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Xilinx (XLNX)

Q3 2011 Earnings Call

January 19, 2011 5:00 pm ET


Company Speaker -

Jon Olson - Chief Financial Officer, Principal Accounting Officer and Senior Vice President of Finance

Moshe Gavrielov - Chief Executive Officer, President and Director


Shawn Webster - Macquarie Research

Ian Ing - Gleacher & Company, Inc.

Patrick Newton - Stifel, Nicolaus & Co., Inc.

Uche Orji - UBS Investment Bank

Hans Mosesmann - Raymond James & Associates

Sandeep Shyamsukha - Auriga USA LLC

Glen Yeung - Citigroup Inc

James Schneider - Goldman Sachs Group Inc.

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Christopher Danely - JP Morgan Chase & Co

Adam Benjamin - Jefferies & Company, Inc.

Brendan Furlong - Miller Tabak & Co., LLC

Sumit Dhanda - Citadel Securities, LLC

Srini Pajjuri - Credit Agricole Securities (USA) Inc.

Ruben Roy - Pacific Crest Securities, Inc.

John Pitzer - Crédit Suisse AG

Sukhi Nagesh - Deutsche Bank AG

Mahesh Sanganeria - RBC Capital Markets, LLC

Ambrish Srivastava - BMO Capital Markets U.S.

Timothy Luke - Barclays Capital



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Good afternoon. My name is Kristen, and I will be your conference operator. I would like to welcome everyone to the Xilinx Third Quarter Fiscal Year 2011 Earnings Release Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. Rick Moshe [ph] [09:08]. Thank you. You may begin your conference.

Company Speaker

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 December 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 the 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. During today's commentary, I will review our December quarter business results. I will conclude my remarks by providing guidance for the March quarter.

December quarter sales decreased 8% sequentially to $567 million, in line with the revised guidance we published on December 21. Turns business for the quarter was 44%, down from 48% in the prior quarter. Gross margin of 65.7% was slightly higher than guided, primarily due to proactive cost reduction efforts at the company as well as more favorable product and customer mix. This is up from 64.1% in the same quarter of the prior year and represents the fifth consecutive quarter of improvement.

Operating expenses of $189 million were inclusive of $4 million in restructuring charges and were slightly lower than guided due primarily to lower variable expense associated with lower sales.

Operating income was $184 million or 32.4% of sales in the December quarter. This is up from 26.6% in the same quarter of the prior year. This operating income performance represents a year-over-year increase of 34%, over 3x the rate of sales increase during the same period. This speaks to the aggressive cost reduction efforts and spending discipline undertaken by the company over the past year.

New product sales decreased 10% sequentially in the December quarter to 43% of sales, driven primarily by Wireless Communications sales declines for Virtex-5. Sales from mainstream and base products both declined sequentially. Sales from all geographies declined sequentially during the quarter. European sales were down 22% sequentially, driven primarily by declines from Wireless Communications. But Wired Communications, audio/video broadcast and test and measurement were also weaker than expected.

North American sales declined 7% due to declines in most end markets. Asia Pacific sales were down 1% sequentially as Wireless sales decreases were partially offset by increases in Wired Communications and Industrial. Sales to Japan decreased 3% sequentially with increases from Communications, offset by Industrial and Consumer applications.

From an end market perspective, Communications sales decreased 14% sequentially, driven almost entirely by Wireless Communications. Industrial and other sales decreased 2% sequentially as increases in Defense sales were offset by decreases in test and measurement and Industrial, Scientific and Medical. Consumer and Automotive sales decreased 6% sequentially due to declines from Consumer and audio/video broadcast, while Automotive increased sequentially. Data Processing sales were down as expected during the quarter with declines coming from computer and Data Processing and Storage applications.

Net income for the quarter was $152 million or $0.58 per diluted share. Other income and expense was a net expense of $3 million. This is better than the $9 million net expense that we have forecasted, primarily due to the settlement of a previously written off investment and other investment gains.

Operating cash flow for December quarter was $333 million before $15 million in CapEx, the highest quarterly operating cash flow figure Xilinx has ever reported. As we discussed with you during the October earnings call, we temporarily extended credit terms to our primary distribution partner in exchange for a significant increase in technical selling resources designed to broaden the reach to customers worldwide. The impact to Xilinx was a significant increase in the receivables in the September quarter, which negatively impacted our cash flow. As we begin to return to historic credit terms, we will begin to experience a positive impact to cash flow stemming from a reduction in receivables as we did in the December quarter. We now expect the fiscal year '11 operating cash flow to exceed $650 million.

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