Good afternoon, my name is Christina and I will be your conference operator today. I would like to welcome everyone to the Xilinx Fourth Quarter and Fiscal Year 2020 Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session.

[Operator Instructions] I would now like to turn the call over to Matt Poirier. Thank you. Mr. Poirier, you may begin the conference..

Thank you, Christina. And good afternoon everyone. With me are Victor Peng, CEO; Brice Hill, our new CFO; and Sumeet Gagneja, our Chief Accounting Officer.

Since Brice only recently joined Xilinx and wasn’t here during the last quarter, for this call, Victor will provide the financial and business review of the March quarter and the business outlook for the June quarter.

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 as 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 risk factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements.

In addition to GAAP financial measures, we will be disclosing certain supplemental non-GAAP financial measures used by management to evaluate the company’s financial results.

We provide these measures to facilitate period to period comparability for purposes of evaluating continuing business operations by excluding the effects of non-recurring and unusual items such as amortization of intangibles and certain one-time items related to acquisitions.

We believe that sharing these non-GAAP measures will be helpful for analysts and investors in analyzing the company’s ongoing core business. A reconciliation of non-GAAP financial information to the closest GAAP measure is included in our earnings release and has been posted on our Investor Relations website.

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 Victor..

Thanks Matt and thanks everyone for joining today’s call. I am excited to have Brice Hill, our new CFO joining us today. Brice welcome to your first Xilinx earnings call..

Thank you Victor. It’s nice to meet all of you online virtually and I am thrilled to join Xilinx. I am impressed with the products, strategy, the vision of the company and specially the leadership team and just excited to contribute to the future. So thanks Victor..

Thanks, Brice. So let me start by spending a few minutes on actions we’re taking to address COVID-19 challenges and our assessment of potential impact to our business before moving on to Q4 FY 20 results and our outlook for Q1. Because of the uncertain business environment due to coronavirus, we will not be providing full year guidance for FY 21.

I hope that each one of you and your families are staying safe and healthy. Our hearts go out to those who have been personally impacted by COVID-19. I also want to take this opportunity to express our sincere gratitude to all healthcare workers around the globe who are on the frontlines of fighting this once in a century pandemic.

As we’re all adapting to new ways of living and working, the physical and mental well being of our employees remains our highest priority. We have implemented work-from-home globally, except in China where the employees have been allowed to return to work.

We’ve also enforced social distancing practices, have adopted strict travel restrictions as part of many other measures we’ve taken for the health and safety of our employees. We’ve worked hard to improve our employees work-from-home experiences and their productivity.

In addition to the connectivity enhancements, we’ve increased internal communications to keep our employees both informed and engaged. To alleviate anxiety and enable better focus, I’ve communicated some items that there will be no workforce reductions during the rest of this calendar year.

We’ll control expenses as appropriate by means other than job elimination. As a company, we’re doing our part to fight COVID-19. For our healthcare industry customers, we’ve formed a task force to provide special assistance, prioritize product fulfillment and expedite shipments.

I am proud that our technology which powers millions of medical devices like ventilators, patient monitors, respirators, patient ICU beds play a role in combating the coronavirus. In late January, we supported China’s largest medical equipment maker Mindray with thousands of Spartan-7 FPGAs to power patient monitoring systems.

We’re currently working to support some of the largest medical suppliers in the U.S., such as GE Healthcare as well as companies in Europe and Asia to supply products for testing and treating COVID-19. In addition, Xilinx donated a total of $1.1 million to several organizations including the WHO, as well as regional and local non-profit institutions.

Turning now to our update on our supply chain and demand impact from COVID-19. Our supply chain remains intact without significant disruption. However, we started seeing COVID-19 demand related impact midway through the quarter with weakness in our Automotive, Broadcast and Consumer business.

The weakness was more pronounced in the automotive business as car sales in China and around the globe declined significantly. We also saw weakness in broadcast in the China channel businesses. Nonetheless, our team has executed extremely well and the overall business impact in the quarter was relatively modest keeping us within our guidance range.

Now I’ll talk about our fiscal year 2020. Fiscal 2020 was much more challenging than we anticipated. Our business is materially impacted by the U.S. export restrictions to Huawei early in the fiscal year and the overall challenging global trade environment, coupled with general weakness in the semiconductor market in calendar 2019.

Despite these challenges, we had another record year with $3.2 billion of revenues growing 3% year-on-year. This is a testament to the resilience of our business which attribute it to the diversity of the markets we serve and the strength of our product leadership.

In FY 20, we also generated $1.2 billion in cash flow from operations and returned significant value back to shareholders with $372 million in dividends paid and spending over $1.2 billion to buy back 12.9 million shares. Now moving on to the fourth quarter highlights. The Advanced Products category constituted approximately 70% of total revenues.

Zynq-based revenues grew 2% year-over-year despite the impact of weakness in Wired and Wireless, and the Automotive businesses and represented 20% of our total revenues. Zynq revenue and design win momentum continues to be strong across our target markets.

In the communications market, we recently announced a strategic engagement with Samsung for their second-generation 5G radio design that includes beamforming based on our 7-nanometer Versal ACAP.

This engagement is driven by the compelling Versal value proposition, particularly our AI engine architecture as well as our commitment to deliver optimized and differentiated platform solutions for our customers.

Telefonica, a multinational telecoms carrier announced its plan to build next generation wireless radio networks using O-RAN collaborating with Xilinx and other leading companies. Our RFSoC products will be used in their 4G and 5G radios. In the Data Center, we announced Xilinx’s first comprehensive SmartNIC platform, the Alveo U25.

It combines a highly optimized SmartNIC platform of the powerful and flexible FPGA based engine. In addition, we’re working with Nimbix and Samsung’s SmartSSD storage group to deliver intelligent storage using FPGA based computational accelerators.

Across our core markets, we announced a range of new advanced machine learning capabilities in our products for the professional, audio, video and broadcast markets. On the software front, we have had over 20,000 Vitis downloads since we announced Vitis this past November.

We have trained over 10,000 developers to date, an increase of over 250% since last year. We have around 1,000 software partners working with us and a growing library of application. Lastly, we doubled the number of production applications running on our platform since the previous year.

Moving to a review of our business groups and core markets for the fourth quarter. Our core markets performed largely as expected. We saw strong sequential revenue growth as programs ramped at multiple emulation and prototyping customers. A&D and ISM were both up as expected with A&D revenues growing double-digits.

We had expected auto revenue to recover but auto revenues are flat due to COVID-19 impacts. As expected, AVB and consumer were weaker, but the weakness was more pronounced due to COVID-19.

The Data Center Group performed as expected with strong sequential growth primarily due to contributions from compute acceleration, driven by a mix of both cloud and high performance compute customers.

We saw notable strengths from a hyperscaler deployment of a FPGA-based SmartNIC and our DCG opportunity pipeline continues to grow at double digits, particularly in video, HPC, database and fintech applications. The Wired and Wireless Group performed better than expected.

We had expected Wired revenues to decline but the market grew due to some strength in optical transport networks and access. Wireless revenues performed better than expected due to stronger radio shipments. Lastly, as expected the ASIC transition, which we talked about at length in the past, is largely complete.

Now moving on to the financials for the fiscal fourth quarter. Q4 revenues was in line with our guidance range, despite the mid-quarter impact from COVID-19. Total revenues were $756 million, up 5% sequentially and down 9% year-over-year. Data Center Group revenue increased 77% year-over-year and was up 14% sequentially.

Wired and Wireless Group revenue declined 46% year-over-year and was down 19% sequentially. AIT revenue increased 15% year-over-year and was up 30% sequentially. ABC revenue increased 2% year-over-year, but was down 13% sequentially.

Gross margin was higher than expected primarily due to product mix with GAAP gross margin of 70% and non-GAAP gross margin of 71%. GAAP operating expenses at $350 million and non-GAAP operating expenses at $317 million were both below midpoint of guidance due to reduced hiring and discretionary spending.

GAAP operating expenses included a pre-tax charge of $28 million related to severance pay expenses as we completed the restructuring that we announced in late January. GAAP operating income was $178 million or 24% operating margin. Non-GAAP operating income was $218 million or 29% operating margin.

Our GAAP tax rate was approximately 15% and non-GAAP tax rate was approximately 16%. The higher tax rates were primarily related to larger contribution of revenues and profitability from higher tax jurisdictions. GAAP net income was $162 million. Diluted earnings per share was $0.65 a 32% year-over-year decrease and a 2% sequential increase.

Non-GAAP net income was $193 million. Non-GAAP diluted EPS was $0.78, a 17% decline from last year and a 15% increase sequentially. Diluted share count decreased to 249.3 million. Gross cash was $2.27 billion with $1.25 billion of long-term debt. Accounts receivables increased to $273 million is at 33 days compared to 32 days last quarter.

Overall, we generated $345 million in operating cash. During the quarter, we repurchased approximately 5.7 million shares at an average price of $83 per share and paid dividends of $91 million. Turning now to the outlook for fiscal first quarter 2021.

We expect first quarter revenue to be between $660 million and $720 million, which at the midpoint is down approximately 19% year-over-year and down approximately 9% sequentially. Our guidance incorporates the current assessment of the impact from COVID-19 with the somewhat broader range also reflecting the fluidity of the environment.

In addition, customer-related program timing and dynamics, which I’ll go into shortly, are also contributing to the steeper than normal sequential revenue decline. That said, we’re entering the quarter with backlog ahead of our historical average which gives us a degree of confidence in our revenue expectations.

The sequential decline in first quarter revenue is expected to be driven by lower AIT, ADC and DCG sales, partially offset by growth in WWG. Now within AIT, TME sales are expected to be down, but coming off of a record quarter in fiscal Q4 as E&P customers programs continue better at more modest pace.

A&D sales are also expected to decline primarily due to a very meaningful purchase of a specific customer program in fiscal Q4, that’s not repeating in Q1. ISM is expected to be flat due to strength in the medical marketing -- the medical market despite headwinds related to COVID-19 and the other markets.

All ABC end markets are being impacted by weak demand resulting from COVID-19. Automotive is expected to be meaningfully down, while Broadcast and Consumer are expected to be slightly down. DCG sales are expected to decline from last quarter.

As I’ve said in the past, our DCG business continues to have greater quarterly revenue fluctuations compared to other businesses as we are in the process of driving our DCG business of scale, but we are laser focused on sustaining double-digit growth on an annual basis over the long term.

WWG is expected to grow modestly with improvement in Wireless and to some extent -- a lesser extent, excuse me, in Wired business. Fiscal Q1 non-GAAP gross margin is expected to be between 68% and 70%. Non-GAAP operating expense is expected to be between $307 million to $311 million, which reflects our new adjusted spending profile.

Non-GAAP other expense is expected to be approximately $13 million due primarily to expected lower interest income and foreign exchange hedging losses. Finally, our non-GAAP tax rate is expected to be between 9% to 11%.

Turning to FY20 and overall, while we’re not providing full year guidance, we believe the impact of COVID-19 related disruptions will be more evident in some portions of our core markets, including Automotive, Broadcast, Consumer, Industrial and semiconductor test.

We expect the rest of our core markets to be relatively less impacted by COVID-19, but we are continuing to monitor the situation very closely.

Despite a modestly slower 5G deployment ramp, we continue to see a strong pipeline of opportunities in WWG, We also expect DCG to continue to build its pipeline as customer engagements go into deployment at hyperscalers.

Regarding our shareholder return programs, we plan to be more conservative with our buyback activity as we focus on capital preservation and further improving our strong liquidity position. Our Board has approved a quarterly dividend increase of approximately 3% to $0.38 per share and we remain committed to growing our dividend over the long term.

We are focused on being good stewards of Xilinx’s capital and continue to drive free cash flow generation. So in conclusion, I’m extremely grateful and proud of our employees for the dedication they’ve exhibited and keeping our commitments to our customers and running the business while coping with COVID-19 pandemic.

Despite today’s challenges, our belief in, and commitment to our growth opportunities in the Data Center, 5G infrastructure and Automotive markets remain undiminished. As the leader in adaptable platforms, we’re driving SAM expansion, share gains across our diverse and resilient core markets with innovative products like Zynq, RFSoC and Versal.

We remain 100% focused on executing on our strategy to empower more customers with powerful adaptable platforms and deliver long term shareholder value. Operator, I’ll now open the call for questions..

Cristina we will turn to you for questions..

Certainly. Thank you. At this time I would like to remind everyone the floor is now open for questions. [Operator Instructions] Your first question is from Toshiya Hari from Goldman Sachs. Your line is open. Please go ahead..

Hi guys, good afternoon. Thank you for taking the question. Victor, I wanted to ask a question on COVID-19 and the demand impact that you’re seeing in your business. You gave great color in your prepared remarks, but I was hoping you could elaborate a little bit in terms of what you saw in the quarter from a revenue standpoint.

If you can provide some numbers around the impact, that would be helpful. And then similarly for the current quarter, appreciate the level of uncertainty, but if you can kind of speak to what exactly you’re seeing across your customer base, as it relates to COVID-19, that will be helpful.

Are there cancellations, push-outs, downsizing of projects? If you can kind of speak to those, that would be great. And then I’ve got a quick follow-up. Thank you..

Okay. Sure, Toshi. So on fourth quarter, we did see some impact, but I’d say, all things considered, relatively modest, because it just started happening midway through the quarter and I shared the end markets like Automotive, I think somewhat pretty -- as you would intuitively expect.

In terms of the current quarter, obviously, we’re seeing more meaningful impact.

I would say that, as I said in the prepared remarks, it’s not only COVID-19, but if I had to point to one single thing on why the both the midpoint and then the range we’re providing is broader is due to COVID-19, and I think kind of went through some of the end markets that are more exposed to that.

We are of course not only increasing communications with our employees but very much so with all our key customers with Avnet, our partner, with our supply chain, with our customers’ customers and a lot of the end markets. So we’re doing everything we can on this uncertain environment to collect a lot of information.

And so what I would tell you is that, we are not seeing cancellations. We do not see things like double bookings because of work concerns around material. A few areas where there is people are creating buffer stock, but not very expensive and again overall, we have historically higher backlog than we ordinarily have.

So I would say that we do have some confidence in that because of that and because of the high level of communication that we have engaged. That said, look, we’re definitely in uncharted territory. Right? So we have factored in some degree of, say, turns degradation over time and just the general uncertainty.

So I think we are really trying to do the balance there. I hope that helps..

Yes, that’s great. And then as a quick follow-up, on the Samsung 5G win with Versal, I was hoping you can help us again sort of quantify the potential impact to your business over the next couple of years.

I’m sure it’s going to take some time, but both in terms of timing, as well as magnitude, how meaningful this specific win could be for your business? So if you can kind of touch on that, that’ll be helpful. Thanks so much..

Yes. So Samsung is -- that’s a very meaningful win for us and opportunity and again this is for their second generation of 5G and I think we don’t break out specifics of customer revenue but it is a very meaningful engagement for us.

And I think the bigger picture here is, again, we’re still in the early stages of 5G, what’s shipping today is first generation and what -- as you can see, we’re engaged in development of the second generation and pretty much all our customers talk about there being at least three generations.

So we’re still in the early stages and we absolutely are confident that this is still going to be a very large long term opportunity for us. I think the other thing, as we’ve said in the past too, is it tends to be, even in normal circumstances, somewhat lumpy and now with the COVID situation, it adds more uncertainly.

So I think the timing is more challenged, but pre-COVID, we still would have probably said that this is sort of later in the calendar year and then being more robust in the next calendar year. But now, of course, we’ll have to see with the COVID situation..

Thank you..

Welcome..

Your next question comes from Joe Moore from Morgan Stanley. Your line is open. Please go ahead..

Great, thank you. Following up on that last question, the WWG segment, the revenues are down. I think Wireless infrastructure probably down to below 4G levels at this point. So, it seemed like a pretty compelling growth opportunity.

At the Analyst Day, last year, you talked about what you see the total area under the curve growing by pretty impressive numbers, obviously you expected the ASIC transition, but you didn’t expect Huawei to become more challenged.

But how are you seeing that opportunity out in the next two, three years? Do you still see significantly larger business than 4G even missing Huawei from that forecast?.

Yes, Joe, great question. I think two to three years out, we should, well, knock on wood, certainly, some of the challenges that we see in visibility with the pandemic, and out in that tight kind of timeframe, we do believe it will still be meaningfully larger than 4G despite not having the Huawei business.

And, again, I know again considering that there was a -- this thing has been dropped off, but the fact that we were still able to have this being north of $1 billion after losing one of our top customers, I think, gives you an idea of that even in the early innings of 5G, this is strong for us.

So yes, I think when we get through some of these kind of near term headwinds and uncertainty, it’s definitely still going to be a very significant opportunity for us.

And again, this is both because 5G is going to be a much bigger kind of deployment and we’re offering a heck of a lot more value between our RFSoC lines, our Versal lines and just the way we’re working with the key suppliers. I think we’re really working very closely with them to get their optimized architectures out.

So we still feel very solid about that.

And I guess the only other thing I would say is that one thing about the COVID issue is that, in some markets, you could argue that there could be demand disruption and in this situation, I think it’s really delay as opposed to the demand disruption and, of course, timing of guessing what -- how the delay recovers or how that plays out is difficult..

Great. And then just to clarify I mean you’re still selling some trailing edge product to Huawei I believe.

Can you quantify that and there is, is there much Huawei to think about your forecast?.

Yes. Joe, it’s really pretty deminimis. I mean, we don’t really count on it and because it is pretty much more modest and it’s just not something we count on but from time, time we have some amount of Huawei revenue..

Okay. Thank you..

Your next question comes from CJ Muse from Evercore. Your line is open. Please go ahead. CJ your line is open..

Maybe on mute..

Moving on to Ross Seymore from Deutsche Bank. Your line is open. Please go ahead..

Hi guys can you hear me?.

Yes Ross..

Perfect. Glad my mute button doesn’t work. Just had a question on the -- Victor, you said no double ordering, no buffer to speak of. I noticed your turns really popped up to kind of the higher-end or the highest end of what you guys do in the last couple of years.

I guess, how do you judge whether you are seeing those pull-ins and why would the turns have popped up so much if it wasn’t pull-in behavior?.

Well, I think since we cover so many different markets, it kind of depends a little bit on what areas. But, I’d say, look, China is coming back after shut down and obviously, they’re pretty committed to driving their 5G deployments. But that’s one aspect where there is, you can imagine, some catch-up.

I think some of the other areas people are -- or maybe concerned, although our lead times and our ability to deliver and ship for people have not been affected. But, it could be because of that, but we are talking to everyone very closely.

And again there are some instances where people are doing that, but it’s still pretty modest and we absolutely have not had any cancellations and -- so far. But we understand that things could change, which again is why we’re putting in a bit of a broad range that we also factored in that into our midpoint..

Got it. And then one longer-term question. You mentioned about the wide array of engagements that you have in software development, etc, that can benefit your Data Center Group.

I just wondered if you’ve seen the activity on your customer side change at all during the COVID side, on one hand, those are the customers that can keep their longer-term development going because they’re so well financed and see growth, etc.

But people are fearing that even that market, if the recession gets nasty, would clamp down on some of the new launches that were otherwise planned and your company would benefit a lot from those new launches.

So any sort of update on the activity you’re seeing from an engagement level from a longer-term perspective as well as kind of the near term?.

Yes, that’s a good question and it’s something I talk to my team and the sales group pretty specifically about. And people are really remarkable.

I think, our current businesses -- our current customers, excuse me, and the customers that we’ve engaged in some meaningful kind of proof-of-concepts and things getting to trial to production, we’re not seeing any fall-off there. I mean, everybody is pretty committed to try and keep their businesses running.

Where we could see, if this is very prolonged over a period of time, is capturing whole new customers, as you know, we’re gaining share as well as SAM expansion and we’ve already done a good deal of that. But I would say, right now, we see no impact to opportunity pipelines or anything.

I’m just saying, not sure if this prolongs for a very long time, people are mainly focused on their current suppliers of course and driving what they’re doing there. But we don’t see anything material right now..

Got it. Thank you..

Your next question comes from Aaron Rakers from Wells Fargo. Your line is open. Please go ahead..

Yes, thanks for taking the question. I wanted to talk a little bit about the Data Center business. It sounds like you’re a bit more confident in the visibility that you’re seeing on proof-of-concepts moving into kind of production deployment.

Can you just talk a little bit more about what you’re seeing there and how much traction have you been seeing from the SmartNIC category, obviously, the Solarflare Alveo U25 products? And then I have a follow-up..

Yes, I think that, again, it gets back to the kind of quality and intensity of engagements and the results that we’re seeing people are getting.

I mean they -- people -- when your’e a new platform, they’re only going to move to a new platform if they really do see significant improvements and we’re very encouraged about what we’re seeing and also the fact that, again, there’s very strong interest in the expansion of our Alveo line even though the revenue is still out in front of us as far as that goes.

I think, I guess I’ll also say it, even in the pandemic, we have customers that are using our accelerators to accelerate their genomic analysis and simulations and things like that and so that’s again shining a bright light on the power of what some of our acceleration technology can do for some of these applications. So that is all encouraging.

That said, again, the exact timing of how that ramps up tends to be a bit bursty and there is definitely going to be a little uncertainty here with the impending or the looming recession that we seem to be going into..

Fair enough. And then on the Versal product, obviously coming off the heels of the Samsung announcement, can you just remind us again of where we stand, or how we should think about materializing revenue contributions and are you still on track with some of the product lineup expansion that you’ve previously outlined? Thank you..

Yes, again, when we did the reduction in force and -- that we announced in late January, and some of the other expense reduction measures, we were very thoughtful and making sure that we were not going to do any harm to anything strategic and our long term objective to drive sustained double-digit growth in the long term.

And I think we’ve managed to do that and we’re going to continue to take that posture even through this downturn. We do have other levers that we can pull, should this worsen, but what we’re going to do is make sure that we’re positioned to take advantage of when that the recovery does occur in a very fulsome way.

We are also very committed during this very trying time to be a very good supplier to all our key customers and so we are going to manage things, basically, responsibly, but we don’t want to do things that jeopardize a longer-term program.

And that’s not only tape-outs, by the way, that is, as you heard me talk about the factors improvement we made in the ecosystem, we made in the software development in Vitis and just being ready for download for few months and the traction we’re getting there.

So we’re definitely going to keep on the gas pedal, so to speak, in driving the ecosystem as well as the key programs..

And, just specifically in 7-nanometer, would you expect that to contribute to revenue toward the end of this year, late in the year?.

Yes, I mean we will position for production of the first part, but then through next year and the next several years. As you know, it’s a very broad product family and we’ll be doing lots of tape-outs that will address many different market segments at different price and performance and power points.

So we’re still in the early days of that, but as far as 7-nanometer, it will become it will really start to ramp next fiscal year, I would say. But, yes, we are poised to go into production late this year..

Thank you..

Your next question is from Ambrish Srivastava from BMO. Your line is open. Please go ahead..

Yes, thank you very much.

Victor, I just had a question on where we are heading into and I was a little confused, why would backlog be up and what is your perspective on what we are heading into versus ‘08 or ‘09? Yesterday we had this representative from TI tell us that he is ripping open the -- not ripping, he is opening up the 2008, 2009 playbook to kind of think through revenue.

So having lived through many cycles, what is your perspective on what we’re heading into versus the last one? And then I had a little bit longer term product question..

Okay. Well, I guess the first point about the backlog, I mean, again it is very different depending upon markets. I mean, Automotive, very -- they meaningfully said that their forecast is way down from what they originally gave us. I mean, more than one very significant customer that the supplies the major OEMs.

We also obviously, as I said, see pretty strong amount of weakness in AVB. There’s no sporting events, the Olympics is delayed by a year. So some of those things are pretty clear and so obviously we’re not seeing backlog there. But on the other hand, Aerospace and Defense, it’s really unaffected.

I think there are certain areas that, in the long term, would actually increase the potential upside. It’s a little hard to know when or how. But just clearly there is a lot more activity both, work-from-home, as well as, entertainment from homes, so video streaming which was hot before the pandemic, that’s clearly going to go and increase.

And one of the applications that’s really good at accelerating is actually video transcoding and other kinds of video processing. And that doesn’t have anything to do with AI and we could also do AI coupled together with some of those video processing applications.

I think also communications infrastructure, again, the CapEx is -- we’ll have to see how that plays out, but it’s just going to be a lot more traffic. So I think some of those elements are probably why that occurred. And again, as you can imagine, we’re very sensitive to make sure that isn’t just inventory builds or things of that nature.

So I think on the other part of the question about 2008, 2009, we definitely are looking at multiple scenarios.

Right? And that does include looking at that and so I won’t tell you that doesn’t inform how we think about looking in the future and trying to be prepared from downsides as well as upsides but we’re a very different company from 2008, 2009. I mean, I think we have well over 40% more revenue.

We -- Zynq didn’t even exist, just to bring that to perspective, that product didn’t even exist, let alone RFSoC, let alone Versal ACAP and we weren’t pursuing the Data Center market, right? AI didn’t exist back then, as far as any kind of big opportunities.

So we feel that, while we consider that we think about that, for us anyway, our decision is that’s not the right blueprint. In fact, this is uncharted territory. It’s unclear there’s really any existent blueprint, at least from the way we look at it. So the last part of your question, are you....

Yes, no, I had a products related question. That’s actually pretty helpful perspective, Victor, thank you. On the Samsung design win, I’m just going back to the [indiscernible]. I mean, I forgot, the gentlemen from Samsung had come and presented and the relationship between you guys and them. So this is for the next gen.

Can you just help us kind of understand because you guys have been on the back foot, I’m using an old cricket analogy from my cricket days, in terms of losing out design wins and ASIC replacing you and other ASSP solutions.

So this sounds like something pretty meaningful and just help us frame the opportunity versus what you had in the first gen and against competing solutions, not necessarily against any competitor. That would be helpful. Thank you..

Okay. And I recognize that there is just an awful lot of narratives going on for multiple different players here.

So -- but I will say, I think, I’ve been pretty consistent in saying that when we had an initial much larger part, we were, I think, just open and candid that we ended up being shipped in production and the base down which is not something we had expected to hold on to persistently.

We’ve always said that we -- and it’s true, historically we’ve been strong in radio, but we feel like we have further strengthened our radio capabilities with the RFSoC family and then I’ve always said that once Versal comes out, it’ll even strengthen further compared to ASSPs and ASIC opportunities because the significant increase in compute density, right, the level of integration and the fact that it is such a powerful true platform, right, it’s not a fixed solution.

I’ve always felt that, that was going to significantly improve our competitive positioning. And the Versal Samsung engagement, I think, is bearing that out. And, again, remember we’re not in production with Versal yet.

We will be prepared to go into production at the end of this calendar year and then you’re going to start seeing the train of all the other products coming out. So we definitely feel that we’re going to have a very significant position. And I’ve said in the past too that it is a very competitive market. But competing at ASICs is nothing new, right.

I mean we’ve been doing that back in the 4G generation. Essentially the same customers we picked up and then now we are unable to work with Huawei. But I mean I think it’s obviously a core market we’ve known about for decades..

Okay. Thank you..

Your next question comes from Tristan Gerra from Baird. Your line is open. Please go ahead..

Hi, good afternoon.

Could you talk a little bit about any meaningful changes in inventory levels at the distributors and any potential supply chain disruptions that impacted your Q2 guidance?.

Yes, so in terms of our channel inventory, it’s not that much. There are some fluctuations, but it’s really pretty minor and we’re not concerned about it at all. We do talk very closely with Avnet, of course, so we don’t see any issues there. By the way, I know you asked about channel specifically, but our own inventory did reduce slightly.

In terms of -- you said Q2, I think you meant Q1 guidance, but for us fiscal Q1 guidance, I think, again, we don’t have supply chain disruption. We are with TSMC still and so we don’t have any meaningful supply chain in China itself, which obviously had the biggest impact.

And we have excellent relations with our strategic suppliers, so we don’t see that. And we, in fact, have reached out to all our customers to really reassure them in terms of our lead times and our ability to deliver for them. So it’s not -- we don’t see supply chain related impacts..

Okay. And then as a follow-up, trying to see the progress that you’re making with the Vitis software platform and how much compatibility you’re providing so far and I know that it’s obviously a work in progress.

Any metrics that you could provide us with such as maybe how many TensorFlow functions Vitis is supporting currently or anything that will gauge -- that will allow us to gauge the type of traction you have and what you’re targeting for the next year?.

Yes, I mean I don’t know if I can give you TensorFlow functions, but others in my group can, of course. But I think that, again, we’ve had 20,000 downloads and we only announced this thing in November. So I think the interest is very strong. We do have -- we’ve also done training, we know we have engagement with customers, but it is pretty early days.

But it’s also not a static picture, right? We continue to add more optimized libraries, which by the way, are other libraries we provide and we also provide some reference neural networks for different kind of applications of markets, we open source all of that. So we are seeing very encouraging activity and really good momentum.

But of course it will take some time for that flow through to actual revenue, of course. But we’re very encouraged and very excited about the traction we have so far..

Great. Thank you..

And your next question comes from CJ Muse from Evercore. Your line is open. Please go ahead..

Yes, hi. Sorry about earlier. And thank you for taking the question.

I guess first question, I was hoping to head over to back to WWG and I guess outside of Samsung Versal and what you’re doing in 5G overall, can you comment on what you’re seeing in terms of your legacy networking business both wireline and wireless and how we should think about trends for that business?.

We are still shipping 4G and we do still think that there’ll be some ongoing business there even, even as 5G starts more fulsomely ramping. So we do see, on the wireless side, business there. On the Wired, as we said, we actually thought that was going to be weaker and it was a little bit stronger.

And I do think clearly there, two things, again, I think there is a lot of traffic going on, right, because of both commercial activity with work-from-home, but also just all kinds of streaming and ultimately as there’s more wireless bandwidth infrastructure build out then obviously the core networks have to be upgraded as well.

So I think we do see opportunity there. Again, it won’t be, from a percentage growth, quite as robust as we expect Wireless will be over time once we get through maybe some of the near term uncertainty and some of the engagements that we have in development go to full production.

But we see that there will be strength in both, but again, Wireless will definitely still be stronger than the Wired side..

Got you. Very helpful. And understandably with COVID, not giving full year guide makes perfect sense but curious on what you can control.

Can you offer any thoughts on how should we think about OpEx through the year?.

Yes. Since we had done some reductions before we -- in [$0.01] ended up being for [$0.02] it is that we’re already in somewhat of a leaner mode. I think that there are some additional levers that we could pull as this plays out, if it turns out to be longer, deeper, whatever.

At the same time, the way C.J., I’d like you to think about is what we’re going to try and do is make sure that we’re positioned to manage through if it gets more severe as well as if it does improve. We absolutely -- we are a bigger, stronger company than the financial crisis.

We’re more strategic to a number of our customers and we’re building new relationship with the new key customers like in the hyperscalers, right. We weren’t even going after those back then.

Right? So we absolutely want to make sure that we’re there for them when they -- either even just to make sure we could deliver what products they need even in the downturn or things are starting to inflect, we want to be there for them.

So again I don’t want you to think that we’re going to go wild here, but we’re definitely going to try and make sure that we’ll help our customers and ourselves as well to come out even stronger from this downturn..

Great. Thank you..

Your next question comes from John Pitzer from Credit Suisse. Your line is open. Please go ahead..

Yes, good afternoon, Victor. Thanks for letting me ask the question. Just kind of curious, just given that the DCG story is very much sort of a customer penetration rate of adoption story.

How does that work in an environment where many people are sheltered in place and we’re working from home? Is it -- can you give us some sort of a qualitative assessment of how you think your team is doing along the lines of customer engagement to try to drive growth in that business longer term?.

Yes, I think the customers in those markets, of course, of all, are probably the ones that are more proficient at being able to switch to working from home, the kind of collaboration that we have and so forth. And again, since those are really deep engagements at the technical level. They’re not just commercial kind of engagements.

That’s absolutely proceeding. Our engine teams are having the same kinds of, in some place, weekly meetings and calls and people are able to whiteboard with the technology that we have for collaboration these days. So I think that’s really not been an issue.

And again as I said, in some cases, that this is driving people to even more vigorously want to look for putting acceleration in place. I kind of referred to people doing genomics kind of acceleration and those kind of applications, we’re definitely seeing that.

We’re also seeing -- we talked about streaming of course, again I think streaming was big before, now it’s even more so, because even more people who are doing entertainment and just everybody is creating their own tik-tok videos or whatever it is.

So I do think that that’s continuing without any kind of interruption and again, you could argue that maybe when things really settle down, it should drive that opportunity to be even greater..

That’s helpful, Victor. And then, Victor, I apologize for this question but it’s one that I get asked often by investors. I’m just kind of curious, there has been a lot of rhetoric and talk in some of the popular press that this administration might actually potentially ban all FPGAs going into China.

It feels to me like a slippery slope argument because I’m not sure the difference between that and a general-purpose computing devices.

But can you help us sort of handicap that risk and how should we think about mitigation factors on your end?.

Well, I think as many of you probably know, I’m also on the Board of the SIA and both the SIA and we individually are engaged in constructive dialog with the government to help them both understand the complexity of the global supply chain and the key care about for semiconductors and they’re certainly trying to drive some meaningful trade issues.

However, we’ve been very clear, both as part of SIA and Xilinx on our own that blanket kinds of things like that. These sort of bludgeon hammers are going to do damage to the industry as a whole and the U.S. is the world leader in semiconductors and the last thing you want to do is really do material damage to the industry as a whole.

And so we do not -- and we’ve been clear about that. We don’t think that’s the effective approach to resolve some of these issues. So whether that’s FPGA technology or it’s just blanket, everything needs a license going to China kind of thing.

Those are examples of one instrument kind of things, right? I think the only other thing more specifically as I -- I mean Huawei revenue were precluded from shipping from them and clearly they’re finding some way to still build some 5G infrastructure.

I won’t get into a debate about what that looks like and the details, but I think it’d be hard put to sort of say over a long period of time how any specific technology can be withheld forever and other than doing some unintended consequent damage. So I don’t know how to put probabilities on this, to be honest, C.J. I hope you understand.

But we were clear about positions and again I think we’ve had good -- some good constructive conversation. So, sorry about that..

Appreciate the answer..

Your next question comes from William Stein from SunTrust. Your line is open. Please go ahead..

Great, thanks for taking my question. Victor, I know you answered a question on this already, but I’m going to ask if you could linger on this comment you made earlier about the ASIC transition. I think you said it’s largely complete.

Maybe you can just remind us historically where have you played in the base station in places that you both get designed out of and where you can retain a position and confirm that I heard you correctly, that that transition, as it relates to 5G is complete already and what content do you have in 5G that you didn’t have in 4G.

It’s a sort of a long question, it’s my only one. Thank you..

Sure. Look, I mean, we’ve had -- traditionally we’ve had a position in radio and that’s been our strength where we’ve had more persistence. I don’t want to make it sound like we’ve had no content in baseband, but typically what we’ve had in the baseband is a much smaller percentage in terms of the content.

In other words, a smaller companion FPGA, if you will, together with some sort of whether it’s an ASIC or some other ASSP.

So it’s not that we haven’t had any baseband, but in the beginning, as everybody recalls, 5G deployment started sooner than what people thought in South Korea and we were being shipped both in the baseband as well as in the radio, and not just in South Korea, we saw a bit of that in other markets.

And that was the part that we kind of said, look, we don’t expect to have that persist the level of content there. And so when I say it’s largely over, that’s what I was referring to. Now, look, I don’t want to sort of say that, okay, there will be no replacement whatsoever. Look, it’s a competitive market.

We always have to deliver value to our customers and that’s what we aim to do, which is why we’re not just doing pure FPGAs. We significantly increase the value that we deliver to our customers and we’ll continue to do that, not only in the products, but also just how closely we engage.

We’re doing a lot of close, I’d say, almost collaborative engineering work together to help them deliver to their goals. So I think it’s a combination of all of those. So -- but it’s complete as far as everything that we see on the horizon. And of course, we’ll continue to compete vigorously and I think the Samsung win is one example.

And you’ll hear more over time..

Thanks Victor..

Your next question comes from Matt Ramsay from Cowen. Your line is open. Please go ahead..

Thank you very much. Good afternoon, guys. Just one quick one and a product related follow-up. The first question is just within your ABC segment since Automotive is obviously going to be challenged.

If you could give us a little bit of a just rough picture of how big the Automotive business is within that segment and just kind of the magnitude of maybe the drawdown into the June quarter that you’re seeing, given the sharp declines in auto production etc, that’d be helpful. And then I’ve got a follow-up. Thanks..

So, okay, so, Auto -- okay. Auto, we don’t give exact details but auto is on the order of somewhat over $200-ish million, $250 million on an annual basis just as far as ABC. That’s the order of magnitude in terms of that part of the ABC basket of markets.

And one thing I would say is that I think everybody knows that that’s going to be quite challenging. It’d probably take a bit longer to work through.

But again, similar to the question on 5G, for instance, if you kind of go out to certainly three years and beyond, there is still a very big opportunity here, right? Because the OEMs are still going to be rolling out new models.

We have a very strong position in advanced driver assist systems for safety systems and those safety standards keeps going up with each model here, right? So they have to deliver even more safety capability and what used to be kind of like options are now spreading into standard equipment not only in premium and mid range, but even into the value parts of people’s lineups.

So there is -- well, things will be challenging and it’d probably take a while for end unit sales to go up, content is still going up for automobile and because there is a timeline on when they have to meet safety standards and so forth and we have strong positions in things like front camera, surround view, the new thing is monitoring systems, driver as well as passenger monitoring systems and automated valet parking.

We do feel good when you get more out to that two to three-year timeframe, then we’ll have a very strong opportunity there and then certainly even going further out, fully autonomous driving, we are definitely being designed into those as well.

I think we’ve already said that even before this situation that, of the three big growth drivers of Data Center, 5G and Auto, Auto was something that tends to take longer time anyways, right. This probably just pushes out a bit more..

Got it. Thanks for the granularity and the context there, Victor.

As a follow-up, I just wanted to ask in the Data Center business there is obviously the networking and the storage in addition to the compute pieces, but on the compute side, specifically, could you talk a little bit about your software and ACAP engagements? I’m just wondering ACAP Versal is a very different type of product that mixes general purpose and accelerators and PLD logic and just how the reception has been within the compute sliver of that business, specifically and how those engagements have been going? Thank you..

Yes, maybe first I’ll just sort of say, in the compute segment, in general, I think we’ve always said that we see in the long term, that would be the biggest opportunity.

But that also is the area that requires the most heavy lift and build out in terms of our ecosystem, right, the applications, having fulsome set of ISVs and covering different applications.

So -- but in the meantime, of course, we’re making good progress there, but in the meantime things like SmartNIC and then the smart storage areas, you don’t need those sorts of things. And so it’s a much more direct engagement with the highly technical teams of the customers.

So that’s why you hear us talk about -- like recently you’ve seen some good SmartNIC activities and others. But coming back to the compute side, few things, one is, we did announce Vitis and as you see that it’s early days, but we’re seeing really good traction there.

Versal is still also -- it’s just pretty new and I’d say that, for instance, our Alveo boards and some of the work that’s being done, there’s still a lot of work that’s being done on our UltraScale architectures, especially now that we’ve released these new boards like the U50, which has got HBM memory and have high half length kind of form factor.

So really, really dense compute density in that form factor. And then the U25 now for SmartNIC, first time that we have that out. So I think that we are seeing good traction there in terms of applications within the compute side. I think we’ve mentioned video several times. I think database analytics is another one.

We’re starting to see some good interesting traction in high-performance computing. And then there’s fintech and now genomics is something that we’ve done and typically medical takes a long time too, but that’s happening a little bit more accelerated now. So there are a lot of different applications.

And I think Versal will take a bit longer just because we’re just in the very first product going to production. But once that’s there, we think the barriers are very high, because that’s a very powerful architecture and again there is a very high degree of, I’d say, software element to it, which again makes it stickier..

Thanks very much..

And operator I think we have time for a couple more questions..

Certainly, your next question comes from Christopher Rolland from Susquehanna. Your line is open. Please go ahead..

Great, thanks for the question. I’ll try to do two quick ones. I guess the first, just in relation to the last question, I think this is the first time you called out SmartSSDs.

Maybe if you could just talk about computational storage, how large do you think that is as a percentage of DCG and what kind of growth rate are you expecting versus your double-digit segment growth rate overall?.

Yes, I think, we’ve got some good engagements there. Again, we don’t break into fine granularity, each of those. I wouldn’t say that it’s, today, a very large portion of the revenue, but I think that we do think, over time, it’s a pretty substantial serviceable market for us.

If you kind of go out maybe about three years, we think this could be $800 million kind of level of opportunity. So we’re still again in the relatively early stages, but it’s sizable. I want to say that I don’t think the breakdown of our revenue today is necessarily reflective of the opportunity of that.

I think everybody knows that there’s really disruption across the entire Data Center and where you do the computes and a lot of -- there’s a lot of movement toward trying to do the compute closer to where the data storage is, so you don’t use bandwidth and burn a lot of power in the Data Center moving data around.

So I think it’s a good opportunity, but today, I would say, it’s relatively modest..

Great. And then, I’ve been following you guys for a while, and in the old days, it used to be all Altera versus Xilinx and who is getting to the next node first and I understand that, Victor, under your leadership, you’ve really taken a different approach where you’ve emphasized architecture over node changes.

But I guess my question is why didn’t you push 7 as well simultaneously? Why does it seem like it’s one or the other? And then should we believe that your decisions that you made at 7-nanometer should also inform us to the speed of 7 in which you will pay?.

So let me just make sure I understand when you say, why didn’t we just push 7? I think what you mean, why didn’t we just push trying to get out in 7, really, really quickly? Is that what you’re referring to?.

Exactly. 7 has been out for a while, so why didn’t you move more quickly? In the old days, it used to almost be a race to the next node..

Yes. And again, I think the reason why in the old days it was a race to the next node was because both, us and the former Altera were just basically producing pure FPGAs. And it being a pure FPGA, the main way you deliver value to your customer is by increasing your capacity of gates, right? Because that’s how they implement more functions.

So if we get the next node first and you have a higher density of usable gates then you’re delivering more value to the customer quicker. Once we started doing things like adding a multi-core SoC, like with Zynq, we started adding other things.

We could deliver value not by just increasing our programmable gate count, right? Now, it’s a little bit of an oversimplification, right.

I mean like, obviously we have some of the best sturdiest quality in the industry and certain other things, but that was really why back then when you’re doing just pure programmable devices, it was really mainly a race to the next gate. I will also point out that, now everybody is very hot on chip widths and other forms of advance integration.

And as you know, we’ve been doing SSIT or what TSMC calls their CoWoS technology since the 28-nanometer generation. So I’ll also point out that, because we were already able to do more than mode load, if all you did want was massively large FPGAs, well, we are already there back in 28-nanometers.

And we’ve had our SSIT portion of our product portfolio ever since. Right? So I think it’s a combination of architectural innovation, other forms of integration beyond just monolithic and in the case of RFSoC, integrating very advanced analog together with digital technology, that’s yet another form of integration that we’ve been a leader on.

So, I guess, maybe the way to really think about it is, we’ve continued to integrate more value each generation. But we’re not doing it solely for getting to the next node.

Does that make sense?.

It does. I’m just wondering why you couldn’t do both at once and whether anything might change as we move to 5-nanometers..

Well, that’s the higher order bit. I guess if you go down to the next level of detail on is that -- keep in mind that UltraScale+ is an extremely successful product.

So there is also just the pure -- because we have MPSoC, right, and then we have RFSoC and we’ve continued to also increase on the high end in just terms of really large capacity FPGAs with the VU19P, that was just recently released by far and away the leader and just maximum capacity.

So part of this is also the great success of our [nanometer] products. It doesn’t -- didn’t require us just racing to the next node and then part of it is the Versal ACAP is such a powerful but complex architecture that takes quite a while to sort of develop and it’s going to take a while for our customers to fully adopt.

But once they adopt it, it will be a very strong level of incumbency, I believe..

And operator I think we have time for one more question. .

Thank you. Your next question comes from Vijay Rakesh from Mizuho. Your line is open. Please go ahead..

Yes, hi, guys. Just wondering, when you look at your fiscal ‘21, you mentioned ASIC transition mostly complete. Just wondering how you see the growth in the WWG, now that you don’t have that ASIC headwind. And I have one follow-on..

Well, again, we’re not providing full-year guidance because of all the uncertainty in the environment, but I guess I want to go back to my comment that we overall still feel 5G is going to be a very big opportunity for us and even despite not being able to sort of Huawei anymore. So we still feel very good about the growth over time in the long run.

RFSoC has continued to get great traction. Most of that volume deployment is in front of us, although we have had volume deployments in different geographies with different OEMs and then Versal is in front of us. Right? That’s all in front of us and we’re just talking about the very first design win we’re getting with Versal.

So we feel very good about the opportunities we see in WWG, but I wouldn’t try to predict right now FY21..

Got it. And, I don’t know if you already answered this, but you mentioned two wins at Samsung, I believe one on the radar beamforming side for 5G and one on Versal for, actually, computing with Samsung. Just wondering if you sized both the opportunities as you look at the ramps there. Thanks..

I think we mostly talked about the Versal Samsung 5G engagement. The other referenced Samsung with their SmartSSD and that 16-nanometer UltraScale+ based engagement. But clearly, with all our key customers, we’re talking together about our complete roadmap, but we have nothing specific to say about Versal with respect to Samsung storage at the moment.

But, yes, we’ve got really good engagements in 16-nanometers with multiple customers that served in the Data Center as well as good traction in Versal..

Great. Thanks..

You are welcome..

So Christina, I think we’ll wrap it up there. I want to thank everyone for joining us today. We’ll have a playback of this call beginning at 5 pm Pacific 8 pm Eastern time. For a copy of our earnings release please visit our investor relations website.

Our next earnings release date for the first quarter of fiscal year 2021 will be Thursday July 30, after the market close. This completes our call and thank you very much for your participation..

Thanks everyone..

Ladies and gentlemen this concludes today’s conference call. You may now disconnect..