Xilinx's CEO Discusses Q4 2012 Results - Earnings Call Transcript

Xilinx (XLNX)

Q4 2012 Earnings Call

April 25, 2012 5:00 pm ET

Executives

Rick Muscha -

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

Moshe N. Gavrielov - Chief Executive Officer, President and Director

Analysts

Romit J. Shah - Nomura Securities Co. Ltd., Research Division

Ambrish Srivastava - BMO Capital Markets U.S.

James Schneider - Goldman Sachs Group Inc., Research Division

Uche X. Orji - UBS Investment Bank, Research Division

Glen Yeung - Citigroup Inc, Research Division

Anil K. Doradla - William Blair & Company L.L.C., Research Division

John Pitzer - Crédit Suisse AG, Research Division

Tristan Gerra - Robert W. Baird & Co. Incorporated, Research Division

Christopher J. Muse - Barclays Capital, Research Division

Vivek Arya - BofA Merrill Lynch, Research Division

Shawn R. Webster - Macquarie Research

Presentation

Operator

Good afternoon. My name is Marvin, and I will be your conference operator. At this time, I would like to welcome everyone to the Xilinx Fourth Quarter Fiscal Year 2012 Earnings Release Conference Call. [Operator Instructions] I would now like to turn the call over to Rick Muscha. Thank you. 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'll provide a financial and business review of the March 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 A. Olson

Thank you, Rick. Fiscal year 2012 was marked by challenging industry conditions. In spite of these, Xilinx introduced a record number of 28-nanometer products, gained market share on the 40-nanometer node and reported record operating cash flow of $827 million. Additionally, cost reduction efforts of the company contributed to gross margin improvement in each consecutive quarter of the year, enabling Xilinx to report a record gross margin of 66.4% in the March quarter.

Turning to the March quarter, Xilinx sales were $559 million, up 9% sequentially and down 5% from the same quarter a year ago. This was better than our guidance heading into the quarter, primarily due to better-than-expected business from wireless communications customers deploying LTE and 3D technology, as well as a strong rebound across-the-board in the Industrial and Other category. Consumer & Automotive also posted better-than-expected strength due to exceptionally strong Automotive business across a broad base of customers and a better-than-expected growth from audio and video broadcast.

Gross margin was a record of 66.4%, up from 65.8% in the prior quarter, driven in part by a more favorable customer and product mix, but also cost reduction efforts driven by the company, including better-than-expected yield improvement on newer products and better inventory supply chain management.

Operating expenses were $208 million, only $1 million dollars higher than guided, as we were able to offset higher variable with expense management efforts. Operating margin was 29.1%, up from 26.8% in the prior quarter.

New product sales were up 11% sequentially. Sales increases from our 28-, 40-, 45-nanometer and 65-nanometer products, all contributed to this increase. Mainstream products declined 4% and base products increased 21% sequentially or $24 million. The increase associated with last time buy products was about $18 million or approximately 3% of total revenue in Q4.

Let me now turn to a discussion of end markets. Communication sales increased 5% sequentially, driven by wireless sales, which increased double-digits during the quarter while wired sales were essentially flat. The Industrial and Other category posted the strongest sequential sales growth during the quarter, increasing 18% sequentially, with all secondary markets increasing double-digits. Consumer & Automotive sales increased 9% sequentially driven by strength from audio/video broadcast and automotive, while pure-play consumer applications were flat. Lastly, data processing sales decreased as anticipated, driven by weaker storage sales.

Net income for the quarter was $134 million or $0.49 per diluted share. Other income and expense was a net expense of $7.1 million, better than guided due primarily to higher-than-anticipated gains associated with our investment portfolio and a non-U.S. investment credit. Operating cash flow for the March quarter was $208 million before $20 million in CapEx. We paid $50 million in cash dividend during the quarter, and recently raised our quarterly dividend $0.03 per share to 22% -- $0.22 per share per quarter.

The tax rate in the March quarter was 14%. Diluted shares for the quarter were 276 million. There was a 7.7 million share dilutive effect from our convertible notes due to an increase in the average stock price during the quarter. For questions related to the dilution associated with our convertibles, please visit our Investor Relations website at www.investor.xilinx.com.

Let me now comment on the balance sheet. Cash and investments increased $175 million to approximately $3.1 billion. We have approximately $1.3 billion in convertible debt and our net cash position is approximately $1.8 billion. Days sales outstanding decreased 3 days in the March quarter to 35 days. Inventory dollars at Xilinx declined by $41 million sequentially during the quarter. Combined inventory days at Xilinx, distribution were 110, down significantly as expected from 142 days in the prior quarter. In the June quarter, we expect both dollars and days of inventory to slightly decline as we continue to align the appropriate supply with demand trend.

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