Analyst Conference Summary

conference date: October 25, 2017 @ 2:00 PM Pacific Time
for quarter ending: September 30, 2017 (second fiscal quarter 2018, Q2)

Forward-looking statements

Overview: continued moderate revenue growth.

Basic data (GAAP):

Revenue was $620 million, up 1% sequentially from $615 million and up 7% from $579 million in the year-earlier quarter.

Net income was $168 million, up 0% sequentially from $167 million, but up 2% from $164 million year-earlier.

Diluted EPS (earnings per share) were $0.65, up 3% sequentially from $0.63, and up 7% from $0.61 year-earlier.

Guidance:

For the December quarter (fiscal Q3 2018) sales are expected in the $615 to $645 million range. Gross margin 69% to 71%. Operating expense about $260 million. Other income $4 million Tax rate 11% to 14%.

255 to 260 million shares expected end of year.

In the quarter expects industrial, A&D to increase; communications and data center flat; broadcast, consumer and automotive to decline.

On track for annual guidance for the fiscal year ($2.5 billion in revenue).

Conference Highlights:

Moshe Gavrielov, Xilinx President and CEO, said "Revenues from Advanced Products continued to be solid, increasing 21% from the same quarter a year ago, supported by accelerated growth from our highly innovative Zynq SoC platform, as well as from our industry-leading 20nm and 16nm technology nodes. At the 16nm technology node, we have shipped 34 unique products to well over 900 customers, denoting a sequential increase of 50% in the number of products and 75% increase in the number of customers."

The dividend will be $0.35, for shareholders of record on November 15, 2017, and payable on December 6, 2017.

The backlog was considerably up at the end of the quarter.

16 nm Zynq and Virtex products are now shipping to over 530 customers. The Ultrascale+ family is expanding to include High-Bandwidth memory (HBM). FPGAs from Xilinx are being deployed by Baidu, Amazon AWS, Huawei, and Alibaba to accelerate cloud services. Zynq RFSoC for future 5G deployment is sampling.

The first CCIX (Cache Coherent Interconnect for Accelerators) at 7 nm test chips should be available in 2018, in collaboration with ARM, Cadence and TSMC.

Revenues by end market:

Communications and Data Center 37% of total.

Industrial, Aerospace & Defense 45%, or $278 million, a record, up 17% y/y.

Broadcast, consumer and automotive 18% of total.

Revenue by product type:

52% Advanced products: UltraScale, Virtex-7, Kintex™-7, Artix™-7, UltraScale+ (these are at 28 nm, 20 nm, and 16 nm)

48% Core products. So all the older, standard products.

70.2% gross margin, up sequentially from 68.8%. 29.9% operating margin.

Cash, equivalents and long-term investment balance was $3.66 billion, up sequentially from $3.65 billion. $1.74 billion long-term debt. Operating cash flow was $202 million. Depreciation $12 million. Capital expenditures $12 million. $170 million of stock was repurchased. Stock based compensation expense was $36 million. The dividend payment required $87 million.

Revenue by geography: North America 31%; Asia 40%; Europe 20%; Japan 9%.

Cost of revenues (GAAP) was $185 million, leaving gross profits of $435 million. Operating expense total was $250 million, consisting of: research and development $158 million; selling, general and administrative $91 million; and amortization $0.5 million. Leaving operating income of $185 million. Interest and other expense was $2 million, and the income tax provision was $19 million.

Q&A:

Lower than expected sales in the datacenter market despite indicators of adoption of cloud acceleration? The segment came in as expected. Within the segment, datacenter was up, other communications were down. We are at the very early stages of deployment; it will take years to get to the $200 to $300 million in calendar 2020. The main impediment is getting software developers to use it.

Can you compare your products with Nvidia's technology for AI? Nvidia recognized this market earlier, so now is seeing fast growth, but it took several years. Software programming was already better for GPUs. Our advantage can provide superior performance with lower power requirements in a set of applications. For cloud farms, power is a big issue.

Accounts receivable increase? It is just timing of shipments in the quarter. We are highly confident it is all collectable.

Wireline? It has been flattish to down slightly. Expect it to stay about the same.

Broadcast, consumer and automotive drivers? All three grew in the reported quarter. Automotive is expected to grow this quarter, but the other two will shrink. They are not really connected, they could be called the "other" category. Automotive is driven by driver assistance technology. Broadcast is a small market for us.

Backlog details? It is up significantly in the quarter. We have an unpredictable pattern in any given quarter. Sometimes the book fills up towards the end of the quarter. Just a timing thing.

Industrial growth sustainability? The demand environment is stronger. We have had a broad set of design wins, which are now being converted into revenue, mostly 28 nm Zynq designs. We are seeing fewer ASSP offerings in this market because it is a fragmented market. Our competitive position is stronger than it has been.

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