Xilinx Management Discusses Q1 2013 Results - Earnings Call Transcript

Xilinx (XLNX)

Q1 2013 Earnings Call

July 18, 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

Ian Ing - Lazard Capital Markets LLC, Research Division

Brendan Oliver Furlong - Miller Tabak + Co., LLC, Research Division

Christopher B. Danely - JP Morgan Chase & Co, Research Division

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

Ambrish Srivastava - BMO Capital Markets U.S.

Ryan Carver - Crédit Suisse AG, Research Division

Uche X. Orji - UBS Investment Bank, Research Division

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

James Schneider - Goldman Sachs Group Inc., Research Division

Ross Seymore - Deutsche Bank AG, Research Division

Christopher J. Muse - Barclays Capital, Research Division

Presentation

Operator

Good afternoon. My name is Marvin, and I will be

your conference operator. I would like to welcome everyone to the Xilinx First Quarter Fiscal Year 2013 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 June quarter and then we'll open the call for questions.

This quarter, we changed our revenue by product category classification. We make changes to these classifications periodically as products mature and new products are introduced, enabling the product categories to be more meaningful to investors. For comparative purposes, we have provided a supplemental schedule on our website at www.investor.xilinx.com that presents results based on both the new and old category classifications.

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 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. Xilinx's sales were $583 million in the June quarter, up 4% sequentially slightly better than the midpoint of our guidance. The quarter was characterized by strength in Asia-Pacific, particularly in communications applications, marginally better than anticipated shipments of last time buy inventory and expected weakness in North America driven by defense and industrial, scientific and medical. Turns were 55% for the quarter and relatively linear on a monthly basis. We continue to get the capacity we need from our foundry partners, and our lead times with few exceptions are within normal ranges.

Gross margin was 66%, at the high end of our forecast due primarily to continued new product yield improvement. Operating expenses of $220 million were in line with guidance resulting in an operating margin of 28.2%. New product sales were up 31% sequentially, with strong growth from our 28-nanometer, 40-nanometer and 45-nanometer families. Sales of our 28-nanometer products increased significantly during the quarter surpassing our target of $10 million. On a year-over-year basis, new products are up nearly 80% with most of this growth coming from our 40- and 45-nanometer product portfolios, which continue to gain momentum as designs ramp into volume production. Mainstream products increased 4% during the quarter, but are down 16% versus the same quarter of the prior fiscal year and base products declined 5% during the quarter, but are down 10% on a year-over-year basis.

Let me now turn to a discussion of end markets. During the quarter, we modified our end market categories in 2 ways. First, we moved all data center customers into the communications category. And second, we renamed the categories to be more descriptive of the applications contained within each category, as well as more reflective of how we run the business.

The communications category will now become communications and data center. Sales from this category were particularly strong during the quarter increasing 8% sequentially driven by strong wired communication sales and double-digit sales to wireless applications.

The category that used to be called industrial and other will be now called industrial and aerospace and defense. This category decreased 5% sequentially with decreases from industrial, scientific and medical and aerospace and defense.

The consumer and automotive category has been renamed broadcast, consumer and automotive. Sales from this category increased 12% sequentially during the quarter driven by strength from audio/video broadcast and automotive, while pure-play consumer applications were essentially flat.

Lastly, the data processing category, which has been a relatively small business for Xilinx over the last several years, was renamed other. This category will continue to contain applications such as high-performance computing, server and computer peripherals. Sales from this category increased 11% sequentially.

Net income for the quarter was $130 million or $0.47 per diluted share. Other income and expense, with a net expense of $9.7 million, higher than anticipated due primarily to lower than anticipated income from our investment portfolio and slightly higher interest expense associated with the accounting treatment of the convertible debt instruments.

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