Q3 2020 Earnings Call

Good afternoon, my name is wrong and I'll be your conference operator.

I'd like to welcome everyone to the Xilinx third quarter fiscal year 2020 earnings release Conference call.

All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question answer session.

If you like you ask a question at this time press the star and the number one on your telephone keypad.

If you like to withdraw your question press the pound Keith Please limit your questions to one to ensure that management has adequate time to speak to everyone. I'd now like to turn the call over to match for you. Thank you Mr. Boyer you may begin your conference.

Thank you and good afternoon with me are Victor paying for CEO , and Sumedh Gagnaire <unk>, our corporate Vice President and Chief Accounting Officer.

As a search for new Chief Financial Officer remains ongoing for this call Victor will provide a financial and business review at the December quarter in a business outlook for the March quarter of fiscal year 2020.

So I mean, I will participate in the Q and a portion of the call as needed.

I remind everyone that during our conference call today, we may make projections or other forward looking statements regarding future events for the future financial performance. The company, we wish to caution you that such statements are predictions based on information currently available and actual results may differ materially we refer you to the documents the company files with the FCC.

Putting our 10-K 10 kids and their case.

These documents contain and identify important risk factors that could cause the actual results to differ materially from those contained in our projections or forward looking statements.

In addition to GAAP financial measures will be disclosing certain supplemental non-GAAP financial measures used by management to evaluate the Companys financial results.

Provide these measures to facilitate period to period compare ability for purposes of evaluating continuing business operations by excluding the effects of nonrecurring unusual items, such as amortization of intangibles and certainly onetime items related to acquisitions. We believe that sharing these non-GAAP measures would be helpful for analyst and investors and analyzing the companys ongoing core business.

A reconciliation of non-GAAP financial information to the closest GAAP measure is included in our earnings release and has been posted on our Investor Relations website. This conference call is open to all it is being webcast live it can be accessed from our Xilinx Investor Relations website, Let me now turn the call detector.

Thanks, Matt and good afternoon, everyone. Let me jump right into our results for the third quarter and provide an update on our expectations for the fourth quarter fiscal 2020.

Overall, the quarter played out largely as we anticipated total revenues were 723.5 million near the midpoint of our expected revenue range. We made a concerted effort to reduce operating expenses and achieve better than expected operating margin and GAAP earnings per share of 64 cents non-GAAP operating earnings per share up.

68 cents.

Now I'll turn to highlights for the third quarter even.

The advanced products category constituted approximately 70% of total revenues and third quarter, a decrease of 4% year over year zinc based revenue grew 26% year over year, despite the impact of a weaker wired and wireless business.

Thank you also see platform, which include zinc at 28 nanometers and both MPS will see an RF test of the at 16 nanometers represented 23% of total revenues, which is higher than a year ago period.

We continue to see strong zinc traction across our target markets, which is a positive indicator of a progression transitioning to platforms.

Our overall customer engagement about them continues to build as we position for the long term profitable growth.

Executing on our strategy of growth in the data center, five Gi and the automotive market as well as externally accelerating growth in our core markets.

In the communication markets, we are actively engaged with a global non Chinese OEM for second generation Fiveg radio design that includes beam, forming and is based on our seven Adam Universal Heiko.

Yeah Communications personal continues to be well received by customers across several end markets.

Well production shipments the first of all is expected to begin in late <unk>. Why 21, we have already recognized initial revenue from early shipments to customers.

In the data Center Ali Baba cloud announced that Xilinxs powering the data center and is being used by their cloud services enterprise customers.

They also scared that unprecedented traffic during singles day in China has proven the reliability and security of their systems platform running on RFP Jayson.

In addition, Super micro unveiled two new alveolar systems, the power compute platforms to accelerate some of the most algorithmically demanding workloads in the enterprise and in the cloud.

On the suffer from as announced earlier the latest Vitesse platform is now available for download and free to users who purchase I'll be able development board.

We also announced availability of divided AI inference development platform that empowers software developers to utilize deep learning acceleration framework.

Tensorflow and cafe.

Lastly, we announced our zinc MPS will see is powering baidu is production ready Apollo computing unit for automated valet parking the industry's first dedicated computing solution for this emerging automotive applications.

Moving to a review of our business groups and corn markets for the third quarter, our core markets performed.

As expected with some adjustments in mixed across our AI T. and abbey markets.

We saw less than expected declines in d., and ice them, well macroeconomic and trade related headwinds impacted automotive more than expected.

We start increased revenue from emulation and prototype in customers in TV market, albeit somewhat less than expected.

This mix of revenue helped drive a higher blended corporate gross margin in the quarter.

But there has been a group performed as expected and benefited from sales of book compute and networking products Hyperscale customers.

Networking revenue from solar flares somewhat outperformed expectations in the quarter.

We also saw increased revenue from customers shipping storage class memory.

However, this was offset by weaker demand from high performance computing.

For two customers.

The wired and wireless group performed largely as anticipated with both wireless and wired down sequentially.

Wireless revenue meaningfully decline because of the anticipated base band basic transition and some program related delays with one of our global Oems.

Now moving onto the financials.

As I mentioned total revenue was 723.5 million down 10% year over year and down 13% sequentially.

It is center group revenue increased 8% year over year, what was down 16% sequentially from a record quarter.

Wired and wireless group revenue declined 18% year over year, and it was down 29% sequentially.

Note that we had one communications customer that represented greater than 10% of revenues in the third quarter.

Yeah actually revenue declined 10% year over year, it was down 5% sequentially APC revenue increased 10% year over year and was up 2% sequentially.

Gross margin was inline with expectations with GAAP gross margin of 67% and non-GAAP gross margin of 68%.

GAAP operating expense at 324 million and non-GAAP Opex at 318 million, we're both meaningfully below guidance of 330 million due to significantly reduce hiring and discretionary spending.

GAAP operating income was 159 million or 22% operating margin non-GAAP operating income was 174 million or 24% operating margin.

Our GAAP tax rate was approximately 2% and non-GAAP tax rate was approximately 5%.

GAAP net income was 162 million and diluted earnings per share was 64 cents.

31% year over year decrease.

non-GAAP net income was 171 million and non-GAAP diluted EPS was 68 cents, a 26% declined from last year.

Diluted share count decreased to 252.8 million.

And gross cash was 2.4 billion with 1.2 billion in long term debt.

Accounts receivable decreased to 254 million in this at 32 days down from 37 days last quarter.

Overall, we generated 324 million in operating cash flow.

During the quarter, we repurchased approximately 2.8 million shares at an average price of 393 and $793 in 70 cents per share and pay dividends of 93 million.

Turning now to the outlook for the fourth quarter.

Probably Q3 will be our low quarter for fiscal 20 from a revenue perspective. However, our revenue recovery is now expected to be more gradual than we had anticipated at the start of last quarter.

We expect total fourth quarter revenue to be between 750 million and 780 million, which at the midpoint of the guidance is down approximately 8% year over year, but up approximately 6% sequentially.

Fourth quarter revenue growth is being driven by meaningful improvement in our core markets moderate growth in DCG, but it's significantly offset by greater than anticipated weakness in W.W.G.

We expect modest growth from our distribution channel.

For core markets, we're on track with our prior expectations for strong sequential revenue growth at <unk> as programs for multiple emulation and prototyping customers ramp.

Both 80 and ice them are expected to be up in Q4 auto is also expected to recover in Q4, that's eight as demand increases relative to Q3.

Being consumer or expect to be somewhat weaker.

For D.C.G. revenue is expected to grow moderately, albeit somewhat less than prior expectations.

We expect continued contributions from compute acceleration driven by a mix of cloud in high performance compute customers.

We expect to see slower revenue ramp from storage and networking customers and we expect additional cloud customer appeal thieves to move ins production for revenue will likely continue to be lumpy given that we're in the early stages of scaling the BCG business.

The most significant change their outlook is in WWJ. We now expect Q4 revenue from both wired and wireless customers has declined more than previously anticipated.

The additional negative impact or wireless business are result of a slowdown in five de rollout across multiple regions. As many operated take a pause before the next wave of infrastructure deployment.

In addition, wired revenues are being impacted by broad base weakness in demand across multiple customers.

Note that these headwinds are in addition to the impact of the loss of revenue from Walkaway since last may.

We now expect W.W.G. revenue to be down and that's why 20 versus ethylene 19.

Fiscal Q4, non-GAAP gross margin is expected to improve to approximately 69.5%.

Given the more persistent revenue headwinds are facing we're taking several actions to drive structural operating efficiencies across the company.

We plan to reduce our global workforce by approximately 7% to we're targeting a reduction in force and meaningfully forward fishing replacement.

In addition, we're taking several actions to reduce further discretionary spend and realize additional operating efficiencies across the business.

Excluding severance charges related to the reduction in force non-GAAP operating expense is expected to be approximately 318 million, which reflects the adjusted spending profile.

This includes approximately 17 million to 20 million of savings from various operating expense reduction actions, we plan to take in the fourth quarter.

This is offset by expenses ways, so seven down mid tape out in the quarter and increased legal expenses.

non-GAAP other income is expected to be approximately 8 million due primarily to an anticipated IP settlement for the customer that was recently acquired.

Finally, our tax rate is expected to be approximately 8%.

In closing, we're faced with persistent trade related impacts their business. Another headwind, we're taking thoughtful and decisive actions that will painful we believe you're in the best interest of Paul's <unk> stakeholders.

We continue to see it great long term opportunity in the second secular growth trends and data center fiveg infrastructure in automotive markets as well as Sam expansion and share gains across our foundational core markets.

We remain extremely focused and committed to our strategy to drive profitable growth as a leader in adaptable platforms.

Operator, we're now open the call for questions.

The floor is now open for questions. If you do have a question. Please press the star and the number one on your telephone keypad. Once again that is the star followed by the number one on your telephone keypad. Please limit your questions to one to ensure that management has adequate time to speak to everyone.

And your first question comes from a line of Joe Moore from Morgan Stanley . Your line is open.

Great. Thank you.

I Wonder if before you had said that the impact of the base band transition would be largely done by the March quarter is is that still the case and a you know what do you what do you kind of thinking about the progression of wireless you know beyond that.

Particularly says you know assuming that we did we don't get while way back into that makes you can you can you grow from there is going to take awhile just what do you think it's a progression there.

Yeah, Joe I mean, what we said is the big fan impact did occur in the last quarter to expected.

So that you're correct, if you're implying that's out in your new you're right that that's not new news really the additional pressure we're feeling in the current quarter is from slow down into deployments across most geographies.

And then both weakness both on the wireless side as well in the wired side that level of weakness, we did not anticipate last quarter, where you kind of gave the overall guide.

For the second half.

In terms of how we see things going for you know, we're not giving guidance for halfway 21, but I guess in a broader picture what I would say is you know clearly in the near term we have some meaningful headwinds here. While we remains on the Antilles was that I really think that from that perspective.

We don't think about that is even if that were to change in the end is with that said that account revenue would be at levels that used to be.

I mean, it's just the reality of it and that's how we think about it now. However, you know were so relatively speaking in the first phase of the point for Fiveg and you've heard me and I'm sure. Other people talk about we talk to all our customers. They see like three waves of technology rollout and so you know, it's certainly been more challenges first wave, but when we think it.

About the longer term, we still think this is a good growth opportune design, particularly because we've been innovating with things like our fiscal C and versatile a cat and we've got really good engagement as I had alluded in my prepared comments.

Already with some customers for the second generation.

And that's actually using our stepping down reversal encapso.

So we think about big picture.

Great and just to clarify my question in terms of the base band transition is that an ongoing headwind beyond the march quarter or the impact of that kind of mostly mostly done in the current color.

I guess, we we lead the way we think about its mostly done it's factored in exactly it's not it's not like a onetime event it was.

We expected it would happen it did actually that quarter and we keep it out.

Okay. Thank you.

Your next question comes from the line of Toshiya Hari from Goldman Sachs. Your line is open.

Hi, guys. Thanks, very much for taking my question.

Victor when you were talking about the wireless business in your prepared remarks, you talked about these are transitioning you mentioned something about a program delay at one of your customers how significant are in significant where those two dynamics in the December quarter, and I guess more importantly at your Investor Day, you guys talked about.

Threex to Fourx more opportunity in Fiveg relative to Fourg, given more base station higher content and higher market share.

Outside of hallway, you know having issues has anything changed there or is everything still very much and talk long term. Thank you.

I'm sure you know, let me deal with the last portion first.

It's exactly as you said you know walk away is.

No significant but if you take if you sort of you know okay.

I understand that and move on from there we still do think it's a significantly larger opportunity then fourg.

Now back to sort of the of the issue around one customers the program delay.

Really the bigger hired a bit on the headwinds that we're seeing in Q4, causing us to see a more gradual recovery from the Q3, which we didn't anticipate was gonna be kind of a confluence of Ah kind of a perfect storm thing.

It's really the general slowdown his appointment or in multiple geographies.

And that's affected you know essentially all the Oems that we're working with right that we're still working within allowed to work with.

In other programs all he was another factor, but I think the way you should think about it is the highest door to bid is just a pause or slower deployment.

That we are seeing across so from the carriers and that's reflected in the OEM customers that we haven't.

Couple of them and all the different regions.

Thank you.

Your next question comes from a line of Christopher Rolland from Susquehanna. Your line is open.

Hey, guys. Thanks for the question. So I guess first time W.W.G. So this pause is it purely geographic or is it also does it have something to do with the applications that are crossing for example, moving from for base spats remote radio head or [noise].

Most of my now and then if you could talk about where we are with the RFS. So see and how you think that rollout will help.

Yeah, you know I'm on the broader question I don't think it has to do with you know the.

<unk> rollout of a particular technology and you're right. There are different types of technologies that fall under the umbrella of Fiveg.

It just seems as though the multiple operators a cover multiple regions.

Our you know done some initial deployments and not just taking a pause.

You know my.

My suspicion is seeking more profitability for they further invest.

But anyway, you know, we talk to both carriers as well as our Oems and we see that fairly broad.

So you know I guess again, then in terms of the longer term view and and all that again I think that as long term view still seems very like a very good opportunity for us and again, we have to keep in perspective that were only in the very first phase and you know deployments will.

Come back it's just like we have a pause right now that we didn't anticipate.

Great and then on data Center, you know I'm, sorry, you know what I, just really as I didn't quite sure your fiscal state. So RFS will see yeah. We do have that's being deployed and with a different Oems that cover different multiple regions as well you know both in subject.

But also we think there's some strength there and millimeter wave bands, we're still relatively speaking the early stages, but it is deployed so you know it is out there and in multiple regions and through multiple Oems So apologize it and I didn't quite cover that initially.

Thank you Victor and all the data center side nice progress on the Aldo cards, but I think you know roadmap.

Hey, I core either coming out soon or actually maybe even sampling now maybe talk about where we are there Oh and you know what have you had any feedback from from any hyperscalers or [noise].

Core customers.

Yeah, I think so I think when you're talking about the AI engine I think that's over the spectrum personal product and we do have some the early personal development board. So I'm just to clarify some of the brand name you know I think there is good excitement in multiple markets I kind of alluded to you know.

Fiveg, but certainly in data center, that's being you know evaluated ER and also you know in other markets as well.

Even in let's see what application that even though it's just in the initial silicon people are already doing some deployments in terms of a very high resolution camera, where there are also doing some image recognition due from augmented reality.

For a an interesting entertainment experience.

And so you know that I think that's a good indicator of.

Not only quality of our initial silicon, but also the breadth that people are using AI on that platform not just and whats considered the cloud, but maybe you would call that some people might call then edge application right.

So yeah, it's still early days, but was where we're pretty excited about the diversity in the trucks that were getting.

Thanks.

Your next question comes from the line hubs CJ Muse from Evercore. Your line is open.

Yeah. Good afternoon. Thank you for taking my question I guess.

Question on on the restructuring.

Can you can you walk through.

You know what is permanent versus temporary and can you help us kind of understand.

How you plan to you know deliberate both the operating margins you know in this more subdued environment as well as you know obviously invest a I guess, most importantly, and the comedy <unk> <unk> as well as the software stack and becoming a few years. Thank you.

CJ. It's good question look I mean now when we first started seeing some weakness we took some proactive actions to control expenses as reflected in the Q3 really would happen as you know late in the year as we saw that some of these headwinds that we just walk through a were more severe and also.

I think the ongoing persistent effects of the whole China U.S. trade a situation and the walk away business that I reflected it if it's clear that we had to do something that was more structural right. So it's very painful something for us as a company to impact some of our employees, but you know a good portion of this.

<unk> is a matter of reducing labor and that both from that targeted.

Reduction enforce as well as significantly controlling even attrition replacement. So no that labor component, obviously is an ongoing thing.

That was somebody other things that we're doing you know just many other actions in terms of discretionary spend but we also even looked at program I think that's what you're alluding to we spent a lot of time thinking about out of course, because you know our goal and I think we've achieved that and how we're coming out here is to not further impact both near term business nor.

You know.

The grade our long term opportunity, which we remain very confident in and I think you heard me mentioned their prepared remarks that we expect a certain level of opex savings in the quarter, but we're doing a tape out and seven enemies in the quarter. So that's somewhat offset all of that so we are still very much I'm committed to executing so our strategy.

And I think again, there's some difficult decisions here, but I think we've struck a write a good balance of.

Things that will.

Bring bring us in a more reasonable profitability profile like you said in a more subdued near term revenue environment.

But not in any way materially impacting anything in the future or for that matter, even the near term I.

I do think that as we drive and recovery grow out of it does position us to have maybe more efficiency in the business business and leverage you know because we will watch very carefully.

Our opex, even as we get back to growth trends.

Thank you.

Well.

Your next question comes from a lighter Christian Gebara from Baird. Your line is open.

Hi, good afternoon up could you give us some color on the weakness you see new wired business, Oh, so I'm trying to be consigned to commit to lead that Oh Gee wireless deployments of taking impose a question last piece, but do you guys to land peasant day already started.

So maybe she could elaborate tonight I know you've already got just two questions on the topic, but if you could you elaborate on the reason for the Bpos and when do you expect to lead bow and then with specifically.

Can you give them.

Yeah, you know I mean.

As you know we really serve.

No first of all the Oems that support all the different geographies, including of course, the U.S. and.

Without getting it says you know specific customers you know we duty that.

Broad softness and feedback we're getting is because they are also not seeing some demand materialize across regions and that includes the U.S.

I do think that you know this is not necessarily something that is a it's hard to tell them visibility right now, but I don't think this is something that's going to you know necessarily persist until the second wave comes it's just that clearly after they've done some deployment it's just.

Here is from both when we talk to carriers as well, but multiple Oems that I'm just seems to be pause now and again were that's what we see right now.

Yeah, it's hard for us to predict exactly the timing of when that rule restart, but again I come back to when I look at the gauges, we already have going actively in the next wave of equipment I.

I feel good about that we still have good opportunity there and you know when there's more deployment. The current generation of equipment, then obviously that could also.

Help our business recover.

Okay, and then could you give us a quick since you have makes it seven nanometer versus 16.

Yeah, you know I'm 16 is its 60 now to me as our portfolio. There is on track to you know break all of the records that we haven't we hold the most successful product family and the programmable space with our seven series back in the 20 anatomy generation I'm, we're clearly outpacing that.

And that do not only for the fact that you know via out executed with the innovations we have with MPS will see RFS, we'll see and a number of other areas. That's tremendously successful and that revenue is going to continue to grow for some number of years seven nanometers remember is just stillness sampling stage right. So we're not into production.

But we're getting very good traction I mentioned multiple markets communications and in one area that you know more of you know video and broadcast kind of area datacenter, we're getting good looks aerospace and defense a lot of strong demand, but that will take time as it usually does for us and some of these markets too.

To ramp to sort of a more meaningful revenue.

We have you know we have logged revenue already particularly in the development board, so a very encouraging signs.

Great. Thank you.

Your next question comes from a line of Matt Ramsey from Cowen Your line is open.

Yes. Thank you very much good afternoon.

Victor I wanted to ask a and it gets a little bit related to see Jays question on the reduction in force but.

More specifically as you guys look good and.

Prudent cost cuts and the like going forward the level of investment and had that level investment changed in the Vida software stack that that you guys introduced and and I guess the second part of the question.

Separate from the investment how the early engagements being on that software stack with with customers across the business and if there's anything to highlight there on that progression that would be really helpful. Thank you.

Okay, Yes, yeah. Thanks.

Maybe I didn't touch on that part of it first I guess, a real I'd say on a relative basis.

You know some of the labor related.

You know productions that we're doing on a relative basis, we're doing a more in S. DNA then in R&D in general Okay.

We are also again continuing to invest in the areas that are critical for growth. So I think you're both making the point that his thoughts of silicon roadmap.

It's also what we're doing on the software IP and so forth and we fully agree. So my comments weren't didn't mean to sort of imply that were just looked at tape out.

We are.

Also.

Yes, we are also a focus more on everything we need all the obviously need to execute or sort of strategy and move into platforms and be a much more mainstream targeted platform.

You know everything we see in terms of for instance, Vida you know those $3 when we announce new webinars their training they fill out immediately so that's really encouraging.

I know at the end that they everyone's a as we certainly are looking for the revenue, but when I look at other things to measure in terms of developers in terms of just hits, we get a you know it varies values that we do in training and if it's all looking very promising so.

Thank you and just a quick follow up in that in a data center portfolio I wanted I could give us an update on on the traction you guys might be having on the design win side in a smart mics space and if that revenue can be material to the company over the next 12 18 months. Thanks.

Yeah, I think I I Kinda mentioned that you know for instance, so whatever your last quarter was little higher than expected I mean that was a core that was a record for them.

So relatively modest revenue I think that does bode well.

You know and and we you know that integration is going very well and clearly I think the physician will get even stronger when we really fully realize all the positive synergies of their expertise and software in system level expertise with our.

Execution on hardware and platform so.

I do think you know that the smart Nick <unk> or opportunity is significant.

And I think thinking in terms of a year and beyond is reasonable.

And I think it'll be it'll grow for multiple years.

Your next question comes from a line of Ambrish Srivastava from BMO. Your line is open.

Hi, Thank you because I just kind of question on a on the transition I bet. You students. This time and you said that this was so this is the one payment it's gone, but when a wireless starts to ramp again.

Why should it not occur again, you see grow up and then you'll see a had been began just kinda helped to understand the dynamic and why would this not to beat or would you repeat again most of my first question. Then the second was given the what seems to be a pretty sizable reduction what does it say about the longer term mid teens growth targets that you have.

Laid out for.

For the company. Thank you.

Yeah look on the first part you know I think.

When we when we said that you know we expected a super placement in the base, but I think from the very early stages, where we had.

Strong upside and.

In Fiveg deployment.

No. We said that we ordinarily don't get based than wins and because.

There was a an early rapid deployment.

In South Korea, and the only way anybody can get the market was built using our technology, which is one of the evacuated. So we have as you know enable people to be agile and getting some market quickly.

We had that but we didn't expect longevity there.

I know, it's competitive marketplace, everybody hears about that.

But I want to bring people back to.

You know we've competed against a six at our customers.

For well over a decade I mean.

Well as high Silicon and has had high still looking for a long time.

Clearly you know everybody's aware that there was a meaningful impact when we couldn't chipped away and you know clearly we were totally replaced by 86 by high Silicon walk away. That's just one example, I mean I I know you guys are familiar with all the other Oems they have a sick teams right. So this is nothing you.

And I don't I don't take that lightly by by any means either you know I think we are able to so when again, a six even our own customers because we are continuing to innovate.

With things like our fiscal see with things like.

First so I'm on the software in IP side, So yeah look I mean.

You know could this happened yet it could but you know we traditionally have really good strength and radio. We're innovating were moving rapidly and we continue to do to be very focused on this business. So we maintain that we feel like in the long term that this is a very big opportunities. Despite the very significant.

Impact of you know the trade situation here.

So.

So that was all on the basic side. So I'm sorry can you repeat the second part of a.

The question.

Yeah, Yeah. So that's helpful perspective, thanks to that or what I was asking was given the debt reduction, which seems that I can't remember the last time business is a big reduction for you guys, but what does that speak to the since the mid teens growth that you have made out so the company.

Yeah look I you know we're not you know they said before we're not going to give guidance. Every 21 now you know we look to do that at the next call, but what I would say is that we absolutely are committed to getting back to double digit growth.

I think just as a a recognition of the fact that you know.

It's going to come up a little bit more gradually to get to that kind of a run rate.

We're committed to doing that and we've.

We we recognize that because it is going to take longer you know we've had to take some difficult steps here, but I think we're building this to execute continue to execute on strategy and fulfill I think a very significant opportunity we have not only fiveg, but again data center or core markets and.

And automotive as well.

Okay. Thank you good luck.

Yes.

Your next question comes from the line of Ross Seymore from Deutsche Bank. Your line is open.

Hi, This is GE hung for Ross. Thank you for let me ask the question.

It looks like DCG, even with some moderating growth in the March quarter looks to be potentially up 20% for the year versus prior guidance for up 30%.

Yes, what has changed and DCG growth our some of the.

Transitions from a customer proof of concept to production actually.

Moving slower than expected previously.

Yeah look I mean, we're not giving an overall you know reassessment of that but I think you know the would take away is it is still growing double digit in fact, you know there when we close out this fiscal year that'd be two consecutive years of double digit I think in general it's still a reflection as you said you know some of these things.

Like proof of concept have taken a bit longer I think it's also just you know we're growing the business because it's an emerging market you know, it's not quite at scale, where you get the usual puts and takes of certain things or maybe a little bit slower than you've got other upsides, it's fairly small business so far in an absolute sense.

Even though it's going very well and I think I've said on the previous call that as we get to a higher scale and just more diversity of design wins and you know different different timing of the different programs that will see last quarter to quarter volatility, but I do think you know for the continued near term I think you know the better measure to.

He is the where are we sustain that good double digit kind of growth and the quality of kind of a wins that we give a you know the engagements that we have and those basis, we're still feel very good about the business.

Okay. Thank you and if we just compare xilinxs grows to Intel's PSG business clearly the company Xilinx has had some good market share gains in the last calendar here.

So I guess, even within the had a piece that's why we challenges. So I guess can you talk a little bit dropped the competitive dynamic.

Yes I.

You know I mentioned, a few times my prepared remarks that our core markets is a key part of our strategy to continues to accelerate growth real core markets and if you and say look at you know how that played out I mean, our core markets are growing very solidly right answer a point some of that as Jerre game and some it's also Sam expansion right.

Those market have different types of profiles. If you will in terms of how quickly things move to market, but even in those markets were seeing.

You know the transitions zinc being very very strong you know our fiscal see strong interest in some early.

Design in activity that haven't fully played out just because the time constant tends to be a little bit longer, but it's key to our business and has been progressing quite well and and we do fully expected can you take share but also grow the staff.

Your next question comes from a line of epic or you have from Bank of America. Your line is open.

Hi, This is James I click on for Vac Ah. Thanks for telling me ask a question if the pace of five G.S.P.J., replacing similar to the pace that you've seen in past cycles and is this a replacement limited to the base band and then on the radio side do you see marvellous.

Vera business has a direct competitor in the digital front end or is it more a complementary product.

I guess first they think of how to think about you know as fiveg similar to the fourg or what is the level of similarity.

And you know I really must say I know that there's been a lot of marketing hype around fiveg, but I really must say it is a radically more disruptive you know standards set of standards as sets of technology. So I think it is significantly different which is why we have many other companies have invested so much and our sale.

Saying, how it's going to be you know change once it's fully deployed how much will change things from automobiles to homes. The Aiotv you know, it's simply not data and voice, which what Fourg is all about.

So I really do think it is it is meaningfully different even when you cut through some of the marketing buzz.

No and our side of it. We're also the value we deliver to our customers in Fiveg is meaningfully different to meaningfully upgraded right.

You know good a good portion of our products are not just pure at pj's at our now stated yard features are so much more powerful them back into Fourg era. So I think on growth both fronts the opportunity or the magnitude of disruption is larger.

And then what we bring to the table with larger you know on the competition side everybody's up their game you know there's a lot of people that have been consolidated out the players left are pretty good at what they do.

So I was included I don't want to get into specifics about a specific competitor all I would say again is I, it's not not anything you for us to compete with a six solutions with Ace is piece solutions, including basic solutions from our own customers. It is not new it's not easy and we have to create real value we have to prove provide X.

Support great quality.

And those are the things that we've been doing and that's where he will remain focused on.

Oh, Great and then on a quick follow up you mentioned, one customer I think that was greater than 10% in sales in Q3 could you give some details on who the customer was wasn't walk away if not could you give any details on what percent of revenue while he was in the quarter Andrew.

Confirmed that you're still removing walk away from thought were looking guide. Thank you.

Okay. So quick quick clarification, we don't have any meaningful revenue from hallway because there's so many entities with so and we had taken why wait out starting from the last quarter. My comments about walk away is really about you know even on a go forward basis, even if they were moved to pennies, but it's pretty clear now given that.

They've remained on the in the list as long as they have that data that revenue will never be at the level that we used to have so it is definitely not walk away, but we don't share the details of the specific customer for 10%.

Thank you.

And there are no further questions at this time I will turn the call back over to Mr., Victor Pang CEO for some closing remarks.

Okay, Yeah look before we close the the on this call. It just wanted to share that clearly not were expected to be if we go back to start this fiscal year I think the unprecedented change in U.S., China relations and trade clearly has an impact on the industry and specifically our business and at a time that's really unfortunate.

At the beginning of deployment of Fiveg.

You know, we proactively made some very difficult decisions, including the very painful one of doing a target a reduction in force.

But I think that is the appropriate thing to do given a slower in near term revenue growth trajectory and I think what that does do is again position us very well once we get back to a growth trajectory in terms of.

Efficiency in the business and leverage but I think it's important not to lose sight of the fact that you know our core markets as we discuss a few times both in prepared remarks as well as in the queue. I is very very solid you know, it's growing very well on annual basis. It's a core part of a strategy to accelerate that growth.

At the same time data center business well, it's in emerging market, it's still not fully at scale 10 September seen us from a quarter toward a basis. It looks like we will achieve double digit.

Growth on an annual basis for two consecutive years, and we continue to see greater opportunity there.

And even with Fiveg <unk>, we've talked about that quite a bit.

It is important to remember we're still in a relatively early innings on fiveg and it started out much stronger an early then people predicted now we're having a soft spot you know, but we're engaged we had the right kind of engagements with top Oems and there's so many more innings to come. So we remain bullish in terms of our overall long term outlook in those growth.

Drivers so with that thank you for being on the call and turn it back over to.

Yeah.

So thanks for joining us today, we'll have a playback of this call beginning at five P.M. Pacific eight PM Eastern time today.

A copy of our earnings release, please visit our Investor Relations website. Our next earnings release date for the fourth quarter of fiscal year 2020 will be Wednesday April 22nd after market close. Please note that we'll be attending the Goldman Sachs Conference in February and the Morgan Stanley Conference in March both events will be webcast live and will be accessible through our IR website.

This completes our call. Thank you very much for your participation.

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