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Edited Transcript of XLNX earnings conference call or presentation 26-Apr-17 9:00pm GMT

Thomson Reuters StreetEvents

Q4 2017 Xilinx Inc Earnings Call

SAN JOSE Apr 28, 2017 (Thomson StreetEvents) -- Edited Transcript of Xilinx Inc earnings conference call or presentation Wednesday, April 26, 2017 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Lorenzo A. Flores

Xilinx, Inc. - CFO and SVP

* Moshe N. Gavrielov

Xilinx, Inc. - CEO, President and Director

* Rick Muscha

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Conference Call Participants

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* Ambrish Srivastava

BMO Capital Markets Equity Research - MD of Semiconductor Research and Senior Research Analyst

* Blayne Peter Curtis

Barclays PLC, Research Division - Director and Senior Research Analyst

* Christopher Brett Danely

Citigroup Inc, Research Division - MD

* Christopher James Muse

Evercore ISI, Research Division - Senior MD, Senior Equity Research Analyst and Fundamental Research Analyst

* David M. Wong

Wells Fargo Securities, LLC, Research Division - MD and Senior Equity Technology and Services Analyst

* Hans Carl Mosesmann

Rosenblatt Securities Inc., Research Division - Senior Research Analyst

* John Vinh

Pacific Crest Securities, Inc., Research Division - Senior Research Analyst of Semiconductors

* John William Pitzer

Crédit Suisse AG, Research Division - MD, Global Technology Strategist, Global Technology Sector Head, and Semiconductor/Semiconductor Capital Equipment Analyst

* Joseph Lawrence Moore

Morgan Stanley, Research Division - Executive Director

* Ross Clark Seymore

Deutsche Bank AG, Research Division - MD

* Tristan Gerra

Robert W. Baird & Co. Incorporated, Research Division - MD and Senior Research Analyst

* William Shalom Stein

SunTrust Robinson Humphrey, Inc., Research Division - MD

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Presentation

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Operator [1]

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Good afternoon. My name is Ian, and I will be your conference operator. I would like to welcome everyone to the Xilinx Fourth Quarter Fiscal Year 2017 Earnings Release Conference Call. (Operator Instructions) I would now like to turn the call over to Mr. Rick Muscha. Mr. Muscha, you may begin your conference.

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Rick Muscha, [2]

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Thank you, and good afternoon. With me are Moshe Gavrielov, CEO; and Lorenzo Flores, 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 actual results may differ materially.

We refer you to documents in the -- the company files with the SEC, including our 10-Ks, 10-Qs and 8-Ks. These documents contain and identify important risk 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 Lorenzo.

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Lorenzo A. Flores, Xilinx, Inc. - CFO and SVP [3]

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Thank you, Rick. Sales in the March quarter increased for the sixth consecutive quarter to $609 million, up 4% sequentially and up 7% on a year-over-year basis. Growth was driven by our advanced products, which increased 9% sequentially to a new record. Gross margin was 69.5% at the high end of our guidance, due primarily to favorable end market mix.

Operating expense was $250 million. This was $6 million higher than guided, as we accelerated some 16-nanometer tape-out expenses to extend our technology leadership and add some increased litigation expense.

Operating income for the quarter increased 6% sequentially to $173 million or 28.5%.

Other income and expense was an expense of $2.2 million, better than guided, due primarily to investment gains. Tax rate was 10% for the quarter due to discrete items.

Our net income for Q4 was $153 million or $0.57 per share.

We are pleased to have delivered on our financial plan in fiscal 2017. We met our target of 6% revenue growth driven by a 45% increase in advanced products, and operating margin was 30% for the year. This profitability led to the generation of a record $934 million in operating cash flow.

Finally, our EPS was $2.32 for the year, a 13% increase over FY '16.

Now some key points on the balance sheet and cash flows. We ended the quarter with $3.4 billion in gross cash and $2 billion in net cash after our debt. Accounts receivables decreased by nearly $100 million as we collected last quarter's higher-than-normal receivables balance.

Inventory was $227 million, up $21 million from the prior quarter with nearly all the increase coming from our advanced products. Operating cash flow was $306 million for the quarter.

In the quarter, we paid $82 million in dividend and we repurchased 1.8 million shares for $108 million, an average price of $58.45. We ended the quarter with diluted shares at 267 million, which included the impact of 15 million shares from the convertible and the warrant associated with it. For a complete explanation of the impact of these instruments on share count, please refer to our convertible FAQ on our Investor Relations website.

As we have discussed, capital allocation remains a top priority for the company. This year, we returned $855 million to shareholders through a $333 million of dividends and 522 million of share repurchases. This total capital return is $90 million more than we returned to shareholders in the prior year.

Our board recently authorized an increase to our dividend for the 12th consecutive year. We continue to execute on our share repurchase program with the intention of exhausting our $1 billion authorization over the next several quarters. We currently have $680 million left on that authorization.

Now the guidance. In the June quarter, we're expecting sales to be between $600 million and $630 million. Our backlog is up heading into the quarter, and we are expecting continued growth in our advanced products.

On end markets, we expect the communications category to be up. Industrial and A&D category is expected to be flat sequentially. And lastly, Broadcast, Consumer & Automotive is expected to be slightly down.

Our gross margin will be approximately 68% to 70%. We expect operating expense to decline to approximately $242 million, including $1 million of amortization. Other income will be $1 million.

Finally, our tax rate is expected to be between 12% and 15%.

We will provide full year FY '18 guidance at our upcoming Analyst Meeting in New York City on May 22. We look forward to seeing you all at that meeting.

Let me now turn the call over to Moshe.

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Moshe N. Gavrielov, Xilinx, Inc. - CEO, President and Director [4]

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Thank you, Lorenzo. I am extremely pleased with our March quarter financial results. Sales increased 4% sequentially to $609 million, marking the sixth consecutive growth quarter. Gross margin was at the high end of our range. Combination of higher sales and higher gross margin drove a strong operating profit growth.

We continued to benefit from our diversified multimarket portfolio. 5 of our 8 end markets increased in the quarter. The Automotive and test measurements and emulation markets drove the largest incremental sales increases and both delivered new record revenue levels.

Overall, revenue growth continues to be driven by our advanced products, which increased 9% on a sequential basis and 45% overall on an annual basis. This category now comprises 49% overall of our revenue. 28-nanometer product family very significantly surpassed $200 million in the quarter, setting, by far, a very significant PLD industry record. 20-nanometer generated $60 million in sales driven by a very broad base of markets. 16-nanometer sales grew significantly in the March quarter to a new record significantly exceeding our forecast with sales from all of our end markets.

Our Zynq SoC platform, which includes both our 28-nanometer and 16-nanometer product offerings decreased nearly 20% sequentially and now represents more than 10% of our overall revenue.

One of our key 16-nanometer customers is Amazon Web Services. Just last week, AWS announced the general availability of our FPGAs for cloud-based acceleration. Our world-class silicon technology, coupled with our optimized software tools allow AWS to offer optimizable and programmable hardware acceleration to their users.

I'm very excited by this because this has the potential to create a new disruptive business model for our technology, where the flexibility of the programmable logic is an inherent benefit over fixed function ASICs, thereby expanding our reach into a much broader set of customers and applications.

More broadly, our investment in such exceptional execution at the 16-nanometer node has extended our competitive lead to approximately 18 months. We're now shipping 14 unique products to more than 450 discrete customers. This represents a substantial increase from last quarter, where we shipped 12 unique products to 300 customers.

Additionally, we recently announced a major expansion of the 16-nanometer portfolio with our All Programmable RFSoC product family. This is a disruptive integration and architectural breakthrough for 5G wireless with RF class analog technology. This family provides 50% to 75% power and dramatic footprint reduction, 5G cable and wireless backhaul applications.

Lorenzo mentioned we're extremely pleased that we delivered on our commitment. 6% revenue growth for fiscal year '17, remained committed to delivering to our longer-term operating margin target of 30%, plus.

Our June quarterly guidance of $600 million to $630 million will again be driven from broad base growth in our advanced products portfolio. As I mentioned before, this is already 49% of our current business, and hence helps and drive our overall revenue forward.

We look forward to sharing more details on fiscal year '18 with you at our Analyst Meeting on May 22 in New York.

We now turn the call back to the operator for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from the line of Ambrish Srivastava from BMO.

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Ambrish Srivastava, BMO Capital Markets Equity Research - MD of Semiconductor Research and Senior Research Analyst [2]

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Lorenzo, good to see the accounts receivable come down that had cost a lot of consternation last quarter. Moshe, I had a question on inferencing and I know that the investment case for Xilinx is not just on AI and machine learning, but there has been a lot of talk about it and you guys are showing up as well in the inferencing market. So my question is, what -- help us understand some of the benchmarks. And I don't expect you to get into a blogfest with an existing or potential customer, but Google put out a TPU specs against the GPU against the CPU. Where do the FPGA stack up, latency, throughput, anything you are willing and able to share will be very helpful.

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Moshe N. Gavrielov, Xilinx, Inc. - CEO, President and Director [3]

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Okay. Well, I'll do my best. But realistically, we're going to provide a lot more information on this topic on May 22. So I encourage you to look for more detail then. But generally speaking, first and foremost, the most valuable element we have is actually in the flexibility, and that is inherent to the programmable logic, and that is something which is very, very, very difficult to provide in an ASIC, and similarly, it's quite difficult to provide in a similar way at least using a CPU and a GPU. And importance of flexibility is that even though it sort of sounds like machine learning and inferencing and all of that, we are into the 70th year of hearing about it. Reality is it's an emerging technology with very broad applicability, where the benchmarks are very dynamic and the ones which are important today are going to be likely totally useless 2 or 3 years from now. And the biggest benefit we have is the fact that our devices can be programmed to match the new payloads and new algorithms, right? Now -- so that's sort of a generic thing. And I think everyone sort of misses that, and that's why I'm starting with this long semi diatribe on this issue, because that sort of is something that I think the market underestimates the inherent advantage we have there. Now if you sort of look at a specific set of applications, generally speaking, on things which do not require floating point, we tend to have higher performance and lower power than all other options. Now if you take 1 fixed application and you target a dedicated ASIC to it, yes, I'm sure they can do better. But then if anything changes, then that ASIC all of a sudden becomes a lot less attractive on the new application, whereas the programmable logic can be modified to adapt to that. And so generally speaking, we have much better performance than CPUs and GPUs for everything, except floating point for each application. And we have performance, which is generally on part to ASIC, but actually, the biggest benefit is in the flexibility of our products and the fact they can be adapted. With regards to specific benchmarks, we can share the numbers we have with you and we would be happy to do that. And this is one of the reasons that we're so excited about this market. And if you sort of look at Amazon in addition to the inherent technology advantage we provide, it actually provides us with the perfect conduit to a very broad set of new customers. So both in terms of technology and access to the technology, this is a tremendous benefit for us. And we'll talk a little more about that, too. I think I've overstayed my welcome on this.

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Operator [4]

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And our next question is from the line of John Pitzer from Crédit Suisse.

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John William Pitzer, Crédit Suisse AG, Research Division - MD, Global Technology Strategist, Global Technology Sector Head, and Semiconductor/Semiconductor Capital Equipment Analyst [5]

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Can you guys hear me now? Moshe?

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Lorenzo A. Flores, Xilinx, Inc. - CFO and SVP [6]

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Yes.

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Moshe N. Gavrielov, Xilinx, Inc. - CEO, President and Director [7]

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Yes.

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John William Pitzer, Crédit Suisse AG, Research Division - MD, Global Technology Strategist, Global Technology Sector Head, and Semiconductor/Semiconductor Capital Equipment Analyst [8]

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Congratulations on the strong results. I guess, mostly, my question is pretty simple. Up until about 2 or 3 months ago, a lot of our fieldwork was suggesting that while FPGAs were a great architecture for accelerators in the data center, there were still a lot of software compatibility issues. And I guess we've been fairly impressed over the last 3 or 4 months how quickly some of those software issues -- programmable issues have been resolved. So I guess my question to you is relative to 3 or even 6 months ago, how is the acceleration opportunity today versus then? At last year's Analyst Day, I think you talked about $250 million of potential incremental revenue by 2020. I'm wondering if you could just give us a sense of whether or not relative to those expectations the acceleration market is actually accelerating. And I apologize for the pun.

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Moshe N. Gavrielov, Xilinx, Inc. - CEO, President and Director [9]

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Okay. So you're right. Last year at our Analyst Day, we projected it to be between $200 million to $300 million in the calendar year 2020 time frame. At the time we gave those projections, we were not aware -- we were aware of the engagement with Amazon, but we were unaware of what they were planning on doing with it. And so for us, we have lots of customers and actually all of the big hyper scalars, are our customers, but they don't always initially share what their plans are. What has happened over the past year is, and in particular with Amazon, and that became clear only at the tail end of the calendar year, so I think it was November at the very earliest that we sort of found out. What it is that they wanted to do. We also depicted that in order to make them successful, we needed to prioritize the software environment, which was something we were working on, but was probably at least a year away. We identified that, that needed to be raised in terms of priority and a lot of resources put in place. Now they've moved very, very quickly. We have been delighted to support them with their very significant requirements. And at the beginning of the calendar year, they actually opened it up to limited release, and the limited release enabled FPGA experts to access the technology. So the technology became available in the cloud, but it was available to a limited set of customers. And when they announced general availability, then that's a much broader set of customers. So the change is that Amazon has now legitimized this. Is putting it in the cloud. The software which was clearly a handicap we had, we have invested very heavily. And now the results that customers are seeing are very positive, and there's a follow-up release less than a month from now, which will even broaden the target customer base even more significant than it does. Now the underlying question is, how much can this do for revenue? And I think it's still too early to predict that. Clearly, the potential is there for it either to be larger or for it happened a little earlier. It's still unlikely to impact the next 18 months in a significant way. But it is possible that by 2020, if this goes well, that the market could be larger than what we said, and this is for our technology or it could maybe happen to us during 2019. But what we're really trying to do is we don't want to sort of generate any short-term frothiness because there really is not yet the proof in terms of deployment to justify that. There is the potential of that happening in a little further out time frame than what I think most people are looking at. And so there is goodness and there's goodness in the technology. There's goodness in the opportunity and there's definitely tremendous potential with Amazon putting this up in the cloud and making it available to everyone broadly. And they were very clear, you can let look at their blog. They sort of said, this is initially being deployed in 1 location. If they -- if that is successful, then the implication there is that there could be significant deployment in other locations, which in of itself would be an accelerator or a potential enhancer of the business. But that first deployment needs to be successful. And obviously, both Amazon and Xilinx are working hand in hand to do the best we can to support it.

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Operator [10]

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And our next question is from the line of Tristan Gerra from Robert W. Baird.

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Tristan Gerra, Robert W. Baird & Co. Incorporated, Research Division - MD and Senior Research Analyst [11]

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Similar question in the ADAS business, how should we look at this business medium term for Xilinx? You've mentioned a high 20s market share in the past. Do you saying that there is a trend where FPGAs can actually gain share against ASIC in that market? And we know the product cycles are very long. And is programmability as critical as it is in the other end market that you just discussed?

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Moshe N. Gavrielov, Xilinx, Inc. - CEO, President and Director [12]

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Well, it's -- the programmability and the flexibility is valuable in this market because this, again, is a market, which is influx. It is changing rapidly. What we're now deployed in is ADAS. We have a lot of design wins in advanced ADAS. Those put us in a good position to transition into the automated autonomous driving over time. We think that this is a process, which until it really becomes mainstream and very, very broadly deployed, it has a 10- to a 15-year horizon until that sort of happens. And that point in time, it won't surprise me if it becomes significantly commoditized. But until it gets to that point, we do believe that the programmability is a major asset that we have. And this is a market we identified early. And we think that for the next 2 generations of deployments over the next 5 to 7 years, we're in a very good position, and our market share should grow. A lot of the growth this current quarter in our Automotive numbers, which hit a new record, were due to a surge in ADAS. And we will -- we'll give more data with regards to our overall political businesses in May, but you can be sure that Automotive is likely to be the highest growing or amongst the highest growing markets for our next year projections.

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Operator [13]

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And our next question is from the line of Joseph Moore from Morgan Stanley.

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Joseph Lawrence Moore, Morgan Stanley, Research Division - Executive Director [14]

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I wanted to ask about the Zynq being over 10% of revenues. I was kind of excited about that. Can you just talk a little bit about what the drivers are? And you've talked about the number of design wins that you have in Zynq, the mountain of design wins, I think you've referred to it as -- where are we in terms of monetizing that? And how much do you think -- how long do you think that you can grow at the rate that you have been in that Zynq product?

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Moshe N. Gavrielov, Xilinx, Inc. - CEO, President and Director [15]

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Well, if you look the Zynq product offering, it was introduced at the tail end of our 28-nanometer. So I believe the first tape-out was at the end of 2011 for Zynq. And then silicon was probably available a year later. And we got a lot of design wins. The 3 initial markets, which it was targeted at were wireless. And it was won a lot of business in wireless. Actually, it's at the core of our wireless strategy. Most of the deployment that you're seeing now in wireless at Xilinx, or a lot of it is Zynq based.

Second area, and this was the major driver for the definition of the product was Automotive, and that's a market that takes quite a bit longer, but is now hitting its stride. Then the third is industrial control, and that's where we have the proverbial mountain of design wins, which are now starting to turn to revenue, and that's just a function of how long it takes. What we're seeing in parallel is a second-generation Zynq targeted at the high and mid range of the market at 16-nanometer, but what we've done is we've since taken the 28-nanometer and expanded down to lower end devices. So you can tell from that, that we expect it to be a big driver going forward. And that 7-nanometer, it's going to be part and parcel of a broad deployment in our technology, because we believe that at that point, 7-nanometer is going to be an integration play and nearly all of our customers will use the high-performance multi-CPU cores, which are part of that in that technology. So if you sort of look at it, it's grown from 0% to 10% of our business. And my expectation is that it can grow from 10% to 20% much faster than it took to grow from 10% and maybe we'll try and quantify how much faster. But it's now no longer a new wonder and just the repeat business that we can get in of itself should be a major driver in addition to the expansion that we have. And if you go far enough into the future, it's likely that close to 100% of our business over time will be driven by the Zynq product offering, but that's probably 10 years out. That's probably not now.

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Operator [16]

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And our next question is from the line of C.J. Muse from Evercore.

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Christopher James Muse, Evercore ISI, Research Division - Senior MD, Senior Equity Research Analyst and Fundamental Research Analyst [17]

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I guess the question here is you guided the Comm & Data Center up sequentially. Curious if you could talk about what you've embedded in the guide for incremental growth from the data center. And then as a quick housekeeping question, if you could offer your outlook for share count for the June quarter?

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Lorenzo A. Flores, Xilinx, Inc. - CFO and SVP [18]

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Yes. So two things. So I might frustrate you by not being very precise, but in the comms, we do show data center -- we do expect data center to grow meaningfully. And again, that's in the context of some of our older data center business, not growing as much as we would like. And then in some certain cases, our design wins are, that we've had, are slowing down. So we do think that, that in summary, that the data center growth, which is part of the overall comms growth, all the other end markets in the comms area we expect to be growing as well, but the data center growth will be driven by hyperscale. Then with regard to share count, so I haven't been providing detailed share count guidance for the past couple of quarters for a couple of reasons. One is the -- I don't want to kind of signal exactly what we're doing on our buyback. And the second part is, the complexity of the convert and its impact on our diluted share count is hard to describe briefly. So I would, though, recommend you, C.J., go to the -- go to our website. We're going to update what we expect to be the impact on diluted share count from the redemption of the convert in this quarter. Like I said, it's fairly complex, but we've tried to make it understandable. And you will see that it will have a significant impact in this current fiscal quarter. And then because of the way the accounting is done for the share count, it will actually even translate to a further reduction in the next quarter. So I mean, I'll actually -- I'm happy to take a follow-up, if there's something specifically you are looking for, but I'm not going to give you a precise share count guide.

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Operator [19]

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Our next question is from the line of John Vinh from Pacific Crest.

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John Vinh, Pacific Crest Securities, Inc., Research Division - Senior Research Analyst of Semiconductors [20]

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Question on 5G. I think you guys have talked about your 5G trial win rate at roughly 9%, plus. Also, as you think about 5G as -- versus 4G, where you've got a 3 to 5x increase in radio heads, which is an area that you have historically done extremely well. And you've also announced the RFSoC, which gives you an opportunity to expand your footprint because it integrates additional discreet. So I was wondering if you could just put into context how do we think about the 5G opportunity versus 4G, right? And conceptually, it sounds like a very sizable opportunity, but I'm just wondering if you could also just talk about what are the other offsets that we should be thinking about?

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Moshe N. Gavrielov, Xilinx, Inc. - CEO, President and Director [21]

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Okay. So great questions. Actually, there's a whole series of very detailed questions. So we will try and give you more clarity on that in May, but let me give you a reader's digest. The broad deployment of 5G is expected to start in earnest in 2020. And we believe we're going to have a very good position there based on the design wins we have. The -- it is indeed quite likely that at least on the radio head side, there will be a larger number than was done -- than were deployed in 4G. And fundamentally, 5G is going to be essential in terms of enabling the infrastructure, a whole host of things, which are extremely visible today like this entire industrial IoT. (inaudible) to do that well the 5G technology is going to be a key enabler there. So we absolutely agree the potential is larger. Our technology position is very strong. We think that between now and 2020, there's going to be ongoing deployment for 4G, including, there's going to be additional rounds even in China, which is now the tail end of, I think, fifth round of LTE deployment, and they will do the sixth round that is expected to be about 2/3 of the size of the fifth round, but that's still a very significant number. India is going strong and there's other countries in the world where there is deployment. So if you look at the overall wireless business, we expect it to hover around the midpoint of -- for us, a high was close to $150 million a quarter, a low was $75 million. We expect to hover around the midpoint over the next few years on average until the 5G starts in earnest. The technology position makes us very confident that during these next few years, all of the pre-5G deployment is likely to benefit us. And then when the real thing starts, then that's when you could see it approaching or maybe even surpassing the previous levels, but that's a few years away in terms of hitting over $150 million per quarter. We don't see that happening anytime soon. Hope that answers your question. And we'll try and give more visibility into that in May.

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Operator [22]

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And our next question is from the line of William Stein from SunTrust.

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William Shalom Stein, SunTrust Robinson Humphrey, Inc., Research Division - MD [23]

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Moshe, I'm wondering as we head into the Analyst Day, in order to prepare for it, what should we be thinking about sort of the puts and takes that could take your topline above or below this year's roughly 6% growth?

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Moshe N. Gavrielov, Xilinx, Inc. - CEO, President and Director [24]

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Well, we'll give you an annual projection. And we're delighted that we have -- if you look at 1 year, we have 100% hit rate in terms of hitting that number. If you look back more than 1 year, we have a very low hit rate. So we're very proud of that we're actually delivering the 6% on the nose and not actually just exceeding that. But we will provide you with guidance. I think the thing that gets overlooked, and despite the fact that we emphasize it again and again and again is, we benefit immensely from the multimarket portion, and that sort of provides us with a lot less volatility than most other players. And what we'll try to do is to highlight which of these markets are likely to -- or have the potential of doing better, which are just likely to hit the natural growth rate and which some of them for better or for worse, or the lows of growth rate. And we'll sort of highlight those, but there are sort of 8 desperate markets and they all tend to have somewhat different dynamics. The ones which get the sexiest and get the most airtime are data center and Automotive, but we're actually doing very well on A&D. We're doing very well on test and measurement. We've done better than most other semiconductor or all other semiconductor companies on wireless in a time where the wireless industry has not done well. So I think the underappreciated part is the multimarket portion. And if I have a request is that you'll come with some openness with regards to hearing about the other markets even if they're less -- have less curve appeal than the ones everyone is talking about.

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Lorenzo A. Flores, Xilinx, Inc. - CFO and SVP [25]

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That was a very artfully phrased question, too.

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Operator [26]

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And our next question comes from the line of David Wong from Wells Fargo.

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David M. Wong, Wells Fargo Securities, LLC, Research Division - MD and Senior Equity Technology and Services Analyst [27]

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Can you give us some idea of what you expect 16-nanometer revenues might be in the current fiscal year, fiscal '18?

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Moshe N. Gavrielov, Xilinx, Inc. - CEO, President and Director [28]

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We will give you guidelines for that in May. It's too early, but it's done great and a lot of that is driven by the Amazon deployment, but it's not all of it. There's actually -- if you can just tell from the number of customers and the number of markets, we're in that it's doing better. It's actually getting deployed faster than any other technology we have seen in the past. And we're also benefiting from a very favorable competitive position.

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David M. Wong, Wells Fargo Securities, LLC, Research Division - MD and Senior Equity Technology and Services Analyst [29]

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Okay. Great. And for my follow-up, can you give us any idea of whether you're seeing any pickup in Defense -- in sales into the Defense segment?

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Moshe N. Gavrielov, Xilinx, Inc. - CEO, President and Director [30]

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Well, there were -- it was a nice pickup this quarter.

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Lorenzo A. Flores, Xilinx, Inc. - CFO and SVP [31]

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It's generally been on an upward trend as design wins that we have won in our 28-nanometer generation ramp in. As you know, in Defense, it's a very, very long-tail business. So at any point in time, we have multiple generations -- multiple of our product generations in -- being sold into the industry. So given our competitive position and the strength of our design wins and our continued design wins and large opportunities like Joint Strike Fighter, we feel very good about the business.

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Moshe N. Gavrielov, Xilinx, Inc. - CEO, President and Director [32]

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It's already the third largest market we're in. And it's not that far away from wired and wireless. Smaller than wired and wireless, but it's not -- it's approaching those numbers.

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Operator [33]

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(Operator Instructions) Our next question is from the line of Blayne Curtis from Barclays.

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Blayne Peter Curtis, Barclays PLC, Research Division - Director and Senior Research Analyst [34]

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I just want to circle back to the AWS announcement, just kind of the concept of the FPGAs as a service are available in the cloud and kind of what size of the customers do you think would use this, whether you'd see any larger scale customers deployed? Or is this more for smaller? And then can you just talk about what kind of landscape there, if you expect that you'd be the only offering? Or if you would see any from the military as well?

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Moshe N. Gavrielov, Xilinx, Inc. - CEO, President and Director [35]

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So the 7 big players, and we are talking to all 7 of them, the one which has the largest existing deployment is Microsoft. And that is using the Intel/Altera for that. We believe we have a product which is so much better than that. Obviously, that is at the core of our success with all of the players. With regards to the breadth of the usage, the beauty of this is, in particular, in the Amazon case, is that this enables a broad new set of applications to evolve in a way which the traditional way of presumed business was just not capable of doing. And it is inherent to the Amazon model that they don't actually know themselves yet. Because they don't have the end system expertise, they're not experts in all of these areas. What they do and what they have experts monetizing is making it easy to use and making it available and then enabling an amazing ecosystem, where the players use it. And what we're seeing and just they talked about thousands of customers applying from the very first minute several hundreds being -- getting access during the limited release and then being opened to the potentially thousands of customers in the general availability. Our expectation is, as this unfolds, and that's why we're being cagey on providing numbers, right, that's sort of we're trying to -- we believe this could have a viral impact and not only would it be used in a public cloud sort of applications like Amazon, but when people start seeing the benefits of that, they'll just -- seeing that even for their specific applications, they could see huge improvements. And as this transition is happening into a world where machine learning is becoming for the use for a whole host of applications, these sort of open up. And hence, there is huge potential there. Also, that's the reason that we're loath to try to quantify it yet. But all of the -- this change is quite a monumental one in terms of accessibility, in terms of ease-of-use, and in the breadth of the benefit and the benefit of the programmability, because there are some misguided notions that an ASIC, by definition, is better than an FPGA. This is the one set of applications, which an ASIC due to its -- the fact that it takes years to design and it's very rigid, you could do a wonderful job designing absolutely the wrong ASIC and then deploy it at the time where the market has changed, whereas if you use programmable logic, you can change it in fit to in live applications, and it can adapt to these new applications and benchmarks. So hence, the benefits -- the other benefit is that a lot of these applications, in particular, on the inference side, tend to have more of a integer nature to them as opposed to a traditional floating-point applications. And as a result -- and it sometimes flexible integer format that they use, and there's nothing more flexible or better than the programmable logic in terms of doing that. So I know I haven't quite answered your question, but I think that's the potential. Lorenzo also...

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Lorenzo A. Flores, Xilinx, Inc. - CFO and SVP [36]

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So I think an element of your question, Blayne, was may be related to whether the applications on AWS are kind of niche or small or whether there are some big entities using it. And the large partners range obviously from some smaller entities to some very large entities and they're doing a range of applications that are fundamental to each of the companies' core businesses. I do think the scaling opportunity is there and very well represented.

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Operator [37]

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And our next question is from the line of Ross Seymore from Deutsche Bank.

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Ross Clark Seymore, Deutsche Bank AG, Research Division - MD [38]

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One near-term question. The guidance for the June quarter for Industrial, Aerospace & Defense being flat and then down in the Broadcast, Consumer & Auto segment. Could you give a little bit more color about the moving parts in that? And then maybe a slightly longer-term aspect of it, I know you said that Automotive would be a fast grower, and you'll give us more details at the Analyst Meeting in May. But the other part of that equation, the Broadcast, Consumer has been a bit of a headwind for a couple of years, so I just wondered what that trajectory of that might be over the course of the year?

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Lorenzo A. Flores, Xilinx, Inc. - CFO and SVP [39]

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Yes. So the Industrial A&D softness is due to program-specific things in Defense, primarily. The rest of the business areas, they are relatively -- going to be flat relatively quarter-on-quarter. In the Automotive, Consumer, Broadcast space, as we've mentioned in this call already, we've set a record in Automotive. And if you go back a quarter, we talked about kind of a low based on some inventory thing. So we're going to see a little bit of dip in automotive. And by the way, while we expect a longer-term trend upward based on the strength of our ADAS design wins, we won't be surprised by some quarterly fluctuations. But underneath that, the ADAS business is very strong. It's just kind of a quarterly correction. And the rest of those -- rest of the end markets in that segment are flat. The -- we will probably talk a little bit more in May about the longer-term trends in audio, video broadcast. But you're right, the industry is facing some headwinds and we're feeling those as well.

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Operator [40]

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And our next question is from the line of Hans Mosesmann from Rosenblatt Securities.

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Hans Carl Mosesmann, Rosenblatt Securities Inc., Research Division - Senior Research Analyst [41]

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Moshe, can you give us your feel for your road map as you go from '16 to '17 and beyond in terms of process technology? And then that is in the context of the update that Intel gave to Street a few weeks ago regarding their road map and their density advantages.

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Moshe N. Gavrielov, Xilinx, Inc. - CEO, President and Director [42]

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Well, we're delighted to be with TSMC. It's one of the best decisions I've ever made. Maybe professionally it's the best decision I've ever made. We don't regret it for 1 minute. They are great. Look at everyone who has tried someone else, including Intel. Great company, great manufacturing technology, great CPU provider. The foundry business is a service business. It requires technology leadership. It requires support. It requires an ecosystem. TSMC is second to none. Absolutely second to none. I mean, that's sort of really not something I worry about and I'm not in any way understating Intel's capabilities. I'm just sort of saying as a foundry, I think we're absolutely with the right foundry. And what we now uniquely benefit from is they have such a huge portion of business, which comes to them from the wireless smartphones, which in a very, very short period of time enables them to get to incredible defect densities. If you look at their investments and capacity, they have, for several years now, invested $10 billion every year in terms of access to technology and support technology in terms of addressing fluctuations, in terms of requirements, they really are best in breed. So yes, Intel is great, has great manufacturing capacity. TSMC is, by far, the best foundry in the business, and they didn't get to having $30 billion worth of foundry business without that sort of excellence. So I don't -- I'm not at all concerned about access to a leading-edge technology, I believe that TSMC can provide us with that, and has in the past, is now. If you remember there was a huge excitement when Altera initially committed to Intel and the common wisdom would be that they're 2 years ahead of us. I would say now, they're comfortably, and this comes from customers, 18 months behind us, right? So we will continue to pursue TSMC and benefit from that relationship.

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Operator [43]

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And our next question is from the line of Chris Danely from Citigroup.

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Christopher Brett Danely, Citigroup Inc, Research Division - MD [44]

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Nice job of bringing the OpEx down. Can you just talk about OpEx trends after this quarter? Do you expect it to be at the same percentage revenues or go up? Or can you take it down even more?

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Lorenzo A. Flores, Xilinx, Inc. - CFO and SVP [45]

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Chris, we'll -- like all the other questions that relate to longer-term views on the business, we'll talk about that more at our Analyst Meeting.

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Moshe N. Gavrielov, Xilinx, Inc. - CEO, President and Director [46]

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But we are committed to -- in the longer term, to get back to 30% and higher, right? So it's -- it'll hopefully move -- continue moving in the right direction and we'll give more granularity to that in May.

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Operator [47]

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And at this time, I'm showing no further audio questions. Presenters, I turn it back to you.

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Lorenzo A. Flores, Xilinx, Inc. - CFO and SVP [48]

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Okay. Thanks for joining us today. We'll have the playback of this call beginning at 5 p.m. Pacific Time, 8 p.m. Eastern Time today. For a copy of our earnings release, please visit our Investor Relations website. Our next earnings release date for the first quarter fiscal year 2018 will be Wednesday, July 26, after the market close.

We'll be hosting our annual -- our Analyst Meeting in New York City on May 22. We definitely look forward to seeing you there.

In addition, we'll be attending the BofA Global Tech Conference on June 7 in San Francisco. This completes our call. Thank you very much for your participation.

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Operator [49]

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Ladies and gentlemen, once again, we appreciate you participating in today's fourth quarter fiscal year '17 earnings release call. You may now disconnect.