Executives: Rick Muscha - Senior Director, Investor Relations Moshe Gavrielov - Chief Executive Officer Jon Olson - Chief Financial

Officer
Analysts: Ross Seymore - Deutsche Bank William Stein - SunTrust Robinson Humphrey Chris Danely - Citi Ryan Goodman - CLSA Ian Ing - MKM Partners Joe Gallo - FBR Capital Markets Kulin Patel - BMO Capital Market Tristan Gerra - Robert W. Baird Gabriela Borges - Goldman Sachs Charles Kazarian - Credit Suisse Hans Mosesmann - Raymond

James
Operator: Good afternoon. My name is Mike, and I will be your conference operator. I would like to welcome everyone to the Xilinx’s First Quarter Fiscal Year 2016 Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise.

After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Please limit your questions to one to ensure that management has adequate time to speak to everyone. I would now like to turn the call over to Rick Muscha. Thank you. Mr.

Muscha, you may begin your conference.

Rick Muscha: Thank you, and good afternoon. With me are Moshe Gavrielov, our CEO; and Jon Olson, CFO. We will provide a financial and business review of the June quarter and then we will open the call for questions. This quarter we changed our revenue by product category classification.

We make changes to this classification on a regular basis as products mature and new products are introduced, and there have been the product categories to be more meaningful to investors. In addition, we consolidated the other end-market category into the Communications & Data Center end-market. For comparative purposes, we have provided supplemental schedule on our website at www.investor.xilinx.com that presents results based on the previous category classification. 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 risk factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements. This conference call is open to all and is being webcast live. It can be accessed from our Xilinx Investor Relations website. Let me now turn the call over to Jon.

Jon Olson: Thank you, Rick. Xilinx sales were $549 million, down 3% sequentially and within our guidance. Profitability remained strong during the quarter with a better than expected gross margin continued OpEx control and a healthy cash flow generation. New product sales decreased 10% in the quarter, almost entirely driven by 28-nanometer products which were impacted by weak sales to Wireless customer. Sales from 20-nanometer product exceeded $10 million during the quarter doubling from the prior quarter.

From an end-market perspective sales from Communications & Data Center remained weak, decreasing 11% sequentially. The greater than forecasted decline was driven by Wireless Communications, which was weaker than anticipated due to continued decline from a broad-based of customers predominately serving the China and U.S. markets. Wired sales were as expected for the quarter. While shipments into the Cable Access business were particularly strong, overall CapEx spending remains weak.

Wired Communications was the largest end-market contributor to 28-nanometer revenues in fiscal Q1. The Industrial and Aerospace & Defense segment was better than forecasted driven by ISM and A&D. ISM sales were a record during the quarter. Sales from test declined as expected. Lastly, Broadcast, Consumer & Automotive was essentially flat as expected.

Although, flat sequentially, sales from Automotive are up nearly 50% from the same quarter a year ago and remained at a record 7% of total sales. Gross margin was 70.9% for the quarter better than anticipated, primarily as a result of product and customer mix, although we continued to be focused on driving improvements and profitability. Operating expenses including $2 million in amortization were $211 million in line with expectations. Other income was the net expense of $11 million, slightly better than forecasted due to long-term investment gains. Net income for the quarter was $148 million or $0.55 per diluted share.

Operating cash flow for the June quarter was $183 million before $8 million in CapEx. Diluted shares for the quarter were 271 million, there was a 9 million share dilutive effect from a convertible notes. For questions relating to the dilution associated with our convertible debt, please visit our Investor Relations website at www.investor.xilinx.com. We repurchased 2.2 million shares for $100 million during the quarter and made a record $80 million payment in quarterly dividends. We returned nearly 100% of operating cash flow to shareholders during the quarter.

Let me now comment on the balance sheet. Cash and investments were flat at $3.6 billion. We have $600 million in convertible debt and $1 billion in fixed rate debt resulting in a net cash position of approximately $2 billion. Inventory dollars at Xilinx decreased $9 million sequentially. Let me now turn to a discussion of guidance for the September quarter of fiscal year ’16.

Our backlog heading into the quarter is down sequentially. Communications is forecasted to be flat. The Wireless market continues to be challenging and is negatively impacting our previously stated full-year revenue estimates. While we do expect improvement in the second half of fiscal ‘16 from increased spending in China, North America and India, the rate of improvement remains difficult to forecast. Wired Communications continues to be impacted by a weak CapEx environment, although, we expect to continue to benefit throughout the year from revenue growth in new programs where we have displaced ASSP’s in addition to gaining share in traditional FPGA sockets.

The strengthened of these programs are in the areas of Cable Infrastructure, Access and OTN. We expect the Industrial and Aerospace & Defense segment to be down substantially due to a decrease in A&D driven by the expected conclusion of a large program. Xilinx’s 28-nanometer parts were recently design into subsystem to the next-generation program that is expected to begin production in fiscal year ‘17. Although the Aerospace & Defense market has been characterized by quarterly volatility, this segment remains an important business for Xilinx. Our 28 nanometer revenues are growing at a rate much faster than previous new product introduction as we expand our presence in areas such as situational awareness, public safety and embedded vision systems.

ISM is expected to be approximately flat during the quarter and Test is expected to decline. Lastly, we expect all components of the Broadcast, Consumer and Automotive category to be approximately flat. We expect strong growth in Automotive in fiscal ‘16 as Zynq enters volume production at many large OEMs. As a result, we are expecting total sales to be down 2% to 6% to down 2% to down 6% sequentially. The midpoint of this guidance is predicated on turns rate of approximately 51%.

Gross margin is expected to be approximately 69% to 70%. Operating expenses for the September quarter are expected to be approximately $217 million, including $2 million of amortization of acquisition related intangibles. As I mentioned last quarter, Q1 OpEx would be at the low point for the year. The increase in Q2 OpEx will be driven primarily by hiring in the sales force, an increase tape-out expense related primarily to the 16 nanometer technology generation. Other income and expense for the September quarter will be a net expense of $10 million.

The share count is expected to be roughly 268 million shares. The tax rate for September quarter is expected to be approximately 12%. The reset of our tax rate guidance to 12% is due to a change in the jurisdictional mix of earnings. Let me now turn the call over to Moshe.

Moshe Gavrielov: Thank you, Jon, and good afternoon to you all.

Though the June quarter was challenging from topline perspective, we continue to be pleased with our focus on delivering sustained type of stability. Gross margin was 70.9% better than expectations, driving an operating margin of 32.5%. 28 nanometer revenue decline as we anticipated, driven by weakness in wireless communication. However sales from our Zynq product family, the industry’s first All Programmable SoC increased more than 40%. The primary driver for this growth came from ADAS applications.

Important industry growth driver ideally suited to benefit from the Zynq product family’s innovative and differentiated capabilities. We expect 20 nanometer sales to return to growth in September quarter driven by continued sales increase from the Zynq product as well as an increase in wired communication. Additionally, we’re forecasting 28 nanometer revenue to grow for the balance of fiscal year 2016, driven by demand stabilization and communications, continued strong adoption in Automotive, ISM, Test and Aerospace and Defense. We’re also executing very well with our 20 nanometer Ultrascale portfolio. Technology leadership at this node is very rapidly translating to sales leadership.

We have now shipped 20 nanometer parts to more than 140 discrete customers in all of our major end markets. 20 nanometer revenue in June quarter doubled sequentially more than $10 million with significant growth coming from Virtex Ultrascale, the industry's only ASIC class 20 nanomenter high-end product offering. The September quarter, we’re forecasting 20 nanometer sales to exceed $15 million for experiencing a sales ramp that is more accelerated than our initial expectations. We estimate our share at this node in approaching 80%, confident of share of 20 nanometer will continue to exceed 65% market share we have delivered at 28 nanometer. The 16 nanometer node, we taped out the industry's first All Programmable Multiprocessor SoC using TSMC’s 16FF class process.

This product family targets applications in embedded vision including ADAS, Industrial Internet-of-things beside two wireless systems. During the June quarter, we also extended our world class partnership with TSMC, the undisputed leader in the foundry industry with the announcement that we will be leveraging TSMC’s 7 nanometer processed technology, 3D IC technology for our next generation of All Programmable FPGAs, 3D ICs and MPSoCs. Technology represents the fourth consecutive generation where the two companies have partnered advanced process and cohort backing technology and will become TSMC's fourth generation of FinFET technology. We anticipate the first tape-out at 7 nanometer at full year 2017. Finally, with regard to design software, earlier this week, we announced the public access release of our SDSoC development environment to expand the user base of Zynq SoCs and MPSoCs to a broad community of systems and software engineers, both existing in new market.

Despite weak global communications spending environment, I remain very confident in Xilinx’s strong technology leadership and market expansion initiatives driven by existing and new SDx software designed development environment. We will continue to focus on maintaining high levels of profitability in any business environment with the overall goal of maximizing shareholder. Let me now turn the call back to the operator for questions and answers.

Operator: [Operator Instructions] The first question is from Ross Seymore from Deutsche Bank.

Ross Seymore: Hi guys.

Moshe, a bigger picture question for you, similar to what we’ve been asking linear attack. What is your view on what's going on with overall demand being weaker than expected whether by geography and market or whatever you believe the cause to be. And do you think that is more of a short-term pause or something that's a little more longer in duration?

Moshe Gavrielov: We see the weakness primarily in wireless and it’s being choppy and less predictable than we had thought it would be for some time now. And as a result, we’re very hesitant to call when the visibility will improve there. We do think it’s a question of when, not a question of if but it has shrunk by significant amount.

And if you compare where we were a year ago to where we are now, I think it’s several tens of percent lower. So that’s the major market of vertical where we think issues. On the other areas, I wouldn’t say that they are buoyant and vibrant and doing great but they are sort of holding out for us. So that’s the Xilinx’s perspective. Jon, to you, concur.

Jon Olson: Yeah. I do concur. I would also add to that, that our share position is particularly in the wireless segment. It is still very strong. I think that helps bolster our confidence that when these things do come back, we are going to be a strong participant of that.

And as I said, it’s very hard to get exactly what the trajectory of the second half improvement is. And we see signs and positive statement from both customers and carriers but we’re going quarter-by-quarter right now in this particular end market.

Ross Seymore: Great. Thank you very much.

Moshe Gavrielov: Thank you.

Operator: The next question is from William Stein with SunTrust Robinson Humphrey. William Stein, your line is open.

William Stein: Sorry. I was muted. Thanks for taking my question.

The negative outlook in the industrial end market where you are citing ending of a program in Aerospace and Defense, was there sort of last-time buy that was associated with that, that was going on recently and then I have a follow-up please?

Jon Olson: Well, this is part of the announced program where the joint strike -- specific with the Joint Strike Fighter where there is a very large set of purchases going on over a period of a year and a half to two years and this is just the -- essentially the end of that particular procurement and they are redesigning some of the key elements into electronics inside the aircraft and as I said, we are winning all the redesigns. It is just that there is this gap between when the older designs, materials being acquired versus the new periods. So, we are the end of that particular program and we won’t see any significant revenue shift into that program for the remainder of this year. So, I wouldn’t associate it wholly with any sort of a last-time buy situation.

William Stein: Thanks.

And then the follow-up is a much broader question. Competitively when you talk to customers, I’d love to hear about sort of positioning the company does relative to your competitor is soon likely to be owned by Intel, whether that changes the dynamic and how so, both on the relationship side and then the anticipated manufacturing change that might happen at that supplier?

Moshe Gavrielov: Okay. Well, let me take it. So, fundamentally, if you look at the markets we service there highly diversified markets that look for eights months technology and a significant level of support with a very long lifecycle. And this is a market we have serviced really well.

We continue to service it well. We have delivered market share expansion of 28-nanometer. We’ve seen that expand to better position the 20. We believe we are ahead of the game now being the first to tape-out at the node beyond that 16 and we are already working with TSMC on the 7-nanometer and we expect to tape out in the 2017 timeframe. So on the silicon side, the customers are very sure that they will continue to have the same level of excellence in terms of technology leadership and a timeliness and that’s an opportunity for us.

Now when you supplement that with the leadership we have on the software and expansion with the new product, the SDAccel and the SDSoC, which we have now are broadly, are making available to customers and not only is it the best silicon but it’s the best software in the industry and the best support infrastructure in the industry. So, we actually believe that this is an opportunity for us and I would say the customers are reassured by that. And we know that we are the biggest and have been for the longest period of time, the leader and the bellwether player in this market. So, we remain committed to it and together with our unique relationship with TSMC and Avnet, we will continue to get the best products around the further requirement. So, the market will rollover, we don’t know what will happen on the other side.

I think generally speaking, this bodes well for us and that’s why our interest -- continued interest heavily to make sure we can exploit this opportunity.

William Stein: Thank you.

Moshe Gavrielov: Sure. Thank

you
Operator: The next question is from Chris Danely with Citi.

Chris Danely: Hey, guys.

Now that the Altera doubling is officially official, I guess I can stop asking my hypothetical questions and ask some real questions. So are you seeing any reaction from your customers on that and then Intel talked about a delay in 10-nanometers. How do you think that positions Altera versus yourselves?

Moshe Gavrielov: Well, I'm not sure I can handle what I said before. We're focused on delivering leadership on silicon, on software in terms of support and we are working with TSMC and with ARM on the next-generation products. And we now have announced 7-nanometer tape out and TSMC and ARMS will be available 2017 and we expect to tape out at that point in time.

So, we are focused on execution and all of the uncertainty with regards to the Altera acquisition by Intel. I think that's generally an opportunity for us as long as we continue to execute and deliver. And since we've done that at 28 and our results speak for themselves, the results of 20 are already demonstrating even better market share for us. We will first succeed and working on 7, I think as we continue to execute, there is upside for us from all of the uncertainty.

Chris Danely: Has there been any reaction from the customers?

Moshe Gavrielov: The customers are generally happy that they have the bellwether in the largest company in the business, continued focus on this mode of business, right.

And I think it’s a wait and see for them with regards to see what will happen on the other side, right. But we're around. We are open for business and we are committed and continued to be committed to delivering the leadership, both on the technology and the support side.

Chris Danely: Thank you.

Moshe Gavrielov: Okay.

Thank you.

Operator: The next question is from Srini Pajjuri with CLSA.

Ryan Goodman: Hey. This is Ryan Goodman from Srini. I get another one for you on Intel and Altera? So now with that kind of in the works, I'm curious if you see any need to maybe go out and get access through a partnership or maybe start working in-house on a customer onboard just to stay competitive in terms of potential integration advantages that Intel may have with Altera overtime.

Moshe Gavrielov: So that’s a great question. And we were first the 28 with rank. We were first at 16 with our MPSoC product, which actually has a very attractive performance level and we believe that for most of the markets we are addressing, ARM is actually by far the best solution. I could say that the one potential exception to data is the data center market. But the data center market is likely to bifurcate into Intel and the rest of the world and so the rest of the world, we believe we are going to be the natural and best solution.

So, there's upside for us there and we think we can do it with the ARM product roadmap and with the TSMC process and we’ve already demonstrated that. There is a lot of cluster about the leadership that Intel would deliver to Altera. The fact is we already had -- with regards to that node. So, we believe that we are in good shape both strategically and tactically, and definitely the on roadmap will suffice knowing. If you’re asking a very specific question, could there be markets where fully optimized x86 solution provides some advantage? The answer to that is yes, there are some markets.

It tends to be a small subset of the overall market. And we think for most of the market, we will have a very adequate and competitive solution using our existing roadmap.

Ryan Goodman: Okay. Great. Thanks.

And I just want to follow up on the financial model. You had hinted in the prepared comments that the wireless issues are kind of challenging. Your prior targets were flat, up 2% for the fiscal year. So just curious if there is anything else to add there if you’re providing an actual update there. And also on the OpEx side too, I think you had a forecast out there, just maybe an update on how that’s tracking? Thanks.

Jon Olson: Yes. So at this time, we aren’t going to go quarter by quarter. The wireless as I said on the previous answer as well, it’s really hard to understand what the pace of the change, the trajectory is on China and the US, specifically the Chinese base station rollout and more specifically Sprint for us, which was one of our leading growth sectors in North America. I mean, Verizon and AT&T are also involved, but Sprint was certainly one of the leading growth sectors there. So we are not giving a new number for the full year just because of the challenge of understanding what that really means to us.

So meaning how strong will it come back, will it come back in the second half, all those things, really hard for us to say. So we aren’t putting out a new number. Spending, we revised spending downward in our last call vis-à-vis what we said at Investor Day and we aren’t changing that forecast this time.

Ryan Goodman: Okay. Thanks.

Rick Muscha: Okay. Thank you. Next question?

Operator: The next question is from Ian Ing with MKM Partners.

Ian Ing: Yes. Thanks for taking my question.

A bit early a $10 million of revenue per quarter, but can you talk about 20 nanometers, perhaps yields, execution, volume ramps, as it compares to 28 nanometers?

Moshe Gavrielov: That’s the great question, Ian. So if you look at 28, it was a very, very, very broad node and there is a low end, the midrange, high end, those the same product line which ended up with the large number of product. From our perspective, the 20 and 16 together which are coming out relatively close, closer than typical should more or less be equivalent to 28. So 20 is not as big as 28, but neither that we expect to be and 20 is now benefiting from the fact we have high end and midrange there. And that’s what is generating this level of revenue, but there is no low end and then there is no Zynq equivalent on the 20-nanometer.

Hence, overall, it’s not as vibrant as 28 as well, but on the other hand it’s doing better than we had expected. So we are quite pleased with the results so far and the pickup in terms of design wins, which are now rapidly turning into revenues were encouraging from my perspective.

Ian Ing: Great. And for my follow-up, I mean how much do you think Xilinx’s customers are seeing price increases year-to-date, whether it’s deliberate value-based pricing or the strong dollar overseas and what’s the response has been? I know Avnet as early as June said there is really no impact to the strong dollar. I was just wanted to check in on that.

Jon Olson: Yes. I certainly have not seen much impact to the stronger dollar. Of course, it’s pulled back a little bit now, but we really haven’t. I thought I sensed the pause in our industrial business in Europe a few quarters back, but then it’s bounced back the next quarter, I mean it’s stable now. And it’s got some growth going on there.

So we really haven’t seen anything there overall. So yes, generally, I think things are not being impacted on a worldwide basis because of the currency strength for us.

Ian Ing: Thank you.

Rick Muscha: Thanks, Ian. Next question please.

Operator: The next question is from Christopher Rolland with FBR Capital Markets.

Joe Gallo: Hey, guys. This is Joe on for Chris. Thanks for letting me ask the question. So you’ve really recently been promoting Zynq for ADAS and Embedded Vision, but there is one clear winner in Embedded Vision and it appears they are using ASIC approach.

So what gives you confidence there that there will be a gravitation toward FPGAs and who are your earlier design wins there?

Moshe Gavrielov: Okay. Well, we are very confident because we have design wins and we have models that are going into production. And I think there is already 12 and it could be that the number is slightly higher that are already 12 models that are going into production at this point in time with our solution. And we don’t have the plurality of the market, it’s a market which is emerging, but we believe that it’s a great starting point for us and it’s helping to drive our business. And for everyone who is looking for a differentiated solution as opposed to a cookie cutter solution, which will give you -- which won’t give you an advantage, then we are the train to ride with that regard.

We think more and more of the customers adopt our solution. I don’t think we are going to have 50% market share this generation, but we are already garnering tremendous number of design wins with the MPSoC for the follow-on for that. So we are very pleased with the market share with the Zynq product offering and we expect that to expand with the MPSoC market, which is in its infancy. And I think that it’s still too early to assume that there is only going to be one winner, we expect to be a significant winner in this market.

Joe Gallo: That’s helpful.

Thank you. And then as a follow-up. I know back to the 16-nanometer tape-out, I know there is a press release recently about taping out a program a little multi-processor 16-nanometer chip. What else are you close to taping out on 16-nanometer and how should we think about the progression of products that node will be high end first and midrange and how should we think about that?

Moshe Gavrielov: Well, the 16-nanometer offering is quite broad and it has a midrange, high end and very extensive processor roadmap, so that’s the MPSoC. So it covers probably 80%, or 70% to 80% of the total area that we tend to play and it doesn’t cover the very low end.

We will be -- we feel we had good coverage with the 28 and 45-nanometer solution at the low end and we will be bolstering that low end portfolio in the future with the new generation of technology, but that’s what -- this has been taped out. The initial product is a relatively high end product with an embedded processor, but it’s not the ultimate high end. It’s sort of just on the same between the midrange and the high end of the product offering. And we are going to continue to expand going up and down. And the first version does has embedded CPU core and that will be the first one which will come out we will have, is targeted to have the embedded CPU core and that has a tremendous level of interest in the market.

Jon Olson: And other additional tape out as we move through the year. I mean this was just the first tape out as we’ve wound down our 20-nanometer tape out focus and getting all those outer markets and 16 comes right behind it and they’ll continue to have tape out throughout the rest of remainder of this year and to the following fiscal year.

Joe Gallo: Okay. Thanks, guys.

Moshe Gavrielov: Thank you.

Operator: The next question is from Ambrish Srivastava with BMO Capital Market.

Kulin Patel: Hi. It’s Kulin Patel for Ambrish. Thanks for taking my question. I have question on earlier you mentioned that you plan to introduce 7-nanometer products in 2017.

This implies that just to your gap between tape out for 15 and 7, are you skipping 10-nanometer and if it any reason why you are skipping 10-nanometer?

Moshe Gavrielov: Okay. So if you look at the sequence, there is 28 and then 20 and 16 came out in rapid session. And there was actually two flavors of 16, there was 16FF and the 16FF+. So we -- after we did the 20 we decided to skip the 16FF and go straight to the FF+. With the gap between 7 and 10 at TSMC actually is quite significant in terms of the capabilities of the two products.

And from our perspective, our customers can only digest technology of the certain cadence. If we bring out the technology every three months, that’s not going to help them. So to some extent the somewhere between every two to three years to have a major technology refresh for the business we’re in is the right cadence. And what we decided to do is to shoot for the best technology, which will be available in that’s sort of timeframe. And because of 7-nanometer fits the bill and its lower power and denser and actually higher performance, we felt it was better to do that than to split between the 10 and the 7.

So that sort of the depth of the thinking and we’re quite confident that this is the right decision in terms of our customer requirements.

Kulin Patel: Great. Thanks, guys.

Moshe Gavrielov: Sure. Thank you.

Operator: The next question is from Vivek Arya with BofA. : Hi. This is [Shankar] [ph] on behalf of Vivek. So I just want to dig into the wireless weakness. So they are going to sign up a letter.

They have been adding a lot of these subscribers. So the real reason for the weakness is that excess inventory or you think customers are using more ASICs, ASSP as well as FPGA like before? And what do you think will turn this around for you in the long run?

Jon Olson: Well, the answers are different by geography to that question. Really isn’t the same. The transits of China in general has been stalled out both because the SD standard deployment, which is one of the bigger thing that was -- we were counting on for this year to actually began and be more robust as we move through the year. That was stalled out originally by China Unicom and China Telecom.

The audits that they had relative to ethics and those kinds of things they were on. There has been an overall slowdown of capital spend in China and infrastructure, which is more of a macro thing going on relative to the China issue. So I think that’s been the biggest driver there and there absolutely has been a build-up of base station inventory and our product in the Chinese suppliers that is being let off as China Mobile continues to deploy at a much lower rate than the previous year but China Unicom and China telecom not as much. So if you -- people have told me that if you’re in China and you using one of those handsets from the China Mobile network, there is still a lot of coverage issues. So a lot things are left to be done there.

So I’m not so sure it’s driven by the subscriber poll. I think there are some bigger issues going on there. Relative to North America, it’s kind of bifurcated into Sprint who is also having some financial issues in terms of funding their network, so they slowed down the deployment of their network. And they’ve gone through a rebating process and that process has been completed as best as we can tell. And so again, we think that because of those milestones, we think things are going to start to turnaround and grow for us in the second half of this year and into calendar 2016.

AT&T and Verizon have slowed down their cap spending in the first part of the year. There was Spectrum acquisition. They also are trying to spend a little more money now and those are going to be additional capacitization of that network. So it really is different by different carriers and geography. The thought process about what’s going to turn this around for us is just exactly the fact that subscriber and coverage is not uniformly sufficient and good in those geographies.

The thought process about what’s going to turn this around for us is just exactly the fact that subscriber and coverage is not uniformly sufficient and good in those geographies. And as Moshe said earlier, it's a matter of when. It's not a matter of if for us. And again, we’ve seen positive press coming out of carriers relative to some improvement in that. We’ve seen orders turn with respect to India, some growth there.

So, we have some specific orders ahead of us on that. So, we are starting to see some positive signs that would lead us to believe that the second half of fiscal year will be better. : Great. So, I have one follow-up. So, on the data center side, actually the Exadata opportunity was a prime reason why Intel acquired Altera.

Can you talk about how big the market is for you? Is it still an area of focus and is Intel acquiring Altera, they some how going to come over to optimize product that can even say knock you out of the market? Can you just give some color around the data center object?

Moshe Gavrielov: Okay. So the various element to the data center and there is elements that focus on storage, elements that focus on networking and elements that focus on compute. So the storage and networking are largely unimpacted by this acquisition. And in compute space, it’s very clear that FPGAs provide a viable, very attractive lower-power solution, which significantly provide an improvement in the performance per watt by -- what we're seeing is somewhere between 20x to 30x in several applications, vis-à-vis standalone, high performance processor. And that’s because these applications in the cloud tend to be massively parallel and these processors are inherently not parallel engines, they’re very sequential.

That’s the way a CPU operates. And even if you have multiple CPU cores, you can only achieve a certain level as parallel as in that way. So, FPGAs actually can provide tremendous acceleration at the same platform or lower power consumption just to make sure, or they can provide at a much lower level of power consumption, they can deliver equivalent performance. Now we believe that when Intel consummates its acquisition, when that happens then there will be some integration opportunity. The challenge there is that you are taking a very high power solution, which is an x86 and you are adding to it another high power solution, which is a large FPGA.

And to some extent you try to integrate both of those on same silicon and you are limited with regards to what you can do. So we believe that that market, the Intel x86 will have an element which will have an integrated solution and they will have an element which has these distributed solutions where the FPGA will be separate. And we see a lot of the traditional Data Center customers having a strong interest in actually retaining autonomy and independent in that second node, so they can decide how they design their system and obviously, would be a wonderful solution for that. So even in the Intel x86 space we believe we have a play. And not mentioned that everywhere where it’s not Intel and this is a market which is emerging, right.

So there is a lot of competing solutions that will come to the market over the next few years. We will be the natural show in for that -- for those solutions. So I would say there is upside for us definitely vis-à-vis beyond where we are today and we are committed to that market and we expect to see business growth in that market and we believe that market is it -- in its very early stages and of evolution and overtime we will have a stronger position in it than we definitely have now. So hopefully that answers your question? I apologies it was more than you wanted to hear on that topic?
: No. That’s helpful.

Thank you.

Moshe Gavrielov: Thank you. Next question?

Operator: The next question is from Tristan Gerra with Robert W. Baird.

Tristan Gerra: Hi.

Good afternoon. Just as a quick follow to the Data Center question and answer that you’ve just provided, which was very useful? How competitive you said you are relative to Altera now with software and OpenCL which I believe was the reason for the delay initially in you getting in that end-market?

Moshe Gavrielov: Yes. To be total honest, we were not -- we did not recognized that market earlier. On the software side we did have product efficiency. Now based on what customers are telling us, not only are we not behind but we are actually ahead of the competition.

So I think we have largely closed that gap and if anything it is a competitive advantage for us. We believe that the very deep synthesis technology that we have now delivered this part of our [indiscernible] product that give us a tremendous advantage over any other solution in the market today. As with product size update we are now starting to broadly deliver it to customer. We -- and the feedback we are getting is that we are ahead in terms of technology. So the software is no longer the issue if anything is working in our favor.

Tristan Gerra: Okay. That’s very useful. And then just a quick follow-up. Is there any end of life product headwind embedded in your September quarter guidance?

Jon Olson: No. there isn’t.

Tristan Gerra: Great. Thank you.

Moshe Gavrielov: Thanks. Next question?

Operator: The next question is from James Covello with Goldman Sachs.

Gabriela Borges: Great.

Thanks for taking the question. Gabriela Borges on behalf of Jim. Just want to follow-up on all the challenges that have been articulated in the Wireless market? Curious if its changing the way you are thinking about providing quarter-to-quarter forecast as well, maybe handicapping customer forecast more than normal? And I guess, the other question would be how that reflects into the turns rate that’s embedded in guidance, given that this was a transition towards distributors or distribution transition as well? Thank you.

Jon Olson: Hi, Gabriela. It is certainly a challenge in, I will say, any markets where we have a very high concentration and there has -- in this particularly situation it seems to be more of a worldwide trend that’s going on and if you look at other semiconductor companies have the same challenges as we do in this area.

I don’t think, because we have such a diversified portfolio beyond just Wireless and overall Communications. I don’t think that’s going to cause us to change our -- it’s our desire to try -- to do a forecast and do the best way possibly we can. I think we are at a point here of certainly a multiyear historical low for us in terms of revenue and -- in this segment and it is challenging but, I think, we will continue to try to push through and figure this out. Now relative to the turns percentage number that I provided, while it was quite a bit higher on a percentage basis than our actual turns from the previous quarter, I think we’ve been relatively conservative on the wireless forecast to support that. We had quite a bit of business booked early in the quarter, the previous quarter and then moving into this current quarter that we just started, we’re back to a more normal booking pattern.

And the actual dollars we need in terms on a weekly basis is not that much greater than the actual dollars per week we had in the previous quarter. So I think we’re pretty well balanced and we see how things go throughout the quarter.

Gabriela Borges: Appreciate all the color. Maybe just as a follow-up if I could on the gross margin profile of the business, maybe if we think about year-over-year how the gross margin profile of the company has changed. Help us understand how much of that is makeshift either between end markets or between different product groups? I mean, how much of it is structural initiatives that the company has been taking to improve the longer term gross margin profile? Thank you.

Jon Olson: Yeah. So at our Investor Day, we talked about it a 68% to 70% range for this year. So if you look at the midpoint, that would be 69%. And we’ve been running at 70% and 71%. So all the cost reductions that we had in that forecasted Investor Day that drove the 68% to 70% are on track and we’re doing very well.

So I would say if I compare it to our previous forecast, we’re on track on all the cost reductions. There is a lot of mix issues going on. We do have a slightly stronger Industrial, Aerospace and Defense profile than we thought at that point in time. And we had a substantially weaker communications business. And that mix would tend to push our gross margins to this very high elevated point that we are right now.

So I think both product and customer mix is accounting for quite a bit. Of this, I think in the absence of more normal -- normalized end market mix that we would have envisioned at the Investor Day, we’ll be running in the 68% to 70% range, probably pretty close to the center of that. So I guess, the short answer to your question is, a lot of it is product mix and end market customer mix.

Gabriela Borges: Understood. Thank you very much.

Rick Muscha: Okay. Thank you. Next question.

Operator: The next question is from John Pitzer with Credit Suisse.

Charles Kazarian: Hi guys.

Charles Kazarian here on behalf on John. Not sure if this was addressed or not but I know you commented that Industrial, Aero, Defense was better than expected on ISM and A&D. I was just hoping if you talk a little more about Industrial within this bucket, for example, what you’re seeing with end demand and then also your view on inventory today in going forward into the back half of the year?

Jon Olson: Yeah. Industrial, as we stated, our Industrial was a record quarterly revenue for us, had very strong contribution in North America and in Asia-Pac to be very specific on that. We’re starting to see growth of the Zynq microprocessor-based FPGA in our numbers and broadly new applications in motor control connected factories, industrial, IOT, kinds of areas.

We’re starting to see those designs that we’ve won over the last couple of years, start to accumulate in revenue. So while I know, there has been some challenging statements about the industrial market. Overall, we saw -- we started to see some of the positive things we’ve been talking about over the last year or so, start to mount up and be more significant within our numbers in addition to our traditional areas.

Charles Kazarian: Okay. All right.

Thank you very much.

Rick Muscha: Next question?

Operator: [Operator Instructions] The next question is from Hans Mosesmann with Raymond James.

Hans Mosesmann: Thank you. Hey, Moshe, I’m looking at the roadmaps here. It turns out that by my reckoning in 2018, you guys are going to be ramping or very early ramping 7-nanometer.

And if Altera chooses or if Intel chooses to be the provider of foundry services for Altera there will be a 10. Was there a competitive reasoning behind your decision to skip 10-nanometer besides the cadence aspect of your customers’ preference?

Moshe Gavrielov: Not really, that’s great question. We just looked at what the right solution -- everything what was available to us and what would be the right solution and TSMC had their 10 and then we said well, there anything beyond that and they told us that they were working on this future technology. TSMC is very committed to driving technology and capacity leadership and when we saw what it is, we thought that it would be a no compelling and so just based on that. Now indirectly, we have no idea what Altera and Intel were going to do and Altera had said that they were looking at TSMC’s roadmap and I would be surprised if TSMC did roadshows on the same thing to be on the strike with that.

Probably just makes sense for TSMC to show what they have. So it wasn’t -- we didn’t know what was available at Intel, but we just decided that the right thing for our customer base was to go to a 7-nanomter and that looks like a very compelling solution in particular as they are committed to delivering it in 2017 and that’s when we needed.

Hans Mosesmann: Right. Okay. And if I could a follow-on on the Zynq side.

In the automotive models that you are in, do you know if you are in the front-facing cameras? Is Zynq being used in that kind of an application within a car?

Moshe Gavrielov: Absolutely. Absolutely.

Hans Mosesmann: Okay. And what image processing software, do you provide that or is that a third-party?

Moshe Gavrielov: It comes from a variety of sources. Some of which are internal to us, some of which come from that the customers provide and in some cases, it’s the third-party which provides them.

So it’s a combination of all three. Just to sort of comment on that, what we’re seeing and I said this in response to an early question, we are seeing customers look at a non-differentiated ASSP solution versus highly differentiated solution using our devices. And for the high end, it’s a no-brainer that they wanted differentiated solution. And then as you look at the midrange, it’s less clear and definitely, it’s a low end time save and just prepare to have a meat and potato solution as opposed to something which is more specialized. But interestingly because this is become a platform play, then we are starting to see design wins where the customers are committing their entire product offering to our platform.

And as a result, they are pushing us hard to provide them with a lower end and we typically would have provided or solution for that. And so that’s a growth opportunity for us. And it’s driven by this broad platform-oriented approach where the companies are sort of saying we can’t afford to have different solutions. And because we want to have differentiation, they go with us across the board. And that’s another reason that I believe that our market share which we are happy with the revenue at this point, but our market share is not high yet.

We believe that there is an opportunity to grow it going forward.

Hans Mosesmann: Thank you. Very helpful.

Moshe Gavrielov: Okay. Sure.

Thank you.

Jon Olson: Operator, we will take one more question.

Operator: [Operator Instructions] And there are no further questions at this time. I will turn the call back over to the presenters.

Rick Muscha: Great.

Thanks for joining us today. We have a playback of this call beginning at 5 PM Pacific Time, 8 PM Eastern Time today. For a copy of our earnings release, please visit our IR website. This quarter we will be presenting at the Pacific Crest Global Technology Forum in Vail on August 10 and the 2015 Citi Global Technology Conference in New York City on September 9. This completes our call.

Thank you very much for your participation.

Operator: This concludes today’s conference call. You may now disconnect.