Xilinx Earnings Call Insights: TD-LTE Outlook and Gross Margin Improvement

Xilinx (NASDAQ:XLNX) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

TD-LTE Outlook

John Pitzer – Credit Suisse Securities: Jon, in your prepared comments you talked about a meaningful uptick expected in the back half of the calendar year for TD-LTE. The LTE cycle has been one that inventor have been waiting for a while. I guess what gives you the confidence in the TD-LTE market. And if you could also just discuss the kind of the LTE build out here in the developed countries. You saw AT&T kind of lowered their CapEx for the out years when do we start to see the content pick up story for you guys within that spend?

EXCLUSIVE OFFER! Take Advantage of the Tax Relief 50% Off Sale for a Limited Time. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

Jon Olson – SVP and CFO: Let’s just talk about the TD-LTE portion first and I will go to the second half after that. The information we get is primarily from our customers and the customers who in China are providing – likely Canada to provide that equipment have given us forecast that indicated in the second half we are going to have the beginning of the ramp for that design. We have already sold into equipment where they are doing their prototyping and their first generation of testing of that capital equipment. So, I am just putting these two things together. They are forecast for the second half of the year now, of course, these aren’t binding forecast, these aren’t orders that are booked and it’s always subject to change, but usually what we’ve seen is the beginning of the prototype builds followed within a quarter or two of the ramps. So, the combination of their forecast, which means there must be some confidence that they want us to build in parts for that, as well as the beginning of prototype is where I was getting that information. The second question or maybe Moshe do you have any additional color on the LTE before I…

Moshe Gavrielov – President and CEO: No, China is expected to happen in the second half, all of the signals highlight that that is the plan and it is ongoing.

Jon Olson – SVP and CFO: The AT&T announcement, it’s kind of interesting. We obviously are pretty aware of that what was said. But when you peel back the onion, of what’s inside there and we have talked to the carrier about this. There are program that’s associated with wireless rollout of LTE actually is preserved in terms of the kind of ramp they have been talking about in terms of capital spend and deployment across the country for the rest of this year and into next calendar year. So, it’s a very specific name to that program and we’ve gone and talked with them and checked with that and our best information is that the wireless LTE portion of this is not substantially impacted by the statements…

John Pitzer – Credit Suisse Securities: Maybe it’s my follow-up guys, just real quickly, another good quarter on the gross margin line without yet seeing I think the benefit of some of the share gains you’re expecting at 28-nanometer. I guess given your leadership position at 28, is that becomes a bigger mix of the overall revenue stream, is there opportunities to kind of get the margins above the higher end of your target given that there is still a gap between yourselves and your closest competitor?

EXCLUSIVE OFFER! Take Advantage of the Tax Relief 50% Off Sale for a Limited Time. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

Jon Olson – SVP and CFO: Yeah. So, there is no question, we are continuing to do everything we possibly can to move the margins number up. The fact that we haven’t changed our business model, I kind of anticipated the question on that as well, the fact that we haven’t changed our business model is not really important relative to our view in the short-term that we do think margins are going to continue to be healthy. I think one of the things we’ve talked about at the Investor Day was around increasing importance of Zynq against ASSPs and we’re still working through those kinds of competitive situations and in terms of changing our business model, I think we’re just being cautious that there is no doubt in the short run as evidenced by our forecast for the June quarter. We are confident that margins have drifted up and continue to drift up a little bit if you go back over the six quarters.


Gross Margin Improvement

Vivek Arya – Bank of America Merrill Lynch: One more on gross margin. One thing that Altera has done had these products customized for different applications with cost optimal structures, some with of it (indiscernible). They have often explained that that’s the reason that their gross margins have tended to be higher, is that a valid reason? Is that the kind of gap that you can close through your own design activity? Or do you think there is that structural gap that will remain?

Moshe Gavrielov – President and CEO: We have over the past five years since the new management team has been in place; we’ve focused on improving the gross margins. We believe that with the unquestionably superior portfolio we have. The broader portfolio we have and the deeper portfolio we have, we’ll get rewarded for that and there is now the operational focus on driving defect densities and making sure that the overall portfolio has the right mix. So, you know, there is various ways of addressing it and we like the way we have addressed it. It gives us technology leadership, market leadership and unquestionably at strong position. So, I wouldn’t say there is only one way to address it and the results speak for themselves. Ours have floated up and despite the fact that we are now shipping a lot of 28-nanometer the margins have gone higher rather than lower which typically in the past it would go the other way when we are introducing a new generation of product. So, but fundamentally I believe that our overall portfolio strategy at 28 is absolutely winning and superior at this point.

EXCLUSIVE OFFER! Take Advantage of the Tax Relief 50% Off Sale for a Limited Time. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

Vivek Arya – Bank of America Merrill Lynch: And as a follow-up there are just some frequent concerns that large Chinese equipment vendor has been trying to actively use more of their internal A6. I know it’s not a new concern, but it does come up frequently and the related concern to that is that maybe for this initial prototyping part of TD-LTE, they might be using more PLDs, but as they go forward, they might try to use more of an internal ASIC solution. Can you put that concern to bed once and for all because I think that has – it just comes up so frequently?

Moshe Gavrielov – President and CEO: We are confident that we have tailored our Kintex product to be absolutely perfect solution for those wireless requirements and what does happen is for the first few years things change quite a bit and the flexibility inherent in the FPGA is fundamentally a big feature that enables them to (indiscernible) that. So, between the flexibility they need and the very strong match that we have with our product offering to their requirements and Kintex was targeted, particularly at that. I think we have a very strong position. Any of our customers at any point in time can decide to do this, it typically is risky, lengthy and complex thing to do, and it does happen from time to time. It’s becoming rarer and rarer and so the number of companies that can do it has dropped and even that the biggest names and you’ve alluded to one of them, where they do undoubtedly have capacity they tend to want to use it strategically where it has the biggest impact and that biggest impact actually tends to be more on the consumer side where they have huge volumes and very short product life where they can exploit that most effectively. So, I would never say never I’m just saying it’s more difficult and we are intent on making it more and more as we move forward to advance nodes at the first space possible.

Jon Olson – SVP and CFO: We are seeing no signs of this activity. So, I mean, again, it could always happen in the future, but I wouldn’t think of that. You specifically talk about maybe right after prototyping no way I don’t believe that’s happening and for all the reasons Moshe said in terms of the change that’s still going on in the overall environment and et cetera. So, I don’t think that’s going to happen.