Advanced Micro Devices, Inc. (AMD) Q4 2011 Earnings Report, Transcript and Summary

Good afternoon. My name is Kristen, and I will be your conference operator today. At this time, I would like to welcome everyone to the Xilinx Fourth Quarter Fiscal Year 2011 Earnings Release Conference Call. [Operator Instructions] I would now like to turn the call over to Rick Muscha. Mr. Muscha, you may begin your conference.

Thank you, and good afternoon. With me are Moshe Gavrielov, CEO; and Jon Olson, CFO. We will provide a financial and business review of the March quarter then we'll open the call for questions. Let me remind everyone that during our conference call today, we may make projections or other forward-looking statements regarding future events or the future financial performance of the company. We wish to caution you that such statements are predictions based on information that is currently available and that actual results may differ materially. We refer you to the documents the company files with the SEC, including our 10-Ks, 10-Qs and 8-Ks. These documents contain and identify important factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements. This conference call is open to all and is being webcast live. It could be accessed from our Xilinx Investor Relations website. Let me now turn the call over to Jon Olson.

Thank you, Rick. During today's commentary, I will review our March quarter and fiscal year 2011 business results. I will conclude my remarks by providing guidance for the June quarter. Fiscal year 2011 was a record year for Xilinx on a number of fronts. Sales of $2.4 billion increased 29% from fiscal year 2010 and were driven by strong double-digit sales increases across all of our end markets. Gross and operating margins also reached record levels of 65.4% and 33.6% in fiscal 2011, up from 63.4% and 23.6%, respectively, in the prior fiscal year. Improvements in our profitability were a direct result of sales growth as well as continued focus on efficiencies and cost reduction by the company. During the fiscal year, Xilinx generated over $720 million in operating cash flow, up from $554 million in the previous year. We repurchased $469 million in stock and paid shareholders $169 million in dividends during the year. In this recent quarter, we increased our quarterly dividend by $0.03 per share to $0.19 per share, continuing our commitment of returning shareholder value. This strategy is a clear competitive differentiator. During the March quarter, Xilinx sales were $587.9 million, an increase of 4% sequentially, outpacing the competition in capturing PLD market share. Gross margin was 65.3%, slightly higher than guided, due primarily to better-than-anticipated yields on Virtex-6. Operating margin was $181 million or 30.8% for the quarter and up 16% from the same quarter of the prior year. Operating expenses were $202.9 million, $8 million more than guided due primarily to higher-than-expected legal expenses associated with patent defense activities, acquisitions and contributions to support the disaster in Japan. New Product sales increased 10% sequentially during the quarter led by Virtex-5 increases. Mainstream Products increased 1% sequentially, and Base Products declined 5% sequentially. European sales were particularly strong during the March quarter, increasing 40% sequentially to represent 30% of total sales. With the exception of consumer, all secondary end markets increased sequentially with Wireless Communications posting the largest incremental gain. Asia-Pacific sales decreased 5% sequentially to 35% of the total sales due primarily to decreases from wired and Wireless Communications. North America sales decreased 8% sequentially to 27% of sales driven primarily by Communications, defense and test and measurement declines. Lastly, sales from Japan declined 7% sequentially to 8% of total sales primarily related to declines from Communications and Consumer. With regards to the recent tragedy in Japan, we are very thankful that all of our employees are safe. From a business perspective, the impact was immaterial to the guidance we provided at the beginning of the March quarter. We believe that we have sufficient inventory in place to minimize near-term disruptions to the supply chain. In addition, we have qualified additional suppliers as necessary and we'll continue to carefully manage customer demand to help mitigate future disruption. Let me now turn to a discussion of end markets. Communication sales increased 8% sequentially to represent 47% of total sales. Strong wireless sales during the quarter significantly outpaced a slight decline in Wired Communications sales. Industrial and other sales decreased 1% for the quarter to represent 32% of sales driven by defense and test and measurement while Industrial/Scientific/Medical increased sequentially. Consumer and Automotive sales also declined 1% sequentially to 14% of total sales due to declines in Consumer that were nearly offset by sales increases from Automotive and audio/video broadcast. Lastly, Data Processing increased 12% sequentially to represent 7% of total sales driven by increases from both storage and computing and Data Processing. Net income for the quarter was $160 million or $0.59 per diluted share. As a reminder, this amount included $6 million or $0.02 per diluted share impact for previously announced restructuring charges covering a variety of actions associated with continued realignment of resources and driving overall efficiency. Additionally, included in Q4 net income was an investment impairment of $5.9 million or approximately $0.02 per diluted share related to an equity investment. Other income and expense was a net expense of $6.5 million and lower than anticipated due to higher than expected interest income, a hedging gain and a realized capital gain from our investment portfolio. Finally, tax expense was lower than expected primarily due to a change in the non-U.S. investment profile of the company. As our investment levels have increased outside the United States on a relative basis, the result is an overall lowering of the tax reported on our financial statements. The impact to EPS of the tax change for the full year of fiscal year '11 was reflected in Q4 net income and was approximately $0.10 per diluted share. The impact of this change will carry through to our fiscal year '12 tax rate estimate which will be stated later. Operating cash flows for the March quarter was $245 million before $17 million in CapEx. We paid $42 million in cash dividends. The tax rate in the March quarter was 5.2%, lower than expected due to the previously mentioned decrease in tax expense. Let me now comment on the balance sheet. Cash and investments increased $268 million to $2.7 billion. We have approximately $1.3 billion in convertible debt and our net cash position is approximately $1.4 billion. Days sales outstanding decreased to 15 days in the March quarter to 44 days as expected. This is in line with our corporate target of 45 days and a result of the cessation of extended credit terms with our primary distributor. Combined inventory days in the March quarter were 133, up from 130 days in the prior quarter and slightly higher than anticipated. In the June quarter, we expect inventory days to be approximately 120 to 130 days. Let me now turn to the discussion of guidance for the June quarter fiscal year '12. Our backlog heading into the quarter is slightly down. We are expecting to see continued strength from Virtex-5 as well as strong growth from our new Virtex-6 and Spartan-6 families. From an end market perspective, we are expecting sales from Communications to be up driven by strength in Wireless Communications associated with LTE and phase 5 of China mobile deployments. Industrial and other is expected to increase driven by Defense applications. Consumer and Automotive is expected to decline sequentially due to decreases from audio/video broadcast and consumer while Automotive sales increase. Lastly, Data Processing is expected to increase driven primarily by high-performance computing applications. As a result, we are expecting total sales to be flat to up 4% sequentially, with sales from Japan and APAC flat to down and sales from Europe and U.S. increasing. The mid-point of our sales guidance is predicated on a turns rate of approximately 56%. This is higher than the 53% in the March quarter, what we believe it is appropriately supported by forecast from our major customers. Gross margin is expected to be between 64% and 65%. The primary contributors to the slightly lower margins are product mix and higher costs associated with the ramp of the new products. Operating expenses in the June quarter expected to be approximately $206 million, including approximately $2 million in amortization of acquisition-related intangibles. Research and development will increase consistent with the 28-nanometer product rollout, and SG&A will be higher than historic levels primarily due to legal expenses associated with ongoing patent litigation. We expect slightly elevated legal spending to continue but we do not believe that will have a significant impact on our full year spending estimates. Other income and expense is expected to be a net expense of approximately $8 million. The share count is expected to be 274 million shares. The tax rate for fiscal 2012 is expected to be approximately 16%. Let me now turn the call over to Moshe.

Thank you, Jon, and good afternoon to you all. Our 4% sequential increase in revenue in the March quarter caps an outstanding fiscal 2011 in which sales increased by 29% to $2.4 billion. According to iSuppli, ASICs and ASSPs grew 8% and 16%, respectively, during the 2010 period, which means Xilinx sales grew more than 3x the rates of the ASIC market, nearly twice the rate of the ASSP market. This type of growth clearly speaks to the programmable imperative that the need for lower-cost design, increased flexibility on making FPGAs a preferred alternative to ASICs and ASSPs. My only disappointment for the year is our decline in PLD market share. We've been working for multiple years on the plan to regain this market share with clear technology leadership and are executing to plan. The March quarter, New Product sales drove our growth with a double-digit percentage increase. Combined sales for our 40-nanometer Virtex-6 and 45-nanometer Spartan-6 products for fiscal 2011 was approximately 50% higher than our initial plan. We continue to have the industry's only 45-nanometer high-volume FPGA family with embedded transceivers and we are gaining broad acceptance with this product family in all of our end markets. Additionally, sales from our 65-nanometer Virtex-5 family increased more than 20% sequentially presenting more in quarterly sales than any other PLD family in history. We made 2 key product announcements in the March quarter to enhance our 28-nanometer leadership position. We announced the Zynq-7000 family, the industry's first Extensible Processing Platform, which tightly integrates complete ARM Cortex-A9 processor-based system with 28-nanometer, low-power programmable logic. With what we believe to be at least a full year lead over the competition in accelerated design win ramp, we expect to drive incremental market opportunities in areas such as video surveillance, automotive driver assistance, factory automation, audio/video broadcast. On March 18, we also shipped the industry's first 28-nanometer product, the Kintex-7 K325T, mid-range FPGA. Kintex-7 FPGAs are designed to provide optimal price performance at the lowest power to meet requirements for key applications. We anticipate having a 20% performance towards competitive advantage coupled with at least a 9-month time to market advantage over our competition. Already, we have won key designs in a variety of applications including video processing, optical networking, wireless communications and avionics. This family is winning against ASICs, ASSPs and the PLD competition. In addition to delivering Kintex product to customers in the March quarter, we taped out our first Virtex-7 device. We expect to ship product samples to customers in the June quarter. We anticipate sampling members of our entire 7-series FPGA product family by the end of this calendar year. As stated, the rollout of our 28-nanometer family promises to be the fastest next-generation product rollout in our history. This is enabled by the unified architecture, which is shared across the 7-series. The unified architecture also benefits customers by enabling them to begin FPGA development using any product family for designs that may ultimately migrate to any other family. Numerous designs are underway today in our 7-series FPGA product family, presenting hundreds of millions of dollars in design wins. 28-nanometer success would not have been achieved without the exemplary technology partnership and collaboration with TSMC. TSMC's HPL process is optimized for performance and power has provided us a significant time-to-market advantage. In addition, this collaboration has enabled us to extend our technology leadership by recently taping out the industry's first stacked silicon interconnect product. This innovation is game changing as it allows us to introduce a 2 million logic cell device on 28-nanometer, effectively, a full-process node ahead and representing a 2x density advantage over any competition. Additionally, our stacked silicon interconnect technology enables a superior integration approach for the highest quality 28 gigabit per second transceivers unmatched by anything. Finally, this technology allows us to ramp complex parts faster with superior defect densities and associated cost advantages. In summary, I'm very pleased with our financial performance and the successful production of our 7-series FPGA product family. Xilinx was the first PLD company to tape-out the 28-nanometer product, the first to deliver silicon to multiple customers and the first and only company to demonstrate working silicon at the recent NAB Conference and the Globalpress Summit. Our clear technology leadership of 28-nanometer and game changing product strategy will make fiscal 2012 an exciting year. Let me now turn the call back to the operator to open it up for the Q&A session.

[Operator Instructions] Your first question is from the line of Glen Yeung with Citi.

Thanks for taking my question. Jon, can you go to a little bit more detail about the backlog being down in the quarter, just if there is something specific that drove that or just normal course of business? And then given that your turn requirements are up slightly for the June quarter, what your sense is of visibility, was there something -- is there something there that's going on or is it again just something in the normal course of business?

Sure, Glen. It's actually not that much of a dollar amount or percentage amount lower, it was just slightly lower so first let me just characterize it as actually kind of minor. But the thing that -- there's a couple of things that I can point to you. I mean, first, the Japan earthquake hit about, I guess that's the second week of March in that time frame. And during that time period there was a lot of confusion around supply and a lot of things written about BT resin and all those kinds of things that are important to us. And 1 of the things we decided to do was to not schedule orders for a time period of around 10 days. We accepted orders but we didn't really schedule them out. And that caused some disruption in terms of people not sure whether they could place orders and not orders and what the story was going on. So because it's such a really minor amount, when you look at the distribution of where end markets of where that backlog is, it's pretty typical to what we run. So there really isn't anything that really stands out in the whole process, and I would just say it's not that big of an issue. What's more important to us is our large customer forecast and the growth rate with which some of our larger customers are growing this next quarter and taking on products. So that's why we feel pretty confident that the growth is really there because again of our outsider top 20 customers in terms of their forecast to us of how good business is overall.

And then maybe the second question. In the quarter, you printed 47% of your business as being from Communications. When you think forward, I guess in 2 timeframes, 1 in the second half and then 1 next year, how do you think Communications looks as a percentage of your business?

I think it still -- it maintains itself somewhere in the 45% to 50% range but 47%, plus or minus, 1 or 2 on either side, it jumped up because of a very strong wireless business. I think we are going into another solid year for wireless. And we do think we're making some gains in the wired side as well. So we're pretty bullish on -- overall on it. But again the industrial category's also growing very rapidly. It grew at a higher percentage full year on full year than even Communications did, that's still a very strong growth area for us.

Your next question is from Vivek Arya with Bank of America.

Thanks for taking my question. How important is incumbency at a particular node to leadership by the next node. For instance, it's widely believed that your competitor has a larger share at 40-nanometer. What does that say in reality about your ability to regain that share at 28-nanometer?

So basically, incumbency has some value and better product earlier has more value.

Yes, I think, Vivek, if you think about it at a Virtex-5 or 65-nanometer level, we have the -- a very, very high percentage of the business. And that's we're obviously seeing that strength in our numbers. And we had incumbencies. So how much does that matter when the competition came with their product earlier. So it really kind of depends on, as Moshe said, being first. But there is some value in incumbency just because of whose IP that might be used, et cetera, and those things are more sticky. So it's not to say there aren't sticky pockets but being there first, it seems to mean a lot more by actual example of history.

Got it. And just 1 other quick one, Jon or Moshe, either one. You described the strength in Communications. How do you think we should think about the overall year in terms of sales growth for you?

Well we're not giving a full year top-line growth because, again, if you look at history, we're not very good at forecasting individual years but more on trends, which is why we gave a 5-year CAGR in our analyst day in the 8% to 12% range overall. Coming off a very, very strong year that we had in this industry, I don't think we're going to end up with anywhere near 29% again but we are pretty bullish on the penetration of programmable logic, and we certainly are planning on growth this year.

Your next question is from Ambrish Srivastava with BMO Capital Markets.

Moshe, a question on the 28-nanometer. Now that you have an offering in the mid-range, could you just help us understand what are the relative sizes of the 3 segments, high end, mid-end, as well as the low end? And does that change with 28? And I have a follow-up as well.

Well, generally speaking, what we're seeing is now if you break the overall FPGA market down into the traditional high end and high volume, it was 2/3 high end and 1/3 high volume. Now there are 2 things that are happening. First and foremost, there absolutely is tremendous growth where FPGAs are replacing ASICs, and that is happening at the high end of the market fastest. And so that's expanding the high end. In addition, as you move from generation to generation forward, there's just an expansion of the markets that can be addressed, which are more cost sensitive and they are higher volume based. If you look at all of that, finally, after several years, it has been demonstrated and hopefully everyone is a believer in the fact that the FPGA market is growing overall. It's not stuck at the $3 billion level. And the numbers prove that it's looking more like $5 billion and growing to a much larger potential serviceable market in the next few years. And as such, there is room to partition it into more categories. And I would say that there's in my mind, actually, 4 major categories: there's the very low end, low power; there's the low end; there's the mid-range; and then there's the high end. If you break it into those 4 categories, then we actually believe that the fastest growing market is in the mid-range. And that even though that's still isn't a large market, it's the market which is growing potentially fastest. And that's why we felt a need to target it earlier. If you look at breaking it down in terms of percentage points, then the very low end is probably 5% of the market. It's a small part of it. The low end is probably approaching 30%, the mid-range is 30% and the high end is 40%. And okay, that's more than 100% so you need to sort of round some of those down. I just realized my math is fluid here. Sorry, but I'm just the CEO.

And then my -- that is helpful, Moshe. And then my follow-up is on the embedded segment. You guys are -- with your stacked approach and you're talking about design wins, what -- the embedded market is huge, what kind of revenue opportunity you are seeing and what kind of time frame should we think as we look out in '12 and when you will start to have some meaningful revenues?

Okay, so you're right. It's actually an enormous market of tens of billions of dollars. And we're focused on a sub-set of that market. And the parts, which potentially is in the billions of dollars in terms of serviceable market but it'll take more than 1 generation of product to address that, and this is a market where there's a need for a high-performance or a mid-range microprocessor, tightly knit in order to do streaming applications with an FPGA fabric. The part is on schedule. We expect to tape it out this year, to deliver samples to customers this year and for it to move into production in the second half of 2012 most likely, and then the revenue will start happening in 2013 and 2014. We already do have customers who are designing for this product. And we have an emulation platform, which actually has several key customers who are doing designs because they need to develop software on this product ahead of availability of silicon. And so we expect the ramp up to be significant in calendar 2013. Anything before that is unlikely to be something you guys would worry about.

Yes, we definitely will have revenue in calendar '12. But as Moshe says, it's not going to be -- it's not going to show up in a way and just say, "Oh, the game changer is realizing itself." But it's coming and the design wins are pretty solid even early on.

Our next question is from James Schneider with Goldman Sachs.

Thanks for taking my questions. Just with respect to the guidance if I got it right, I think you were guiding all of your end markets to be up except for the Consumer Automotive market. So you can help me square that with the guidance of flat to up 4% and why it may not be a little bit more than that? Is it just conservatism or something else?

Well, I mean I realize that all this end markets -- if all of them grew 0% to 4%, I guess, they would -- proportionately, that will be the case that they'll all be up. So we are -- we do believe that there's a -- for example, let's take defense, which is part of our Industrial category, there is generally a low point for us and then we bounce back with individual designs. So that may or may not be up even a slightly higher than an average. And we do think Wireless will be up at the high end of that range, and everything else is, I think, is pretty much in the mid-to-lower end of that range.

Okay, fair enough. That's very helpful. And then with respect to what wireline telecom and networking did in the quarter, you didn't mention that, did that decline in the quarter? And what do you expect for that in the upcoming quarter, please?

Yes, it was somewhere in my conversation. It did decline very slightly, wireline, and which for us is wire plus networking together, is that it was down just a little bit. And we do expect that to increase in the next quarter.

Great. And just one follow-up, are you seeing any kind of spending priority changes from either the carriers or enterprise in terms of more of a shift towards wireline going forward?

No, I don't think so. I mean, we're seeing positive trends, very positive trends in wireless and reasonably positive trends in our network and wired business. I'm not sure I understand your question, maybe I'm not...

I guess -- I'm sorry, I guess I should have been clear. What I meant is wireless has been strong for a very, very long time while wireline has lagged a little bit. So I'm wondering if you think carriers or other people are going to sort of shift back that spending priority for backhaul or other applications going forward?

I see. Yes, I mean I think there's also -- there's always also competitive things going on amongst our customers since we do serve everybody. So sometimes it's a little hard to ferret out what is who's taking a share and in what proportion. But I do think we feel like the backhaul business generally has been strong. And for the most part, we've seen IT spending being pretty robust overall, and that's helping drive switches as well as some other -- some carrier backhaul improvement.

Our next question is from Shawn Webster with Macquarie.

On the inventory side, it popped up a bit. In the March quarter, you expect it to come down. What is the optimal split going forward would you say between the inventory held on at Xilinx as well as your channel? And then I have a quick follow-up.

Yes. So the inventory is up. And we do expect it to come down, and we want to manage it down. Just to remind everyone that we are building up inventory because of a foundry line that is being closed on an older product family that we have announced end-of-life buying request to our customers. And later on this year, those forecast will be solidified and we'll start to ship some of that product out. So we are every quarter building up for some build ahead for older products that will become end-of-life. But even taking that off, off the table, our base inventory has grown, maybe a little more than we'd like because of things like what happened in Japan and our concern about certain supply chain we've allowed to flutter up. But again, I really want to make sure that we manage that down in the coming quarters. With respect to the balance between distribution and what Xilinx owns, we're pretty good in this low 20 days or less kind of a number that distribution has. We've been able to service through our -- customers through our distribution partner without having them hold excessive amounts of inventory. And we've been doing a pretty good job of that. So we think it's pretty -- keeping them lean is just fine, and they seem to be very pleased with the customer service level.

Okay. And then sticking with the inventory thread, can you give us some color on channel and OEM inventories from your standpoint? Are there any end markets or application areas that look particularly lean or have probably a little bit too much right now? And then on SG&A, since you're sticking with your full year guidance, should we expect that to come down in the next several quarters? Thank you.

So from a channel perspective, a lot of our big customers are now through VMI arrangement of various types. So we're getting -- from our view from them, we're getting very direct pulls when they're building products. And our sense is that nobody is warehousing. Of note, certainly, the communication side is warehousing lots of product either at a component level or their end level. In other words, their demands seem to be pretty good because their pulls seem to be quite regular and that's really a good way of managing or viewing those kinds of things. In terms of any end markets where we see things are lean, I don't think so. I think the whole, I'll say the bounce back and the recovery from the last 8 quarters or whatever, I think things are back to more normal. I'd characterize it more normal in terms of flow and inventory. And then on SG&A, ER SG&A will be up. It will start to trend down. Hopefully, we'll get through some of these issues around our defense of patent trolls and things like that which are causing a little bit of the gap. From a profile perspective, it's popping up and it should gradually come back down throughout the year.

Our next question is from the line of Tim Luke with Barclays Capital.

Thanks so much. I was wondering, Moshe or Jon, if you could give some sense about given that you've seen growth in March and you see growth again in June, how are you guys feeling about the year? Do you think that you're returning to an environment where you may be able to see some steady sequential growth? Or what are the broadest puts and takes on that overall?

Yes, let me take a round at that. So I do believe we will grow this next year. So we do believe that not just the strength of existing traditional FPGA designs but the fact that we are penetrating ASIC and ASSP at a more rapid rate, we're getting a lot of very positive signs out there from our customers. And the fact that we grew in the March quarter and it grew and we're forecasting we'll grow again in the June quarter and the relative strength of our backlog and large customer signals, we're feeling pretty good over all about growth and hopefully not sitting at some new plateau or whatever as we sat there for $1.8 billion for a number of years. It feels good. It feels very solid pending any macroeconomic whatever that goes on.

Well, and it's sort of driven by the fact that regardless of macroeconomic trends and you can factor them in however you want, we are -- by moving forward to more advanced technologies, we're servicing larger markets. And that's sort of by far the biggest trend which is driving our business. Today, you can do with FPGAs amazing things in the whole host of applications, and that is by far the biggest secular driver. When you sort of build that on top of the macroeconomic trends then you can appreciate that sometimes it can be muted but generally, as long as we can continue to move forward, we can address more markets than we ever have before. ASICs are less viable, ASSPs continue to be very viable but due to the expense of the design, they're only valid for high-volume applications. And that's generally the picture as we see it. And with 28-nanometer, which is going to be deployed broadly this year and next, you can basically do away with anything up to and including the 90-nanometer node in alternatives. You can design it very effectively than FPGA, that's sort of the growing market.

With respect to that, you have said in the past that you thought your share overall for growth may begin to stabilize as you go into the second half of the calendar year. Is that still the case? And obviously, last night, the compactor [ph] was inferring that you're strong in the mid-range in 28, but did they sustain leadership in the high and low end? If you could give some color as to why that may or may not be the case. And possibly all say kind of what does the stacked silicon thing really do for you, that will be very helpful. That's it.

Okay. First and foremost, the 40- and 45-nanometer, even though they have grown quicker than we had expected, they're not yet significant. And where we have in the past lost market share is in the low end, and the 45-nanometer Spartan-6 is in our mind the ultimate solution for turning that around. That will likely start to be visible in the second half of the year. Overall, we had the issue on 40-nanometer where we came out late vis-à-vis the competition in the high end. Between the Kintex and the Virtex, both being -- earlier with the Kintex and actually having a superior product offering, which on the Virtex side, we believe that when that moves into production, which that starts in 2013 -- sorry, 2012, when that moves into production and there's a delay until it's significant, that sort of will enable the market share to change. If you look at other elements and think it's something that we believe we a huge time advantage over any competition, something we've been working on for several years, and we expect that to again, given the previous question start being significant in terms of revenue in the 2013 timeframe. So those are the 3 elements: Spartan-6, second half of this year; the 28-nanometer starts being significant in terms of revenues; and it moves into production in 2012 and become significant revenue in 2013.

I think, one other comment on that, you made this comment, and Moshe made a comment earlier about how the mid-range is expanding at a much more rapid rate and part of is what he talked about in his remarks about the ability of the HPL process to scale power and performance in a way that really broadens that in a different way than the mid-range has ever been talked about in the past. So it's not even -- I don't think it's even valid to compare it to the previous mid-range. It's actually a different class of product in a lot of different ways. And that, I think -- we've been trying to explain this by the mounting design wins we received already on this product and this is really going to be a pretty significant driver of revenue for this company.

Our next question is from the line of Srini Pajjuri with CLSA Securities. Srini Pajjuri - Credit Agricole Securities (USA) Inc.: Thank you. Jon, just a clarification on the OpEx. Given the increase in the first quarter and also in Q4, did you say that you still expect to reach your target that you gave us at the analyst day, I believe that was 14% growth year-on-year?

Yes, overall, I gave a range and I'm not going to say where I'm going to be in that range in total but we still believe we'll be in the range for the year. And the biggest -- R&D profile is pretty much as we -- as the underlying numbers that supported that range for R&D. SG&A is taking off at a much higher rate than I anticipated because of some of these pseudo-onetime things going on. I would say pseudo onetime because we have few quarters of elevated legal expense. But we do think we're going to be able to with other efficiencies in the company to have the SG&A come back down on a quarterly run rate and still stay within that range. Srini Pajjuri - Credit Agricole Securities (USA) Inc.: Okay, great. And then on the Wireless segment. Obviously, you're seeing pretty solid strength there. I'm just wondering what kind of visibility do you have into the next few quarters to see if this trend is going to continue. It looks like the strength is coming from the Western markets. And you also mentioned that China, something about China phase 5, I'm just wondering how big that opportunity is versus what we saw in phase 4? Thank you.

The phase 5 thing, I really don't have good information on how big it is. It is -- it will be somewhat significant, I think. And I think that's positive, and we're getting some signs that, that is beginning this quarter, which is the current quarter we're coming into, we're in right now. And that's why we mentioned it. It is true that the U.S. market as well as India is driving, but primarily the U.S. market is driving a big upswing for us. We feel pretty good about the first half of the year in terms of visibility. The second half of the year, visibility isn't nearly as good. And we're working very closely with our customers to make sure we have the right product for them. So I would say, there's pretty good visibility in the first half and we still got away to see a little bit for the second half.

Our next question is from the line of Christopher Danely with JPMorgan Chase. Christopher Danely - JP Morgan Chase & Co: Thanks, guys. I guess just a quick follow-up on the OpEx/model. So you're sticking to your SG&A and R&D targets for this year. Does that imply that R&D could be down on an absolute basis for next year as well as SG&A? And then also if you could comment on the trajectory of gross margins, they've been down the last couple of quarters. It looks like we're at the lower end of the range. Do you expect that to hold for the rest of the year?

On OpEx Chris, the diagram I was showing at the analyst day implied that overall, R&D would go down in our fiscal '13 on the basis of a lower mass cost, not that our base in the number of employees and that spending would necessarily go down. That probably still trends up a little bit. But because of the very large increase in mass cost in this fiscal year, because of so many tape-outs that we're able to do so rapidly, that was driving it. And there's nothing changed from what we said in the analyst day on that at this point in time. So I still feel that way. SG&A, I didn't really make any comments about fiscal year '13, and so typically SG&A for us has been relatively stable, a very slight upward trend. I wouldn't expect it to be that much different on a go-forward basis. Gross margin -- yes, gross margin for this next quarter is trending a little bit lower. There are definitely costs associated with the fact that we're starting up new products and we have a large inventory balance that we've built up and does have cost decline impacts to it. Again, we still think we'll be in the range for the full year. So with whatever, will we trend to the bottom end of that range? I'm sure as heck going to try to make that not happen. And we'll see how the second half turns out. We got a lot of energy around here to keep our margin up, and we're working very hard to do that. Christopher Danely - JP Morgan Chase & Co: Great. And as my follow-up, I guess, could you guys just sort of give us your take on how much of a lead do you think you have at 28 versus the competition? And then maybe give us a synopsis of what the rollout schedule has been, you versus them, so far, and then what you expect the rollout schedule competitively to be, you versus them, for the rest of the year?

So, we have limited visibility into their actual plans or no visibility into their actual plans. But the best we can tell based on feedback we get from our customers is we're 9 months ahead on the Kintex side, neck-on-neck on the Virtex side and we've taped that one out. So yes, they taped out the first version ahead of us but we are just around the corner on that. We expect to have the Artix, which is the higher volume, lower cost, low power version, ahead of them. And we believe that we are likely to be a year ahead on the Zynq front, which has the embedded core. One of the reasons that you're seeing this huge investment in masked sets is once you have the time advantage, you really want to exploit it. And that's why we're driving forward aggressively to exploit that position.

I think, there's another thing to look at, Chris, is the maturity of the software. And we have -- all of our product families instantiated in our software for some time now. And I actually don't know today what the status for our competition is but for the longest time, they only had their Stratix, they didn't have the rest of their product families available. I don't really know what the status of that is today. So I think we have a bit of a softer lead. But the second thing that's even more important is this unified architecture. This allows people and this is what our customers have been asking us is how do you implement something in your software and be able to scale it to different devices as we change our mind. And because we have -- what device we need to have is the ultimate production device and because we have all our devices defined in the software, it allows those customers to with confident pick our product family and know that they're going to be supported. And that is something that I believe is unparalleled out there than anybody in any of the competition. So I think that is an additional first mover advantage in addition to what Moshe had talked about.

Your next question is from the line of John Pitzer with Credit Suisse. John Pitzer - Crédit Suisse AG: Thanks for letting me ask a question. Jon, maybe another way to ask the sustainability on the Wireless business question. Can you help me understand how much of your business today in Wireless you think is 3G versus LTE deployment? And what happens to kind of your revenue opportunity as you mix from 3G to LTE and maybe differentiate between developed markets and developing markets there?

Actually, I don't think I have all that data available. I mean our content is certainly more at LTE than it is in 3G, and we've talked about that being kind of 1.5 multiplier in terms of content for us meaning the LTE is higher. It's actually because our customers in some cases don't actually tell us with the 3G and LTE sometime because they have system level products, they can do either depending on how they populate it is actually somewhat difficult. But I do believe that of the growth rate of the last couple of quarters for us, a greater than 50% has been driven by the LTE North America aspect. And that's kind of a combination of that business getting stronger and the China phase 4 ending, which is clearly a 3G capability. I think that's about the best I can do on that in the absence of doing a whole lot more data mining. John Pitzer - Crédit Suisse AG: Jon, just to be clear, you said 50% of the growth you think over the last few quarters was LTE-developed?

In our Wireless sub-segment I believe is LTE meaning North America deployments for Verizon and AT&T. They call some of these things 4G and they're using LTE. I'm not going -- whether it's 3.5G or 4G, I don't want to get into all that. But I believe it's the LTE platforms that they're -- from our customers that they're using. John Pitzer - Crédit Suisse AG: As my follow-up, Moshe, you talked about the 28-nanometer, the opportunity for this to kind of be the fastest node ramp in company history. Can you help me understand when we should start to think about maybe the $100 million in revenue milestone? And when you think about this as being the fast potential ramp, is this because you do fundamentally believe at 28, the ASIC, ASSP replacement storage starts to accelerate?

So I absolutely am convinced that it starts to accelerate. We're hearing our customers are doing less and less ASICs. That's a trend that started several generations ago. By now the ASICs are really few and far between. At 28-nanometer you can obviate the need for ASICs except for ultra high-volume applications, and there are very few of those. You're seeing less customers start those. If you look at what is happening, this is sort of traditionally been a trend in FPGA. If you think about the FPGAs 15 years ago, they used to be used predominantly for glue logic on the board. And if you looked at the board at that time, there was a big set of SRAMs on them from very good companies who were SRAM companies. Today, that businesses does not exist. Guess where those SRAMs are. It's not standard products. They've been swallowed by FPGAs. After that, the same thing happened with DSP capabilities, with embedded controllers and with transceivers. So we are grabbing a larger portion of the silicon real estate. With this new generation, we can continue to move forward. And to some extent, if you look at the 28-gigahertz transceivers, which we have announced and we've demonstrated already, those are almost impossible to find in anything except the most advanced ASICs. But because you can't afford to do the most advanced ASICs, my belief is that, that will accelerate the transition and will consume the ASIC space even faster. Now with regards to when we expect the 28-nanometer to reach $100 million, if you look at the prediction we gave for the 40- and 45-nanometer, we gave a certain prediction, we actually hit the $100 million accumulated on that 1 quarter ahead, and I think that was -- originally, it was 5 quarters from the introduction and it happened 4 quarters from the introduction. Here, I think, it could happen faster than that by an additional quarter and that sort of accelerates from that point on.

Final question will come from the line of David Wong with Wells Fargo.

Thank you very much. So when you gave your guidance, your June guidance, does that assume any demand suppression in Japan that might rebound at some later point?

No. There are certainly issues with the Japanese customers meaning they're not all online and in production. But I don't think this is a situation when there's going to be some sort of pent-up demand that's all of a sudden going to get released in Japan. We're -- forecast from I would say our normal run rate are off single-digit million kind of a dollar number, not that significant, quite frankly.

Right. Thanks. And on the 28-nanometer, you have several product lines. Do you expect roughly the same gross margin for each of them? And how do cost of 28-nanometers compare to your prior generations given that you are using a different foundry?

We do expect gross margins to still, in the aggregate, still be in our business model. I don't see there's anything different about that. And our experience with the new foundry is low at this point in time, but what we've seen is quite positive and yields coming through quite well. We are expecting kind of a relative basis to the previous generation, some improvements in yields and the overall cost structure.

Well, thanks for joining us today. We have a 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 IR website. Our next earnings release date for the first quarter of fiscal year '12 will be Wednesday, July 20, after the market close. These completes our call. Thank you very much for your participation.