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Xilinx CEO Discusses F2Q2011 Results - Earnings Call Transcript

Xilinx CEO Discusses F2Q2011 Results - Earnings Call Transcript

Xilinx Inc. (XLNX)

F2Q2011 Earnings Call

October 20, 2010 5:00 PM ET

Executives

Rick Oshe – Investor Relations

Moshe Gavrielov – Chief Executive Officer

Jon Olson – Chief Financial Officer

Analysts

James Schneider – Goldman Sachs

Uche Orji – UBS

Glen Yeung – Citi

Mahesh Sanganeria – RBC Capital Markets

Shawn Webster – Macquarie

Tim Luke – Barclays Capital

Adam Benjamin – Jeffries & Company

Tristan Gerra – Robert W. Baird

TheStreet Recommends

Chris Danely – J.P. Morgan

Daniel Berenbaum – Auriga USA

Srini Pajjuri – CLSA Securities

David Wong – Wells Fargo

Presentation

Operator

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Good afternoon. My name is Kerry and I will be your conference operator. I would like to welcome everyone to the Xilinx Second Quarter Fiscal Year 2011 Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. (Operator Instructions) Please limit your questions to one to insure that management has adequate time to speak to everyone.

I would now like to turn the call over to [Rick Oshe]. Thank you. Mr. Oshe, you may begin your conference.

Rick Oshe

Well, thank you and good afternoon. With me are Moshe Gavrielov, CEO and Jon Olson, CFO. We will provide a financial and business review of the September quarter and then we’ll open the call for questions.

Let me remind everyone that during our conference call today, we may make projections or other forward-looking statements regarding future events or future financial performance of the company. We wish to caution you that such statements are predictions based on information that is currently available and that actual results may differ materially. We refer you to the documents the company files with the SEC including our 10-Ks, 10-Qs and 8-Ks. These documents contain and identify important factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements.

This conference call is open to all and is being webcast live. It can be accessed from our Xilinx Investor Relations’ website. Let me now turn the call over to Jon Olson.

Jon Olson

Thank you, Rick. Before I begin my remarks about the quarter, I would like to formally introduce Rick Oshe, our new leader of Investor Relations. Rick has been with Xilinx for 10 years in a variety of financial management positions, most recently Corporate Planning. He has strong finance knowledge as well as a solid understanding of products and the industry.

I believe he will be a strong contributor to our Investor Relations group. And you can expect the same high quality of support that you are accustomed to from both Rick and Lori Owen who remains a key interface to you all.

During today’s commentary, I will review our September quarter business results. I will conclude my remarks by providing guidance for the December quarter. September quarter sales increased 4% sequentially to a record $620 million. The September quarter was a strong quarter setting records for both sales and operating income.

Turns business for the quarter was 48%, down from 53% in the prior quarter. The lower turns number was indicative of a strong backlog going into the quarter with the turns level resulting close to the level we had anticipated. Supply constraints ease during the quarter and Xilinx exited the quarter with reduced delinquencies and lower overall lead times.

Gross margin at 65.6% was slightly higher than guided primarily due to both yield improvement and mix towards more profitable products. This is up from 61.9% in the same quarter of the prior year.

Operating expenses of $184 million represented 30% of sales down from 42% of sales in the same quarter of the prior year. This resulted in record operating income of $223 million, an increase of 170% from the same quarter of the prior year. This compares to a 49% increase in sales during the same time period.

Operating margin of 36% was up from 20% a year ago and a new record for Xilinx. New product sales increased 17% sequentially in the September quarter, 34% of sales driven by exceptionally strong growth from the Virtex-6 and Spartan-6 families. Combined sales from these families nearly doubled sequentially. Virtex-5 sales -- excuse me -- more than doubled sequentially. Virtex-5 sales also increased during the quarter. Sales from mainstream and base products both declined sequentially.

Japan was our strongest geography during the quarter with sales increasing 22% sequentially, driven by consumer and wired communications. Asia-Pacific sales increased 7% sequentially due primarily to increases from communications and data processing.

European sales increased 4% sequentially, driven by wireless and industrial and other. North American sales decreased 3% sequentially with declines from defense and communications more than offsetting increases in audio/video broadcast and test and measurement.

From an end market perspective, communication sales increased 5% sequentially driven by increases in wireless sales. Wireline sales decreased sequentially during the quarter.

Industrial and other sales were essentially flat as decreases in defense offset were offset increases in test and measurement. Consumer and automotive sales were up 7% sequentially, driven by increases in consumer and audio/video broadcast and data processing. Sales increased 6% driven by computer and data processing applications.

Net income for the quarter was $171 million or $0.65 per diluted share. Other income and expense was a net expense of $3 million and included approximately $4 million of investment gains.

Operating cash flow for the September quarter was $42 million before $15 million in CapEx. Cash flow was impacted primarily by an increase in receivables and to a lesser extent an increase in inventories. As we reported in our last 10-Q filing, we are temporarily providing extended payment terms to our primary distribution partner in exchange for a significant increase in technical selling resources designed to broaden the reach to customers worldwide, consistent with the sales strategy of the company.

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