Xilinx (XLNX)

Q4 2011 Earnings Call

April 27, 2011 5:00 pm ET

Executives

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

Rick Muscha -

Moshe Gavrielov - Chief Executive Officer, President and Director

Analysts

David Wong - Wells Fargo Securities, LLC

Shawn Webster - Macquarie Research

Glen Yeung - Citigroup Inc

James Schneider - Goldman Sachs Group Inc.

Christopher Danely - JP Morgan Chase & Co

Srini Pajjuri - Credit Agricole Securities (USA) Inc.

Vivek Arya - BofA Merrill Lynch

John Pitzer - Crédit Suisse AG

Timothy Luke - Barclays Capital

Ambrish Srivastava - BMO Capital Markets U.S.

Presentation

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Operator

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Good afternoon. My name is Kristen, and I will be your conference operator today. At this time, I would like to welcome everyone to the Xilinx Fourth Quarter Fiscal Year 2011 Earnings Release Conference Call. [Operator Instructions] I would now like to turn the call over to Rick Muscha. Mr. Muscha, you may begin your conference.

Rick Muscha

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 March quarter 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 John Olson.

Jon Olson

Thank you, Rick. During today's commentary, I will review our March quarter and fiscal year 2011 business results. I will conclude my remarks by providing guidance for the June quarter.

Fiscal year 2011 was a record year for Xilinx on a number of fronts. Sales of $2.4 billion increased 29% from fiscal year 2010 and were driven by strong double-digit sales increases across all of our end markets. Gross and operating margins also reached record levels of 65.4% and 33.6% in fiscal 2011, up from 63.4% and 23.6%, respectively, in the prior fiscal year. Improvements in our profitability were a direct result of sales growth as well as continued focus on efficiencies and cost reduction by the company.

During the fiscal year, Xilinx generated over $720 million in operating cash flow, up from $554 million in the previous year. We repurchased $469 million in stock and paid shareholders $169 million in dividends during the year. In this recent quarter, we increased our quarterly dividend by $0.03 per share to $0.19 per share, continuing our commitment in returning shareholder value. This strategy is a clear competitive differentiator.

During the March quarter, Xilinx sales were $587.9 million, an increase of 4% sequentially, outpacing the competition in capturing PLD market share. Gross margin was 65.3%, slightly higher than guided, due primarily to better-than-anticipated yield on Virtex-6.

Operating margin was $181 million or 30.8% for the quarter and up 16% from the same quarter of the prior year. Operating expenses were $202.9 million, $8 million more than guided due primarily to higher-than-expected legal expenses associated with patent defense activities, acquisitions and contributions to support the disaster in Japan.

New Product sales increased 10% sequentially during the quarter led by Virtex-5 increases. Mainstream Products increase 1% sequentially, and Base Products declined 5% sequentially.

European sales were particularly strong during the March quarter, increasing 40% sequentially to represent 30% of total sales. With the exception of consumer, all secondary end markets increased sequentially with Wireless Communications posting the largest incremental gain. Asia-Pacific sales decreased 5% sequentially to 35% of the total sales due primarily to decreases from wired and Wireless Communications. North America sales decreased 8% sequentially to 27% of sales driven primarily by Communications, defense and test and measurement declines. Lastly, sales from Japan declined 7% sequentially to 8% of total sales primarily related to declines from Communications and Consumer.

With regards to recent tragedy in Japan, we are very thankful that all of our employees are safe. From a business perspective, the impact was immaterial to the guidance we provided at the beginning of the March quarter. We believe that we have sufficient inventory in place to minimize near-term disruptions to the supply chain. In addition, we have qualified additional suppliers as necessary and we'll continue to carefully manage customer demand to help mitigate future disruption.

Let me now turn to the discussion of end markets. Communication sales increased 8% sequentially to represent 47% of total sales. Strong wireless sales during the quarter significantly outpaced a slight decline in Wired Communications sales. Industrial and other sales decreased 1% for the quarter to represent 32% sales driven by defense and test and measurement while Industrial/Scientific/Medical increased sequentially. Consumer and Automotive sales also declined 1% sequentially to 14% of total sales due to declines in Consumer that were nearly offset by sales increases from Automotive and audio/video broadcast. Lastly, Data Processing increased 12% sequentially to represent 7% of total sales driven by increases from both storage and computing and Data Processing.

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