting over time, depending on development cycles.

Wireline color? Increases in wireline and data center customers were broadly based. 75% of our top 20 companies showed an increase this quarter. We are getting a large number of design wins in 40 Gb and 100 Gb.

Linearity in quarter? From a historic perspective the quarter was pretty linear. We saw no falloff in June.

R&D expense as a % of revenue? In second half of year operating expense should be close to flat. The underlying R&D expense would go up, but variable expenses like bonuses would decrease.

TD LTE opportunity timing? We always said China business would be second half phenomena for us. In June quarter we shipped into prototypes and early production for trials. The process is moving along with bids. We believe 200,000 base stations will be deployed. We are confident with our design wins with all the manufacturers, and see a revenue ramp beginning in September or October.

Buy backs? The diluted share increase has been mainly from convertibles. We are committed to the dividend program and buy backs.

Concerns about skipping 20 nm? We expect our next offerings to split between 20 nm and 16 nm. The 16 nm will be more expensive, so will not be for cost-sensitive applications. Other companies may have different strategies. We believe 20 nm will be a huge benefit over 28 nm, and will be a very viable node for FPGAs.

Defense large single orders? We saw two separate approximately $10 million unexpected orders, one in defense, one in base products. We believe defense will increase again this quarter, so perhaps sequestration is not going to have the negative impact on us that might have been expected.

Market share potential in China TD LTE? We are confident that it will be a lot better than it was in the previous node. Kintex is designed to address the wireless market. Most China LTE will be at 28 nm, with only some at 40 nm.

Moving to smaller process nodes mainly give you lower power requirements and higher performance, but not a price reduction. 16 nm is more complicated than 20 nm, so will be a cost issue.

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