Advanced Micro Devices, Inc. (AMD) Q4 2012 Earnings Report, Transcript and Summary

Good afternoon. My name is Marvin, and I will be your conference operator. At this time, I would like to welcome everyone to the Xilinx Fourth Quarter Fiscal Year 2012 Earnings Release Conference Call. [Operator Instructions] I would now like to turn the call over to Rick Muscha. Thank you. Mr. Muscha, you may begin your conference.

Thank you, and good afternoon. With me are Moshe Gavrielov, CEO; and Jon Olson, CFO. We'll provide a financial and business review of the March quarter, and then we'll open the call for questions. Let me remind everyone that during our conference call today, we may make projections or other forward-looking statements regarding future events or the future financial performance of the company. We wish to caution you that such statements are predictions based on information that is currently available, and 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 can be accessed from our Xilinx Investor Relations website. Let me now turn the call over to Jon Olson.

Thank you, Rick. Fiscal year 2012 was marked by challenging industry conditions. In spite of these, Xilinx introduced a record number of 28-nanometer products, gained market share on the 40-nanometer node and reported record operating cash flow of $827 million. Additionally, cost reduction efforts of the company contributed to gross margin improvement in each consecutive quarter of the year, enabling Xilinx to report a record gross margin of 66.4% in the March quarter. Turning to the March quarter, Xilinx sales were $559 million, up 9% sequentially and down 5% from the same quarter a year ago. This was better than our guidance heading into the quarter, primarily due to better-than-expected business from wireless communications customers deploying LTE and 3D technology, as well as a strong rebound across-the-board in the Industrial and Other category. Consumer & Automotive also posted better-than-expected strength due to exceptionally strong Automotive business across a broad base of customers and a better-than-expected growth from audio and video broadcast. Gross margin was a record of 66.4%, up from 65.8% in the prior quarter, driven in part by a more favorable customer and product mix, but also cost reduction efforts driven by the company, including better-than-expected yield improvement on newer products and better inventory supply chain management. Operating expenses were $208 million, only $1 million dollars higher than guided, as we were able to offset higher variable with expense management efforts. Operating margin was 29.1%, up from 26.8% in the prior quarter. New product sales were up 11% sequentially. Sales increases from our 28-, 40-, 45-nanometer and 65-nanometer products, all contributed to this increase. Mainstream products declined 4% and base products increased 21% sequentially or $24 million. The increase associated with last time buy products was about $18 million or approximately 3% of total revenue in Q4. Let me now turn to a discussion of end markets. Communication sales increased 5% sequentially, driven by wireless sales, which increased double-digits during the quarter while wired sales were essentially flat. The Industrial and Other category posted the strongest sequential sales growth during the quarter, increasing 18% sequentially, with all secondary markets increasing double-digits. Consumer & Automotive sales increased 9% sequentially driven by strength from audio/video broadcast and automotive, while pure-play consumer applications were flat. Lastly, data processing sales decreased as anticipated, driven by weaker storage sales. Net income for the quarter was $134 million or $0.49 per diluted share. Other income and expense was a net expense of $7.1 million, better than guided due primarily to higher-than-anticipated gains associated with our investment portfolio and a non-U.S. investment credit. Operating cash flow for the March quarter was $208 million before $20 million in CapEx. We paid $50 million in cash dividend during the quarter, and recently raised our quarterly dividend $0.03 per share to 22% -- $0.22 per share per quarter. The tax rate in the March quarter was 14%. Diluted shares for the quarter were 276 million. There was a 7.7 million share dilutive effect from our convertible notes due to an increase in the average stock price during the quarter. For questions related to the dilution associated with our convertibles, please visit our Investor Relations website at www.investor.xilinx.com. Let me now comment on the balance sheet. Cash and investments increased $175 million to approximately $3.1 billion. We have approximately $1.3 billion in convertible debt and our net cash position is approximately $1.8 billion. Days sales outstanding decreased 3 days in the March quarter to 35 days. Inventory dollars at Xilinx declined by $41 million sequentially during the quarter. Combined inventory days at Xilinx, distribution were 110, down significantly as expected from 142 days in the prior quarter. In the June quarter, we expect both dollars and days of inventory to slightly decline as we continue to align the appropriate supply with demand trend. Let me now turn to a discussion of guidance for the June quarter of fiscal year '13. Our backlog heading into the quarter is up sequentially. We are expecting strong growth from our 28-nanometer and 40-, 45-nanometer product families. From an end market perspective, we are expecting sales from Communications to be up sequentially, with increases in both wired and wireless. We expect sales from Industrial and Other to be approximately flat sequentially, as increases in industrial, scientific and medical are offset by a decrease from defense. Consumer & Automotive is expected to be approximately flat, as increases in automotive are offset by a decrease in audio/video broadcast. Lastly, we expect data processing sales to increase sequentially. We expect last time buy sales to decline by about $5 million sequentially. As a result, we are expecting total sales to be up 1% to up 5% sequentially, with sales from Asia Pacific expected to increase, sales from Europe expected to be approximately flat and sales from the U.S. and Japan expected to be down. And the midpoint of our sales guidance is predicated on a turns rate of approximately 55%. Gross margin is expected to be between 65% and 66%, slightly lower than the March quarter due to strong growth expectations from our 40-, 45-nanometer and 28-nanometer products. Operating expenses in the June quarter are expected to be approximately $220 million, including approximately $2 million of amortization of acquisition-related intangibles. The majority of the growth in spending compared with the March quarter is in R&D and related to the 28-nanometer ramp, as our tape-out activity remains high. There's also some growth in our SG&A related primarily to variable spending increases as a result of higher revenue and also higher legal expenses. Other income and expense is expected to be a net expense of approximately $8 million. The share count is expected to be approximately 277 million shares. The tax rate is expected to be approximately 16%. This number excludes the impact of the R&D tax credit which has expired. Our estimate of the impact if reinstated in its current form, would lower the tax rate by approximately 1.5%. Let me now let me now turn the call over to Moshe.

Thank you, Jon, and good afternoon to you all. Sales increased over 9% sequentially in the March quarter, driven by double-digit increases from 6 of our secondary end market segments. This broad-based strength gives me confidence to us seeing a recovery in our business. Sales from new products, including our 28-nanometer and 40-, 45-nanometer families, drove growth during the quarter. With regard specifically to the 40-, 45-nanometer product family, revenue grew approximately 70% in fiscal year '12 over the previous year. This significant growth has allowed us to greatly improve our market share position in this node. Although this product generation will likely be much smaller over its lifetime than the 28-nanometer node, our share gains clearly indicate strong customer acceptance for these products. With regards to 28-nanometer, our sales during the quarter was driven by Kintex-7, the industry's first 28-nanometer FPGA family; and Virtex-7, including our stacked silicon interconnect technology, the industry's first 3D IC product with 2 million logic sales. 28-nanometer product family rollout continues at a rapid pace and will, without question, be the most successful node in the company's history. In the March quarter, we achieved 2 significant milestones. First, we announced the transition to the production phase of the Kintex K325T FPGA. This has accelerated our ability to serve the demand created by the outstanding acceptance of 7 Series FPGA product family. We also began shipping Virtex-7 690T FPGA from our high-performance Virtex family. This device establishes a new benchmark for single-chip, serial bandwidth and is very well suited to address the market requirements of high-performance wired communications applications that require lower power, single-chip solutions. The 28-nanometer design win momentum continues to be outstanding. Now totaling more than 650, the total value of over $2 billion. Approximately 1/2 of the designs we have in the Communications end market are actually replacing ASIC or ASSP business, providing further testament to the acceleration of the programmable imperative. We've grown PLD market share for the past 5 quarters. The improvement in shares is a testimonial to the work over the past few years to deliver the most innovative, differentiated and highest value product portfolio. In addition, yesterday, we announced the delivery of the final, broad and very significant element of our indisputable technology leadership strategy. The Vivado Design Suite allows us to break away from the competition in productivity and enables the highest leverage of our next-generation product portfolio. Vivado is an IP and system-centric design environment built from the ground up to the next decade of what Xilinx calls, All-Programmable Devices. These devices go beyond programmable logic and I/O to enable programmable systems integration, leveraging various components of 3D stacked silicon interconnect technology, ARM-based embedded systems, Analog Mixed Signal, advanced high-speed serial transceivers, and a growing percentage of IP cores. The Vivado Design Suite is estimated to provide customers with up to a 4x productivity advantage over last generation development environments. Truly a revolutionary achievement. I cannot overstate how essential this is to enabling broad access for our customers to our leading-edge technology and for enabling accelerated revenue growth of 28-nanometer node. In summary, I believe our all-in investment strategy is paying off. We have shipped parts from 4 of the 5 28-nanometer product families to more than 120 customers, demonstrating its broad acceptance. We're expecting 28-nanometer sales to exceed $10 million in the June quarter. We'll continue to execute the aggressive rollout plan. With continuously increasing market share, execution on the indisputable market-leading 28-nanometer portfolio, now and another breakout move in design productivity with Vivado, fiscal year '13 promises to be an incredibly exciting year for us. Let me now turn the call back to the operator to open it up for the Q&A session.

[Operator Instructions] Our first question comes from the line of Romit Shah with Nomura System.

It's Romit Shah from Nomura. The results look pretty solid. I had a question on industrial. Is it fair to characterize the strength in this segment as largely driven by market share?

Well, I wouldn't necessarily attribute it entirely to market share or even primarily to market share. I think what's happening out in the market, there is both a replenishment of inventory cycle that's going on but also sell-throughs. So we wouldn't have seen the -- I would say the overall strength in broad-based industrial or its scientific and medical applications, as well test and measurement, if there really wasn't a good pull-through going all the way. And while I do believe we are getting a lot of traction in the 40-, 45-nanometer area, and it's still very early on the 28-nanometer, we do think that was part of what contributed to share. But I don't want to say it's -- that's the only reason.

Then what changes in Q2 -- because I noticed that you're guiding that segment flat.

Well, the biggest issue there is because of defense. So we had a defense program or 2 that was kicking in, in this past quarter in the March quarter. And so that caused our defense business to be higher. And so what's happening in the June quarter is that's coming back down. So in other words, the lumpy kind of a project acquisition from a defense perspective project, and the remainder of the industrial segment will continue -- continues to grow. So that's the balance that's going on, one piece going down, the other 2 pieces going up, but it ends up approximately flat.

Our next question comes from the line of Ambrish Srivastava from the Bank of Montreal.

Moshe, I'm sure, this is topmost in everybody's mind. There is variance between yourself and Altera, but this time, it's very big. I'm just trying to understand your -- just give us your perspective please, if I look at revenues, look at inventory and we do understand that you guys have a better kind of more diverse foundry relationship that allows you to step aside or at least mitigate some of the impact that we're hearing other companies talk about. And then my follow-through for you, Jon. On the margin front, are we ready to break out of the band that you guys have laid out for us? Because it sounds like STSM becomes a bigger mix and then as yields improve in 40, 45, shouldn't we be headed North of the stated trajectory?

Okay. So we can't really comment on what other people are seeing. We're seeing strong demand from the customers. We feel we have an incredibly strong portfolio, which after 4.5 years of building up is starting to demonstrate its strength. And this is now very, very broad. And the significant impacts of that are yet to come because this is mostly in 28-nanometer, and that's why we're projecting the $10 million for this upcoming quarter and we've, I think done a good job in meeting the customers' requirements. We believe that the technology choices we have made have high yields, enable the customers to get lower power and generally, higher performance across the board, and that should manifest itself. So from my perspective, the best is yet to come.

I just want to add a little bit to that before I get to your margin question. If you look at what we've said going into this quarter and certainly, the way it ended up and when we're talking about next quarter, I mean, the recovery is well underway. I mean, it wasn't underway this past quarter. And we had 6 of our 10 sub-markets grew double digits, 7 of our 10 grow in absolute percentage. So that's not just a one-trick-pony kind of an adjustment situation for us. So we definitely feel, and Moshe pointed out in his remarks, that the recoveries underway and work through the first quarter and go again in the second quarter of it. So we do feel business overall, spending overall by companies is continuing to grow. I'm always a conservative guy. There's not snapback going on but there certainly -- it's -- we feel a lot more steady demand from our customers. So we're feeling pretty good. And from an inventory perspective, we do have some variety in our foundry partners. But on the other hand, we seem to be getting what we need to have even though in some places, it is tight, we were getting what we need to have from our foundry partners in order to meet customer demand. So I'm -- another example of what that means is our lead times are essentially up to normal standard. There's no extension going on, on any lead times anywhere. So we have ample inventory in order to serve our customers and we're getting support from foundries at that level. From a margin perspective, yes, I anticipate this question being asked about 3 times today. Well, geez, why not improve your model? Well, the -- it's a difficult thing to forecast because mix is always a component of that. We had slightly lower top 50 customer contribution than the previous couple of quarters, 5 percentage point or 2. So there's a customer mix that tends to drive our -- to drive it a little bit better. We are very pleased with where we are with the yields right now, and I did say in the Analyst Day that once we got through the, I'll say, massive tape-out and introduction phase, if this route is -- this trajectory really holds is that we should flow that up to the top of the range or above. We just kind of got there really fast. And even though next quarter is -- we're still modifying that to say it's going to be near the top end of the range, 65% to 66%, we are very positive that we can operate at the high-end of that range given the dynamics, the way they are. So basically, I'm not ready to raise it. We'll see how things go.

Our next question comes from the line of John Pitzer with Crédit Suisse. Our next question comes from the line of James Schneider with Goldman Sachs.

I was wondering if you'd comment on the kind of progress and the recovery in the communications vertical, specifically. You talked about wireless and wireline, both seeing strong improvement. Can you discuss any kind of differential in the wireless coming back faster than wireline or the reverse? And then maybe any kind of color by geography will be helpful.

Sure. Let me take that one. So in the March quarter, it's driven primarily by wireless. So -- and if you also saw there, our European geographic segment was up. So -- and we talked -- and I talked in my remarks about LTE and 3G. So we feel like the activity going on in a worldwide basis x the Chinese manufacturers are actually going pretty well. And while I'm not necessarily saying that all the LTE providers in the U.S. are in a massive capital spend, they are -- we do believe that capital spend is going up and I think we've heard T-Mobile come out and say they're going to be doing some things in LTE. And so we are seeing a -- I'll say a nice support there relative to advanced technologies. And we happen to be tied strongly to one of the manufacturers of base stations that seems to be doing really well even on a worldwide basis. So that works out pretty well for us. So we definitely, in March, saw more of the strength in wireless than wired. Now if you take -- go back and look at December to March, our wired went up and we were concerned that we wouldn't be able to hold that. And we actually did hold that in this quarter. So it was flat. And now we're seeing both are going up, and what we're really seeing there is continued strength in the -- again, in the general LTE and 3G worldwide situation in addition to the fact, that we do see a network spend in terms of the network side of our wired business improving in the quarter. And it's actually fairly broad-based across several customers of the major guys. It isn't just one person popping up. So we are starting to see some spending going on, and we feel pretty good about where our position is in serving that capital spend that's going on.

That's very helpful. And then maybe could you comment a little bit on the strength you're seeing in Europe outside of your largest wireless customer? Is that all the increased you saw of 27% in the quarter or was there strength beyond that as well?

No, there was really quite a bit of strength that of -- in the industrial category. In fact, between industrial and Communications, it was a very big pop for us there. So it was much broader than that. I know there's a lot being said about the economy in Europe not being all that well, but we're actually seeing customers really engaged with rolling out with new products, their products. So all that has been really, really positive to us and we're obviously hopeful that, that continues. And no, it was not just a wireless play in Europe.

Our next question comes from the line of Uche Orji with UBS.

Let me just ask you a bit on the wired part of the business. So, Jon, you said you expect that to grow next quarter. Any comments you can make as to what you're seeing between service providers and enterprise? And I asked that because some of the comments coming out of the enterprise companies during this earnings season has been kind of mixed in terms how things are playing out now. So any comments you can make there would be helpful.

Yes, I think on the wired side going forward, it is -- there are several customers that I think have been pretty lean on inventory and is starting to build that inventory, and that's helping us even though I'm aware that their specific announcements haven't been all that great. But our design wins have been increasing there over the last few years in, I'll say, nontraditional FPGA areas and some of those designs are starting to kick in, particularly and we noted our 40-, 45-nanometer product family growing. We talked about that in the Analyst Day about how we thought that was going to be an increasing market share as we add designs taking off. And that in fact, is part of what's driving that for us in the wired, not solely, but part of what's going on there. And it is a more positive enterprise view than we had in the past quarter. So we are counting on the enterprise side of that being a leader in that growth in June.

Right. That's great. And just to finish up on -- do you have any 10% customers you want to mention to us? And I have a question for Moshe, for the quarter.

We have no 10% customers for the quarter or the year.

Okay. Moshe, let me just ask you about the issues on 28-nanometer that TSMC has talked about. Obviously, you're not a high-volume customer yet of 28. But what is your take as to what that does in Europe for your ability to ramp in volume? Is that something that concerns you at this stage or not?

So Dr. Morris Chang gave a presentation at the TSMC technical conference and talked about challenges they have and, to a large extent, said that the worst was behind them. We were there first, picked out first, got product first, moved into production first, and we have the benefit of HPL, which has less process steps and probably is a tad less challenging. So it may be that, that is what is helping us through this. We don't have any HP or LP, and so far, so good. And you are right in pointing out that the numbers are very low at this point. But they're going to ramp up significantly in this quarter and the quarter we're in and the quarters going forward. So we watched this with -- very closely and we believe that our relationship is helping but more than anything else, it's the choice of the HPL process and being there first may have given us some benefits, which others may not have seen. Other than that, it's all conjecture on my part.

Our next question comes from the line of Glen Yeung with Citi.

I guess maybe an extension to that question, which is to the extent there is any lack of availability of 28-nanometer wafers, not making a statement here about yield, is it possible that the 40-nanometer node may, in fact, play out a little bit longer? And might that not, at this stage, of 40-nanometer be a benefit for value because you guys are coming off your worst point of 40-nanometer share and are showing some signs of share gain there?

No -- well, as you know, in 40-nanometer, we have relationship with UMC has worked generally well for us at that note in terms of technology availability. In terms of 28, it just provides such huge benefits in terms of much low power, increased performance, increased functionality and we have a much broader portfolio at 28 than we had at 40 and 45 node. So even though -- if you're asking for us to stack things, we don't see these issues at 40 at all. We do have the unique position there. So maybe that is helping us. And the 28 so far, we have not seen any challenges. It is, as Jon pointed out, very, very tight. And again, possible selection of HPL in addition to the product benefits maybe helped in terms of maturity yield, et cetera. But we really don't know. So we're a little puzzled as to those issues ourselves.

Yes. I mean, I think that there's a lot been talked about relative to that from a couple of other companies and we have -- quite frankly, I've been scratching our head a little bit about the scenario that has been talked about. But nonetheless, and one of your premises there was that 40, might last longer because of this. I don't view any of the conversation with 28-nanometer suggesting it's including long-term capacity constraints or whatever. I'm certainly not thinking that, and we are very strongly supportive of growing our 28-nanometer as fast as possible. It's just -- again what we've been talking about has been our strength. So I think Moshe characterized it right. I mean, we've got some differences of what process we're using. It has different characteristics to it and maybe that has something to do with it. And we were very early with lots of tape-outs, and so I think we have a very broad portfolio that's been sampled and that may have helped us put some level of a number of wafers through the system, et cetera. I don't know because we've been at this with a lot of different parts for quite a few quarters now.

Can I just ask as a follow-up, if I look at the quarter-on-quarter progression, I think someone else said that there have been gaps between yourself and your primary competitor. Obviously, this quarter's gap noticeable and I think if you normalized their results for some changes at the end of the quarter, you're gaining share this quarter and next. Is there any -- can you help us figure out where that share gain is coming from, from an end market perspective and also maybe from a geographic perspective if you can do that?

Well, I think wireless is clearly one of those distinctions because the China market has not really been strong from a TD perspective. And that might be where we're weaker on a market share basis in the wideband CDMA portion of 3G and then LTE, where we have tremendous strength. So I think you're seeing a technology -- a manufacturer and technology gains going on that favor us quite a bit. And I think that's -- in the wireless space, I think that is what's -- the biggest differential is who we're partnering with the closest and what geographies that those customers are serving and where the strengths are right now on the wireless capital spend space. So we feel that, that's part of our driver. I don't -- I cannot explain the industrial side. We've seen extremely strong growth there. As I said very broadly, our customers are doing well. We've got parts for them. So I don't -- I don't know why we would have a different characteristics than our competitor. But we do, apparently. And geographically on the industrial side, all geographies grew for us there. So we had -- again, worldwide strength, not just one geography or one subsegment in one geography, et cetera. So the recoveries here and next quarter is the second -- the second quarter of it and we're moving along.

Our next question comes from the line of Anil Doradla with William Blair. Anil K. Doradla - William Blair & Company L.L.C., Research Division: Digging a little bit deeper into the wireless 4G solutions that you talked about, are you gaining access in new content on these 4G LTE base stations or is it basically more of the same functions?

Oh, no, we've been progressively increasing content so 3G to LTE is kind of a 2x factor for us in terms of penetration. So when we're off selling parts that end up in the LTE space, we end up selling a lot of parts. So to the extent that the CapEx, worldwide CapEx, spending in wireless is favoring the most advanced technology that favors PLDs, frankly. So that's helped us a lot.

We've got the trend now for 3 generations. So with each generation of product, the amount of FPGAs used or the percentage of the system, which is implemented in the FPGA has grown significantly consistently and we see that continuing for a whole host of reasons. Anil K. Doradla - William Blair & Company L.L.C., Research Division: Right. So Moshe, if I look at the architecture, are you going closer to the edge of the network? Or the content increase is more in the core perhaps?

It's primarily in the core and there's a huge deficit in terms of wireless infrastructure which is getting aggravated by this huge growth on the smartphone market, where the demands are just unbelievable. And this is well documented. There's a huge issue there. And it requires these upgrade to this new standard because the usage model is now totally different. So we see that continuing, and when we talk to our key customers in each of these areas, they don't see it slowing down. If anything, they see it accelerating generation-on-generation right now. Obviously, there are pricing pressures, et cetera, but it -- in terms of a need, that umbrella need is growing for what we call insatiable, intelligent bandwidths. And the intelligent in the wireless side comes from the smartphones. Anil K. Doradla - William Blair & Company L.L.C., Research Division: Great. And one of the biggest concerns that's been voiced about you guys was about the single architecture in 28-nanometers. You already got traction. Seems like you're getting good traction. How would you debunk or -- how are customers embracing your 28-nanometers and whether that issue which was brought up with single architecture versus designing for the low mid-high, I mean is that -- do you think it's...

Yes, so we obviously did a terrible job in explaining what we're doing. So we -- it's true we have a single manufacturing process. That's absolutely true, which is HPL. We think that, that was at the core of the success because it's actually a high-performance, yet low-power process. So it actually enables us to span the product families. Now what we have is a scalable, optimized architecture with -- at the high-end, it's optimized for performance. In the midrange, it's -- which is Kintex, it absolutely has an unbelievably well-matched performance power footprint, which we believe is a huge differentiator vis-à-vis what the competition has, which use LP process there and typically, does not have enough performance. At the low end, the -- it was optimized for a lowest power and the lowest cost, and the fact -- they are fixing that. I can tell you that if there's one decision that not only would I never change but I -- if I could have done it on the 40- and 45-nanometer node, this is the decision. Right? And so if it -- if we have failed to explain the benefits of it, shame on us. But the customers are thrilled with it, and if you look at the product definition and what the customers can achieve, at the high-end, it's higher performance and higher capacity than the competition and higher bandwidth. In the midrange, it absolutely hits that performance power cost trade-off, which is not easy to achieve. But we think we've hit it and we think that the competition missed in a big way there. And at the low end, we've already rolled out the Zynq offering, which shows the Artix fabric, and the results are great, it's functional and part of our fast rollout and being first to market with the breadth of product is due to having the same manufacturing process but having highly differentiated [Audio Gap] so if we failed to explain that they are optimized for the 3 points, we did a great injustice. But they are optimized, and if you go to the customers, just ask them what they see. We have the highest performance, we have the best trade-off in the middle, and we also have a low-cost, low-power version, which we think is second to none. So we're delighted with where we are. And again, I would never -- not change this and you can guess that to the extent that these options are available in the future, we're very likely to go the same way.

Our next question comes from the line of John Pitzer with Crédit Suisse. John Pitzer - Crédit Suisse AG, Research Division: Yes, I apologize for the technical difficulty earlier. Just a couple of questions. Jon, if I've got -- remember my numbers correctly from the Analyst Day earlier in the year, you guys kind of talked about growth rates by segments and I think you mentioned industrial is kind of being a 6% longer-term grower. And I guess my question is given that industrial is now is effectively flat with the kind of the peak you saw back in June '11, that is holding up a lot better than the rest of the business, do we have to rethink kind of the longer-term growth opportunity in that market? And if it is a better grower, what are the margin implications? And then I have a follow-up for Moshe.

Yes, so John, yes. What we have to be a little careful about in having one new data point from the Analyst Day and then try to extrapolate it. So I agree with you that industrial is -- has been stronger. But remember, some of this growth has been inventory replenishment. So that's got some part to do that -- to do with that. And I think our statement around the industrial growth rates during that time frame was one of the areas we were confident that we're going to grow quite a bit on, is with our Zynq product it's just going to take a while for that to kick in and have more significant growth. And the industrial category just take a longer time period. So I'm very bullish on the industrial over the long haul, it's just that we modified the industrial category a little bit, and I think it was mostly because of where we thought the defense spending was going more than anything else, and not the broad-based industrial and scientific and medical area. John Pitzer - Crédit Suisse AG, Research Division: And, Jon, to the extent that, that does grow faster, do you think that margin accretive or is too difficult to tell given the mix?

It's generally margin accretive but to the extent we might be putting -- pitting Zynq against ASSPs, it's not clear yet to us. John Pitzer - Crédit Suisse AG, Research Division: Got it. And then -- Moshe, just quickly, on 28-nanometer, just given the absolute dollar amount, it's kind of meaningless to talk about end market breakdown today. But if you think about design activity and which end markets are doing the most activity there, if you think about a 4-quarter aggregate number, how do we think about 28 by end market?

So the fastest out of the shoot is wireless, and that's why we chose to focus on Kintex because truthfully, we did not have the best solution in the previous generation, and we let the competition win more than we did at wireless in the previous generation of products. Now we expect to reverse that with a vengeance. And there's a lot of designs in there out the chute, really fast and that Kintex is the perfect solution for the wireless market. Then what we're seeing and we -- is now wired comms, in the -- all of the high-end, the prototyping market just benefiting from the higher capacity and higher throughput that there is on our Virtex 7 product as opposed to the competing product. And it is true that we started a little later there, but now that, that's moving ahead for us, we expect to not only catch-up but actually have a very significant lead in terms of market share over time on that. We just have higher capacity, have higher serial throughput. We actually have significantly lower power on the high-end, and that's where HPL is a major benefit. And so that should be the second out the chute and Zynq is obviously, starting that tends to be more markets like automotive and industrial that move little more slowly but the design wins are accumulating at a huge rate there, and we're very pleased with that. And then Artix will follow. Artix is -- there's elements which are targeted at some higher volume consumer-type applications, but it also has a whole host of other markets which will be addressed there. So that's sort of how we see the sequence and, to some extent, where the $10 million which were well underway to delivering this quarter is a function of all of those.

Our next question comes from the line of Tristan Gerra with Baird. Tristan Gerra - Robert W. Baird & Co. Incorporated, Research Division: Looking at your base product revenue of 21% in the quarter, that's the type of increase that's typically unsustainable. How much of this is just the result of inventory replenishment because of the shipping in previous quarters and then how should we look at this going forward?

Yes, Tristan, so it was up 21% or $24 million in terms of the quantification because I just want to make sure that the percentage increase doesn't overweigh the fact that the increase was $24 million on our base of $559 million. And of that 24% increase, there was an increase in our last time buy category or products, which are reflected in the base, so about $18 million. So the remaining increase was related to defense programs, spending primarily as some of the legacy programs continue to take parts over time. So that, that is an up-and-down thing depending on when those programs decide to take part. So we don't believe the base is sustainable at an increasing -- in fact, they'll be fewer last time buy parts being sold next quarter and then in the September quarter, the last time buy program will be essentially over in that point. So I think base returns back to its normal decline by the September quarter. Tristan Gerra - Robert W. Baird & Co. Incorporated, Research Division: Okay. And was there any unusual pricing in the quarter relative to some of your turns business?

I'm not sure what's behind that question, but no, I mean, we don't have any spot pricing kinds of things that happen in those situations. If you look at our ASP trends, they were pretty normal and as expected. So I don't think there was anything there. I'm not really sure what you're asking, but I hope I answered it.

Our next question comes from the line of CJ Muse with Barclays.

I was hoping to ask a market share question. If I look at your share versus Altera back at the trough in Q4 '10, and the guide for Q2, it was roughly about 500 bps uplift or around $50 million per quarter in terms of gains. And so curious on that, what percentage do you think is sustainable versus what do you think is more lumpy like defense or and/or end-of-life benefit?

So there's quite a few elements, and that's a difficult question to answer. But end-of-life is something which is not a onetime event. It's part of the normal modus operandi in the semiconductor business. It tends to be challenging on the FPGA side because our product have very long product life cycles and the customers are in slow-moving markets. So we have a strategy which has a minimum of 12 years, and these end-of-lifes are actually at that point or are well beyond that. But it's something which is a sustainable part of the business. It's not a onetime event. It's not like taking a big ASIC deal at lower margin. It's sort of something which is really repeatable for us and we just sort of do that. And we have it mapped out and on our website, we actually have projections as to when to expect it going forward. So don't want you to sort of assume that there's some sleight-of-hand here. This is repeatable business going forward, and it's the way -- no, it's just due to the mismatch between fabs not having infinite lifetime at a given process node and our customers' requirement. And -- so that's the one element. The second element really, it's sort of difficult to look back and understand and to some extent, we're looking forward. And the reason for our bullishness is the strength of the 28-nanometer product portfolio. So there's 2 things we said. We believe that we're going to, over time, grow our market share at the 40-, 45-nanometer node, going forward to 50%. And obviously this quarter is a big leap from the mid-30s into the mid-40s, something like that. And the reason that we're positive on that is we have a broader product offering, which is now catching on. We definitely were later, and we paid the price for that. And -- but you're now catching up and a lot of that is the spot-and-fixed product, which basically -- we're there and to the best of our knowledge, there's no one with a significant FPGA low-end portfolio at the 45-nanometer. And that helps a whole host of markets, and that will help us over time grow between Virtex-6 and Spartan-6 that we continue to be -- to expect that to grow to 50%, as those products are now moving into production. Having said all of that, the real exciting thing is the 28-nanometer, the quality of the product offering, its position. And that -- if you look at the markets that have the biggest benefit there, as I mentioned before, short-term, it's wireless. But then, wired at the high-end and actually eating into the ASIC and ASSP market is starting to happen in spades. That's why we made the comment that on the communication space, as we look at our design wins, about 50% of them are actually in competition with ASIC, and in some cases, ASSP products. And the reason that we're seeing that is those are becoming hideously expensive either for companies to design as ASICs or for ASSP companies to continue their roadmaps. So there is this inevitable exit in terms of wired communications. And if you look back as recently as 10 years ago, there are probably more than 90 companies in that space that has dropped to around 20 companies in that space. And even they're struggling except for the very big one, to provide forward-looking roadmaps. And that's, that's what the 28-nanometer enables us to address. So you asked a very large question, and I don't want to spend everyone's time here. But I would say that those are the major effects.

Very helpful. I really appreciate it, Moshe. And, Jon, as a quick follow-up, cash -- net cash has grown out to A+ dollars. Curious how you think about dividends, stock buyback and what kind of cash level you really need to run the business.

Yes, so clearly, I think you see pretty broadly across many of the technology companies that cash has been growing and with the market being relatively hot there's probably some more reticence to do share repurchases than not. We've got our model that we do share purchases on in terms of strike prices and other ways of looking at it. We didn't repurchase any shares this last quarter but we're obviously, committed to purchase -- repurchase shares and we will adjust our model over time to do that. So I think you can count on us being in the market and repurchasing shares from time to time. And we are still very committed to growing the dividend on an annual basis on which we increased 16% growth in our dividend that we just announced for this current quarter. So it is -- it is definitely an issue, I know all in your minds and we're -- we continue to look at it.

Our next question comes our next question comes from the line of Vivek Arya with BofA Merrill Lynch.

I have a question on the long-term R&D intensity for Xilinx. I think you had the 2 successive years of very high spending outpacing sales growth. And it's not just for Xilinx. I think it's for all the lenders. The cost and complexity is growing and I think the 20-nanometer transition, even though it's a few years again it's probably going to be more expensive. How do you look at the R&D trajectory from there? How do you manage it? How do you get more leverage in the model?

So the way we look at it is we have a target and obviously, we're slightly above the target. In reality, that being slightly above is not due to overspending. There was expectation of revenue growth and since the market was a little soft, we tend to hit the high -- the top end numbers. But as we looked at it, we said okay, what do we do now? And we feel that the right thing to do is to exploit the very significant substantial edge we have on 28-nanometer because it's going to be a huge node for us. We have leadership in numerous aspects, now we have leadership on the software side too, which has the broadest applicability and that has the highest lever on growth, right? So we are big believers in that. Having said that, we're not taking that out of control. So we've given absolute numbers that we fully intend to respect and to live within those limitations. From generation to generation, we're actually becoming a lot more efficient and effective. What is happening is that the tape-out costs and the mass costs are going up significantly. And so when those happen en masse, as were they are happening now, as we're driving the products out so we can benefit from our portfolio, it generates a bit of an artificial bulge on our R&D costs. But the expectation is that, that will go down somewhat. If you look at our projected investment over the 2 years, it is where we said it would be. It's -- it was a little lower last fiscal year and it'll be a little higher this fiscal year than we had expected. But overall, the total number is actually less than we had urgently projected. And as we're working full steam on the 20-nanometer, we're just being a whole lot more effective and the design -- the products are being defined and hopefully designed in a way which should enable us to resume at that at that level. And it requires a lot more ingenuity and fiscal control and we're committed to doing that. So the question is valid one, and the answer is a lot of hard work in order to keep doing that. We don't intend to blow through with the numbers even though each product is more difficult and the mass cost for sure is significantly higher.

And perhaps more just something related and revisiting this issue of 28-nanometer availability. Obviously, this year is not as big for you guys from a revenue perspective on 28-nanometer. But as demand grows for 28-nanometer, are you looking at alternative supply sources just from a risk management perspective?

If you were at the -- TSMC forum, they made it very clear that the worst is behind us at this point in time and they're continuing to invest and to bring up their capacity at 28 nanometers. So there -- our expectation is that, that will get resolved and actually, to a large extent, has been resolved from our perspective at this point. So now we have -- we're thrilled with our relationship with TSMC, and we continue to believe that, that was a great decision at 28.

Our last question comes from the line of Shawn Webster with Macquarie.

Yes, I was wondering if you could help us with our -- I had a couple of questions. One was mix and then another was on the last time buy. On the mix, could you share just what the dollar value of your 28-nanometer product was? And I was also curious what your mix in the March quarter was of defense and wireless comm?

So no, we're not -- we haven't -- did not or not providing our 28-nanometer number. Revenue in the quarter more than doubled from the previous quarter and it's on track towards our -- hitting $10 million milestone that we have been talking about for a couple of quarters, which will happen in the June quarter. So the defense business did grow quarter-to-quarter. And traditionally, it's been in the neighborhood of 15% of our total revenue and it's still in that about that same level, maybe a tad more. And I'm sorry I missed the other mix question.

The wireless infrastructure as a percent of sales?

Yes, wireless has been bouncing around a lot in -- the last time we gave a number, it was 25% but then there was a big cycle that went on, so it went down below 20% and it's moving its way back towards 25%, but still far away -- it's still, pretty -- got to ways to go there.

Okay. And then on the last time program buys, it sounds like this was a -- or you stated it was a normal part of your business but is there something unusual about what's happening with the $18 million that you're calling it out and is it the case that the remainder of it will completely fall off by September? Or is it something that will kind of inch down over the course of the year?

No, we called it out because it is a significant -- it was a contribution where to the revenue growth, where -- there was a concentration, and I'll say, an abnormal increase in that category of products and base. And we thought it was important to call it out. And it will go down some in the June quarter and then totally fall off from that class of products. It's a very old, old products that we have in September. And so we've been running mid-single-digit percentage of that class of product, and it will -- like I said, it will decrease a little bit in September, and then -- excuse me, in June, it will drop off totally in September.

Thanks for joining us today. We have a playback of this call beginning at 5 p.m. Pacific Time and 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 '13 will be Wednesday, July 18, after the market close. This quarter, we will be presenting at the Jefferies 2012 Global TMT Conference in New York City on May 7, and the William Blair Annual Growth Stock Conference in Chicago on June 12. This completes our call. Thank you very much for your participation.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.