Q1 2021 Xilinx Inc Earnings Call

[music].

Welcome everyone. This is I mean first quarter 2021 earnings release conference call. All lines have been placed on mute that any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question at this time.

[laughter] started the number one I mean telephone keypad, if you'd like to withdraw your question press. The pound key 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 that well here. Thank you Mr. Board you may begin your conference.

Thank you and good afternoon.

With me are Victor paying CEO and bright fill our CFO.

Let me 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 of the company.

We wish to caution you that such statements are predictions based on information is currently available and an actual results may differ materially we refer you to the documents the company files with the FCC, including our 10-K's 10-Q's and a case.

These documents contain and identify important risk factors that could cause the actual results could 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. We provide these measures to facilitate period to period comparability for purposes of evaluating continuing business operations by excluding the effects of nonrecurring and unusual item.

<unk>, such as amortization of intangibles and certain onetime items related to acquisitions. We believe that sharing these non-GAAP measures will be helpful for analysts 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 it has been.

Posted on our Investor Relations website. This conference call is open to all and is being webcast slides can be accessed from our Xilinx Investor Relations website, Let me now turn the call over to Victor.

Thanks, Matt and thanks, everyone for joining todays call I Hope you and your families are healthy and well.

We start with an update of the coated 19 situation before I discuss the business highlights in Brazil.

Our supply chain has been operating without any significant disruption and the business performed well overall, despite the covered 19 challenges.

Most of our employees working from home, except in China, where employees have been allowed to return to work.

For employees and contractors, who must be add ons side, we have adopted family health screening, we require masks and our practicing social do.

Travel restrictions continued to be enforced worldwide.

You're not experiencing any significant operational challenges and continue to execute well on our strategy.

When we provided guidance for fiscal Q1 on our April earnings call. It was significant uncertainty about how much impact over 19 would have on supply chain and overall demand.

As we progressed through the quarter the business is performing better than expected in multiple markets offsetting weakness in others. This demonstrates the strength of our business model in addressing a diverse set of end markets and our progress in executing our strategy in a challenging environment.

We also saw some benefit in Q1 from customers accelerating orders due to the U.S. Department of Commerce removal of license exception Civil end users also known as see I'd be licenses.

Given the better than expected performance and recent actions impacting our tax rate, we provided an appropriately revised guidance in late June.

Fiscal Q1 revenues was 727 million, which is at the midpoint of our revised guidance.

Compared to the original first quarter guidance in April DCG, and W.W.G. revenues were stronger than expected and more than offset weaker revenues in HPC and to a lesser extent and.

Yeah, I T was lower than expected due to a meaningful customer program timing issue that move revenue into Q2.

As I mentioned a portion of already afraid was attributed to the removal of C. D licenses and that primarily affected our a T. W. W. Jesus.

The advanced products category constituted approximately 68% of total revenue.

Zinc based revenues declined 7% compared to last quarter, primarily due to lower zinc sales and <unk> automotive businesses.

I think sales were 18% of total revenue zinc revenue and design win momentum continued to be strong across our target markets and we're confident our if a fee revenue will grow to be a larger portion of our total revenue overtime.

So now move on to specific business highlights starting with usage.

We made significant progress in our D.C.G. business during the first quarter.

We had growth in the adoption of our smart mics solutions.

Cloud service provider deployment of Abbvie obeys compute AI clusters and strong revenue from so with learn Nick adopter, we secured multiple new design wins with Hyperscalers, an OEM customer.

And the compute space, we saw a great interest in our recently announced our T. video server and our view adoption by Fintech customers.

Networking, we have seen 100 gig smart Nick engagement momentum with Hyperscale customers and are conducting proof of concept for 200 gig smart mics solution.

Finally in storage, we saw on next generation stores platform commitments from one of the top three Oems.

Smart as this devaluations initiated by Fintech customers and qualification by leading video customer.

We continue to make great progress transforming xilinx from a platform company and growing our ecosystem.

We had over 34000 downloads divided since we announced late last year.

To date, we've trained nearly 14000 developer and we have approximately 1000 software partners wherever leasing a growing list of production applications.

We announced the establishment of Xilinx adaptive compute clusters at for the world's most prestigious universities to train. The next generation of software developers on our powerful adaptable platform.

These clusters provide critical infrastructure and funding to support research and innovation and adaptive compute acceleration in HPC applications.

And the communications market one of our tier one OEM customers is expected to ramp our fiscal see two production this quarter.

Six gigahertz massive mimo radio applications for North America deployment, and our design win pipeline for our associates continues to build.

Our strategic engaging with Samsung continues the deepen as we collaborate on their second generation Fiveg radio that includes beam, forming using our seven out of universal eight cap.

We believe we are in this our strongest competitive position ever with breakthrough products like RFS, we'll see in first of all the ability we give our customers that differentiate with all our decibot products and lastly, our commitment to deliver customized solutions to meet our customers' needs.

On strong position comes at an excellent time, because as you know all read it as an emerging opportunity for us and the overall momentum has been building over the last several months.

We recently joined the open ran policy coalition to support the development and deployment of open brand Fiveg technology.

We've been an active member of the old ran a life and a contributed to the Threeg P. specifications Fiveg mobile network.

We're actively working with many key stakeholders to ensure fiveg future networks will be open we developed.

Operate and adaptable.

Moving onto our diversified core businesses, we continue to benefit from the solid foundation. These markets provide in terms of diversification and consistent cash generation, which enables us to reinvest in these markets as well as in our high growth markets.

During the quarter within the industrial business, we saw a surgeon products related to health care applications. As a result of covered 19, and we expedited approximately 350 orders worldwide to support global efforts control the beds.

Aerospace and defense continues to be a secular driver within our core business.

To further strengthen our position, we recently announced the industry's first 20 nanometer space grade at Pizza.

Delivering full radiation tolerant and ultra high throughput and bandwidth performance for satellite and space application.

The launch for the first 20 nanometer product for these applications advances the space industry by three process no generations.

This breakthrough product is the first to enable machine learning inference together with unlimited on orbit reconfiguration for real time onboard processing in states.

In the auto business, we have secured a strong position in Adas, including driver monitoring system.

In the last six months, we've won five major tier one with our Zynq product family.

We believe the auto business bottomed out during our fiscal first quarter. It and we have started seeing signs of improvement in recent bookings.

We are cautiously optimistic about the auto business beginning to recover in the second half of the year.

As vehicle sales will cover we expect to see our design wins translated to revenues and resume robust long term growth.

Now before I turn it over the Bryce, let me share what I believe our solid Q1 results demonstrates in these extraordinary time.

We can and our operating safely and effectively to deliver for our customers and execute on our strategy, even with most of our employees working from home.

Our diversified core markets continue to provide a solid and resilient foundation consistently generating cash flow even during a global downturn.

Our DCG and W.W.G. businesses grew despite significant headwinds, which validates our Lawrence our growth strategy.

The auto business appears to have bottomed out and we're confident over time, it too will resume robust growth for us into the whole world. We continue to make progress moving to adaptive platform growing our ecosystem in software base and delivering optimized solutions for our strategic customers.

We're in a better competitive position than ever to increase our market share expand our Sam and emerge from this coded pandemic as a stronger company.

Thank you and now over to Bryce.

Thank you Victor as Victor mentioned.

Visibility and confidence improved throughout the quarter, resulting in total revenue of 727 million inline with the revised guidance. We provided on June 29.

Significantly above the guidance range, we provided on our April earnings call.

The company executed well and delivered GAAP gross margins of 68% non-GAAP gross margins of 69%.

We reduced expenses quarter over quarter. After the Q4 restructuring helping to achieve GAAP operating margin of 24% non-GAAP operating margin of 26%. Despite the lower overall level of business due to the pandemic free cash flow was $230 million or 32% of revenues, reflecting our efficient fabulous business.

Model.

Our continued profitability allowed us to return a $146 million or 63% of free cash flow to our shareholders through dividends and share buybacks. During the quarter. We also lowered our cost of capital and increased liquidity with the new debt offering our balance sheet is strong and gives us options to pursue business opportunities.

Our business has been stable during recent crises benefiting from servicing a broad set of customers in end markets.

I'm impacted by Covidien, other headwinds and others, gaining by the move to digital and online services, specifically datacenter group revenue grew 10% quarter over quarter at 104% year over year, driven by accelerating adoption of our smart mics solutions cloud service provider deployment of compute AI solutions.

And you had strong revenue contribution from the solar flare acquisition.

Wired and wireless group revenue increased 27% quarter over quarter, but declined 33% year over year. Please note the year over year decline was largely due to the effects of trade restrictions on walkaway as well as 86 related product transitions, which has largely run their course.

In the quarter, we saw better than expected performance in both wired and wireless businesses.

Wired outperformance was driven by access network in Fiveg related core network build outs as well as accelerated orders related to see Ivy rule changes.

Wireless outperformance was driven mainly by Fiveg rollout in China.

Wireless also experienced some see Ivy related order acceleration.

Hey, I T for aerospace and defense industrial test and measurement and markets revenue declined 13% quarter over quarter and 2% year over year. As these end markets came off the second quarter a record quarter in Q4.

Test measurement and emulation. The T. M me end markets declined more than expected due to a meaningful customer program rescheduled the Q2.

But was offset by outperformance in the industrials end market in part due to see Ivy accelerations.

APC or automotive broadcast in consumer revenue decreased 24% quarter over quarter, and 29% year over year, reflecting the impact of coven 19 on our more consumer oriented markets.

The automotive end market was significantly impacted by factory shutdowns and a steep drop off in global auto sales the lack of live sports and shut down and TV and movie productions negatively affected the broadcast end market.

Company level gross margin was at the top end of guidance with GAAP gross margin of 68% and non-GAAP gross margin of 69% the difference between GAAP and non gap is due to M&A related amortization.

GAAP operating expenses of 318 million or 44% of revenue and non-GAAP operating expenses of $314 million or 43% of revenue were inline with our revised guidance.

Operating expenses were higher than initial guidance due to increased variable compensation related to the revenue outperformance in the quarter.

GAAP operating income was $176 million or 24% operating margin non-GAAP operating income was $187 million or 26% operating margin.

Our GAAP tax rate was approximately 43% and non-GAAP tax rate was approximately 8% below our revised guidance.

Non-GAAP taxes were lower than expected due to more of our income coming from lower tax jurisdiction.

As a reminder, our GAAP tax rate was impacted by a onetime charge related to effects of a third party legal proceeding related to cost sharing arrangements.

Please refer to our 10-Q and 10-K for more disclosures on this item.

GAAP net income was $94 million and diluted earnings per share were 38 cents.

A 42% quarter over quarter decrease and 60% year over year decrease again, please refer to the cost sharing arrangement tax reserve in our disclosures.

Non-GAAP net income was $160 million non-GAAP diluted EPS was 65 cents per share a 17% declined from last quarter at 33% decrease year over year.

Diluted share count decreased to 245.5 million.

Now onto some balance sheet and cash flow items gross cash was $3 billion with $2 billion and total debt, reflecting our issuance in may of 750 million in 2030 notes.

This debt issuance positioned us to repay the 500 million dollar 2021 notes due next march as well as to increase our liquidity position.

Accounts receivable increased to $305 million and is at 38 days compared to 33 days last quarter.

The D.S. So increase is driven primarily by linearity of distribution billings within the quarter.

Net inventory decreased to $292 million and days of inventory stands at 114 days.

Down from 122 to the prior quarter inventory depletion was largely driven by higher than expected revenue relative to the original forecast the lower inventory and slightly higher cost of sales resulted in the days of inventory reduction.

Overall, we generated $245 million and operating cash flow or 34% of revenue and $230 million in free cash flow or 32% of revenue, reflecting the strong cash generating ability of our fabolous business model.

During the quarter, we repurchased approximately 700000 shares at an average price of approximately $78 per share and pay dividends of $92 million.

Turning now to the outlook for fiscal second quarter 2021.

Note that our guidance for this quarter reflects a narrower range than what we provided on our April earnings call, which was wider than normal due to the uncertainty around cobot impacts.

The range, we provide today is more inline with what we think are reasonable guidance ranges for our business going forward.

We expect second quarter revenue to be between $730 million in $780 million, which at the midpoint is up approximately 4% quarter over quarter and down approximately 9% year over year. This reflects overall business strength with strong recovery in our core markets led by TMT and Andy as well as in auto and broadcast markets.

Our datacenter group is expected to be flat to slightly down offer record Q1, and WWJ is expected to decline due to digestion of CMV accelerated orders overall, we're pleased with the strength of our business over the first half we see signs of strengthening in multiple markets through the rest of calendar 2020, but.

Yep economic conditions are still quite fluid with a pandemic and use China trade relations.

Some additional color into our end markets.

Within 80, GMI sales are expected to increase meaningfully due to strong emulation and prototyping program ramp revenues.

Aerospace and defense sales are also expected to increase due to certain defense related programs.

Hi, SM is expected to decline after a record quarter, but still in line with historical levels. We have started to see some pickup in manufacturing activity. It as Europe and Asia has started to recover from covert 19 impacts.

We remain vigilant as a pandemic continues to play out in the U.S with potential follow on effects to the economy.

APC markets are expected to recover from lows in Q1.

The auto market is expected to strengthen broadcast is also expected to increase with innovative new applications related to higher.

Quality Internet based videos as well as pro Avi customers building inventory ahead of potential demand in the December quarter.

Datacenter group sales are expected to be flat to slightly down from a record quarter. In Q1 is customers Digest smart nicked deployments as we've stated in the past we expect our DCG business to continue to have quarterly revenue fluctuations driven by large customer order cycles.

We have a solid pipeline of design opportunities with hyperscale customers and see strengthen our networking efforts both in smart mics solutions and traditional Nick adapters for solar flares.

WWD is expected to be down sequentially with wireless moderately down as CIO related digestion is partially offset by a significant fiveg related RF SSC ramp for a tier one OEM.

Wired business is expected to be down more than wireless due to see Ivy related digestion in general broad work from home shifts have changed demands on network capacity and we expect increased investment in broadband communications and security overtime.

Note also that our outlook captures orders from all customers as we believe we now have a better handle on what we are able to ship to countries and customers impacted by trade restrictions.

Fiscal Q2, GAAP gross margin is expected to be between 68.5% and 71.5% non-GAAP gross margin is expected to be between 69.5% and 72.5%.

GAAP operating expense is expected to be between 326 and $340 million non-GAAP operating expenses expected to be between 322 and $336 million. As a reminder, our fiscal Q2 contains annual employee compensation increases related to our.

Local process.

GAAP as well as non-GAAP other expense is expected to be approximately $15 million.

GAAP tax rate is expected to be between zero and 3% non-GAAP tax rate is expected to be between one and 4%.

In closing.

I want to emphasize the stability in profitability of xilinx diverse core business as well as a tremendous opportunities idlings has across all of its businesses.

Our strategy remains on track as we continue to progress on our transformation to a platform company.

We will continue to invest in our product roadmap highlighted by our seven nanometer personal platform in derivatives as well as our Vitesse software platform an ecosystem.

We also continue to execute on our zinc roadmap, including our RFS those fee and the new MPS plus the offerings.

We believe that we will emerge from a global pandemic with a stronger market position, we remain well positioned to expand our market leadership and capitalize on opportunities across all our end markets as the global economy continues to recover from Covidien I team.

Let me now turn the call back to the operator for today. Thank you.

The floor is now open for questions.

You have a question. Please press Star then number one on your telephone keypad. Once again that is star followed by the number one on your telephone keypad. Please limit your questions to one to ensure management has adequate time to speak to everyone.

If there is extra time at the end of the acuity session. You are welcome to ask a follow up question.

First question comes from John with Credit Suisse. Your line is open.

Good afternoon, guys. Thanks first let me ask question crisis strong results and appreciate all the detail.

Victor I'm wondering if you can help us just understand on the CIA be rule changes how much of it impacted you think that had on the June quarter or how much do you think it will impact from a digestion period on the September quarter, and I guess, it's a backdoor way to try to get an answer around the RFS. So see ramp that price kind of commented on it.

In his prepared comments, how big is that opportunity and is this the beginning of something even bigger.

Yes, great question.

Got it and.

Look I think 30, Ivy as puts and takes into frankly, and what I would say is that it's hard to really quantify with precision order of magnitude. We think of it is low tens of millions.

Our strength is due to what we said in the in the data center, we had very strong quarter, we had.

The strength and WWJ.

But there was some see Ivy at that so in the Q1 now in terms of Q2, you know, we really see very little.

Further on a effects.

You know if we did say that in certain areas, though be a little bit of I'd digestion of that but for the most part I don't think it's really that meaningful.

With regard to the our fiscal see that.

That is a very significant when we're really excited of factor to the North America deployment.

And it's just start so we do think that that is.

Something that we'll continue to deliver good good revenue now.

As we said many times and in general deployments by definition or somewhat birthday. So it's not like.

What we see.

Going forward now in every single quarter, we'll see that kind of thing, but overall, it's the beginning of what we've said for quite some time. The our facilities are really unique product out there and we're real excited fee and other deployment.

And so yes, I do think it's the.

It is started something bigger and I think it is.

Just the beginning of this one particular significant deployment.

Thanks helpful.

Sure.

Our next question comes from Joseph Moore with Morgan Stanley. Your line is open.

Great. Thank you.

I Wonder if you could talk a little bit more about the uptick in the data center business that you saw.

It sounds like it was more kind of driven by the networking side is that the right interpretation and then I have a follow up on this morning piece.

Yes, there was there was good uptick in terms of.

Smart mic as well as compute and and also what we're seeing you know fintech adoption. Some good interest in fact, a good amount that is a software, but we also have other engagements going on so.

So it's really nice fee it was a record quarter for us that we're really excited about that and.

Of course, we're still in a stage, where you might see some barcenas from quarter to quarter, but obviously the trend is right direction and certainly what we're doing with the ecosystem is encouraging so.

And then how are you thinking about petsmart, Nick business are you looking it seems like Theres, a part of that business, that's going to be large deployments that hyperscale.

Where people standardize around certain solutions and then there is lots of smaller pieces of it how are you thinking about.

Which segments are attacking and how.

How is that business pursue definitely through solar flares versus through through other customers.

Yeah, what I would say is first of all.

We are definitely see opportunity with the Hyperscalers as well as you know I think enterprise overtime.

In other players.

I think everybody knows the hyper scale as tend to move more aggressively and takes a little bit longer to move into the enterprise.

And so yes.

And by the way you know I think you know this combination of things going on I mean people just our need to go to the higher bandwidth, but also people are doing different levels of offload and processing. So.

It it just the beginning units are really exciting area for us in terms of Fintech.

So if I already had a position obviously in and financial technology, a lot of it was around there very low latency techniques and we're still seeing that expanding but now we're seeing it going beyond some of the traditional applications that they were in as well.

And you know that both in terms of so theres a products, but also taking look at Alfio further out.

Great. Thank you very much.

Welcome Joe.

Our next question comes from Tcl Hari with Goldman Sachs. Your line is open.

Hi, guys. Thanks for taking the question.

I had one for Bryce I'm not so much related to this quarter, but I guess it's been.

Couple of months are moving several months since since he joined the company I'm guessing.

You've got some time to learn more about the company.

The outlook in the opportunity is that how are you thinking about sort of the medium to long term financial model I know you guys how its.

I will stay coming up in a couple of months I don't expect you to preview anything but in terms of driving efficiencies.

From an opex perspective.

And how you're thinking about the balancing cash flow going forward any any insight would be helpful. Thank you.

Okay. Thanks.

She has so first as you mentioned, we're only giving guidance for Q2, and we are planning a investor day for the second half in the October November timeframe, we'll get back with the date will where we'll be specific on the balance sheets I'm just really quickly. We'll start there you know the business has been strong Victor.

Pointed out in his commentary we're profitable in this crisis, we've been profitable and prior crises. So we feel fortunate that we're adding cash ending or adding earnings to the balance sheet and we're in a good position to be able to.

Consider additional opportunities both organic and inorganic so the companies in a strong position financially and and that's great. When we think about the long term business model.

What the company's described before significant growth opportunities in data center and WWJ and then also higher growth rates in our core markets.

And we'll detail this you know in.

When we have that Investor day meeting, but we're excited about the opportunities in automotive, we think we'll be able to extend opportunities and test measurement and emulation and also the aerospace defense industrial medical businesses all of those.

Fine products that are improving our position in those markets and we're pretty bright on the prospects for growth in those markets. So that's what we'll discuss when we get a when we get to that point.

Our next question comes from average therapists deal with BMO. Your line is open.

Hi, Thank you very much Bryce you mentioned that.

The basic transition is behind the company and I'm, just wondering what kind of timeframe.

Turning to because.

In closing the case Salix has a transition so.

What gives you the confidence im that's it for a couple of quarters that you're talking about that we will not see slowed the basic transitions.

Really quick follow up.

On the advanced products side, the down year over year versus core is that largely related to zinc and lead the rate interpretation of that underperformance versus core. Thank you.

So on the first piece I think the ace of transit.

Mission, we're talking about our for designs that.

Were specific to Fiveg infrastructure.

We knew some of the designs that we would lose and so we think we're past that I don't think we're saying that will never have been a sick transition again by the effect on our business from a quarter over quarter perspective that we saw from last year to this year is largely complete complete and we're competing for.

For new business.

And then the Victor you want to add.

Well I guess I just would like to say again I think he was really trying to clarify the big year over year drop right and we talked about the on previous earnings calls and that's all these referred to and again.

Feel that we have a stronger position than ever against a fix and you know and competing as a six is not new as you said, but I think people have over.

Rotated into this notion that we always get designed out but that's.

Really not in the case and the and I think again prices just trying to clarify the but year over year change.

Once you complete the second half the question well I'm, sorry could you repeat the second half please.

Yes, sorry wells had them and thankful jumping in Victor clinics I think issue. Yes. My question was on the advance products I'm being down.

More than decor, and then at <unk> am I correct in assuming that Thats largely.

Because the fusion contra intuitive to see the advanced product stonemor, but im assuming thats, because probably likely due to Wally as the last two zinc in automotive that the correct assumption.

Well the way the way to think about it is since we had a lower quarter on aerospace defense test and measurement in emulation, and we had a number of accelerations related to see abbvie to see Ivy accelerations, where in a lot of cases older products and so that was a slight mix change to space.

But on the end market mix for the quarter and we'll expect that to flip as we go into the second quarter, where you have.

Where we'll have increased business and aerospace and defense test measurement emulation et cetera. So it's really just a reflection of you know that that market mix for the quarter or those that part and then as you said on zinc specifically, yes, automotive certainly was down quite a bit.

So on the SLC portion of that do that is definitely think auto.

Okay that makes sense. Thank you Sir.

Our next question comes from Tristan Gerra with Baird. Your line is open.

Hi, good afternoon.

How should we look at the Oh, it seems to see when you want it Nelson Eric had precipitous Union piece that you have in China in base station.

Over the medium term, which one is the bigger opportunity and also when do you benefit.

In China non wildly lamb since the diversify.

They station suppliers.

So with regard to RFS, we'll see you know we see deployments in multiple geographies in fact at this point, we have deployments and all the major geographies, so and we think that will continue.

Again.

In out in the market now for wildness, though no product like it in terms of fully integrated Monolithically integrated high performance 80 season, Dax together with a digital.

Processing. So that's one unique and I really think that that that's going to have a long life and the deployed and all the regions with respect to share shifts I guess, that's what you're referring to in China.

No we've seen some of that but I would tell you that it's not its not super meaningful from what we can see.

I think you know in some of the other geographies I think everybody is aware that of course, there's some more shifts to non Chinese vendors in general not just walk away in Europe and a in India is certainly is moving in.

In a different direction, although neither really delayed in terms of fiveg, but just in terms of wireless infrastructure as a whole. So I'd say, yeah, we do see some shifts I mean, nothing as of yet a very material, but obviously, it's still a dynamic situation and it puts it in your comment I guess is around the some of the recent restrictions.

As around that impacts on silicon and.

Oh, it and again I think it's probably still a very dynamic situation.

Great. Thank you.

Our next question comes from C.J. Muse with Evercore ISI. Your line is open.

Yes. Good afternoon. Thank you for taking the question I.

I guess I wanted to clarify a Jones early earlier question about let's see how did you pull ins or was there any impact to DCG.

And then for further main question for gross margins are very nice range, particularly at the higher end of that range and it curious what would have to happen for you to hit that 72.5.

And I guess as part of that anything mix wise that stands out to certain products.

Or is this really just a function of WWJ following up pretty severely in the quarter. Thank you.

Yep. Thanks, CJ its price I'll start on that one some of the C. Ivy acceleration volume did go to data center, a small portion of it. So that's fair basically three groups data center W.W.G. and industrial all had some of the.

Orders that were accelerated in the quarter on the on the gross margin changes as you highlighted the really not changes in price or cost a much during the quarter. It's really end market mix that drives the gross margin as you sort of alluded to and so in the second quarter, we're expecting so.

Stronger mix of aerospace and defense and test measurement in emulation and that typically drives our our margin higher and we think you know we put that range out there. It's all going to depend on the end market mix as we get through the quarter, where we'll end up in that range.

Thank you.

Yep.

Our next question comes from and it is with Barclays. Your line is open.

Hey, guys. Thanks for taking my question. Another question I, just want to understand living pieces on the CRB Poland.

Maybe you can just talked about I mean, if you look at the strongest group and WG.

It's up 20, some percent minute not down that much.

In the guide I'm, just trying to understand one.

You just saying that you have products that are back filling it and when you look at a tens of millions of dollars incorrect to think that W.G. you got the biggest contribution [noise].

It was mixed across the three groups.

I mentioned, when we think about it we look at Q1 in Q2 and you know both quarters are stronger than we originally anticipated the major driver being strengths and data center W.W.G. and industrial businesses for the two quarters.

Low tens of millions like we described in Q1 and you know the reason or we say it's difficult to see is when we accelerated some of that product in Q1, we essentially had to displace product that we were shipping to other customers and so some of that moves to Q2. So we just you know sick.

Just look at both quarters were ahead of expectation in both quarters. We do think that net effect in Q1 was in the low tens and it was across those three end markets yes.

I'd like to actually.

Jump in and get instead of say.

The business is strong independent yet I think the CRV causes some movement across the quarter.

I would also be clear that in some cases, the TV was and then you have a positive effect because of concerns around that you're continuing escalation between us and China. So no I don't think people should walk away from the saying that our strength was based on that it's a portion of what we saw in that order.

Magnitude no not that are not that meaningful and you know really would be look at going ahead of virtually you know we have strength in multiple markets. So I think thats, a I understand people trying to tease that out, but I wouldn't over rotate into the emphasis on.

And then there's maybe a quick follow up since they are trailing product could you still ship to it as a customer want it to it or is there part of this restriction that you no longer can ship to.

What we're we're asking for licenses or from the government. So those products had an exception that exception was removed we apply for licenses, we've gotten a number of licenses so.

Our hope would be that will largely be able to continue shipping the products to customers. Yes look it's it's a mixed bag right means some wont some have by the way you know people should understand that this is not affecting just kind of Chinese companies, either multinationals that have operations in China.

Well, so we here at devices at different covered those.

UK Smart word Chinese companies, but this is why.

There are really puts and takes right and some of it you.

You know we feel like we work with the customer go figure out another way in some of it is not going to be there. So.

Thanks.

Okay.

Our next question comes from William Stein with Suntrust. Your line is open.

Great. Thanks for taking my question, it's really about the datacenter end market and I apologize if I missed this but like you said this was going to be flat to down in September there has been quite a lot of discussion about.

Digestion period wondering if youd be willing to comment on how you expect that to extend over the next couple of quarters have customers perhaps.

Overbuilt in a meaningful way, where we should expect some period of digestion beyond the quarter.

And the other question relates to this and that's about the split if you can remind us between.

Let's say vertical applications like networking versus a PJ as a service he just remind us what that split is approximately thank you.

Okay. So the first part.

Again back to the.

Did you say digestion I don't know, whether referring to see I'd or just general digestion I mean.

In terms of the market that had some impact with regard to the.

You know the data center was probably the least so that's one thing just to sort of put that in in terms of a qualitative sense.

But I think in general right like when we have deployments in the data center.

Usually is they do a buy and then they use that for a while they don't continuously by that's just the nature of most of the purchases that as we said in the path as we're scaling this business quarter to quarter things do vary a bit. So you know this flat.

As the slightly down off of a record quarter I don't think you should read too much into the you know a tremendous amount of digestion going on right.

So that's one part of the question I guess in terms of you know.

Hey, as versus you know sort of sort of networking opportunities you know, we don't breakout as a as specifically, we just kind of put that as one sub category within compute.

And I would say that we saw wins and some sort of good momentum in both areas, but I you know in terms of smart next as well as in compute.

I would say that or you know for the near term.

As there's good strength in both probably right now a lot of a really good activity on on the.

Smartness side I think the.

The real time video system that we had just displaced within great interest. There first time that we have a much more of a turnkey solution. So we'll see how that plays out as revenue, but I think the strength in both areas compute as well as though it's partner.

Thanks sector.

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

Thanks, guys. If you Victor could update us on the timing and migration path to seven nanometer and are there some applications or end markets are customers, where process technology leadership. It is particularly sensitive and that we can get some sort of.

Accelerated growth for for that end market or applications. How are you thinking about that thank you.

Yeah. That's good question. So you know reversal is progressing really well you know we're on track as exactly as planned to go into the ready for production at the end this year.

And Thats, a you know and of course, there you had the big announcement in terms of Samsung in their fiveg equipment.

We have multiple in a customer engagements in many many different industries. So.

That's one that most notable that we've made public.

But that's really going to be a broad market thing and this production is just the first device and the product family, which there are like multiple some families.

So you know seven I mean transition is just beginning.

And that's why indeed, we're actually still doing 60, 90 tape outs because of the strength of the 16th lead generation. So I think this transition is starting to happen where in the early phases of that you know and again, we're still getting very strong design wins in activity on the 60 nanometer and I think you might be wondering why.

Oh Gee, you know certain parts of the industry's already talking about five or whatever.

And I think they are really important thing to keep in mind as you know at seven nanometers and for that matter at 69 brands as well.

We we significantly increased the capability of love the products that we put out there right.

I mentioned the RFS, we'll see multiple times nobody has that integrated RF capability at all and capabilities together with digital logic, even after as being a marketplace for a couple of years.

First though again, there's no other products like that are more direct competitor in that area that are much more evolutionary move in terms of their architecture. So we're we're providing capability in value to our customers through a lot of innovation architecturally we're not as relight like in the old days and just moving to process, though because you know if you fall.

Oh, you know this industry back when it was just pure SPJ right.

Not heterogeneous acceleration with ESL season. Other architectures, then it matters a lot more getting to their snowed because that's the only way you really deliver more capability right. I think you know we've really we continue to move to advance nodes, but we're really innovating in architectural level on other forms of integration. So I think thats why you may you may see you like.

Okay, why wouldn't you be moving to the next architecture, but that's that's the reason hopefully that helps.

Thanks.

Our next question comes from Ross Seymore with Deutsche Bank. Your line is open.

Hi, guys. Thanks recently asked a question I just wanted to talk about the AI T. segment for a bit I think everybody understands why that was weak recently, but going forward can you just help us size first how big is the T. M E side of things and then as you think about growth in September and maybe even to the the calendar fourth quarter. This year how are you looking about.

The company specific gross versus the macro side getting better.

See in that T M E side, which tends to be so lumpy.

Sure. Thanks, Ross so on the Tammy can be a sizeable business for US you saw we had a record Q4, a in that business and in Q1. It it was a little bit lower but we do expect it to strengthen in Q2.

Again, you know that particular business, we do a good job of optimized optimizing our products for the customers and we have a strong product line that will lie improve their ability to get short development times faster validation et cetera. So there's lots of opportunity for the company.

In that particular business when we think about AI T. In general and we think about the macro there's probably a we do expect to grow faster than the macro.

You know, we're all looking at and hoping for a V recovery.

We do think that the market will benefit from you know the recovery on will track that but we have tailwinds in terms of being able to gain share with thought the products that were developing in the space. So GMI market looks good.

Industrial will recover along with the macro economy on the medical aside we expect that that'll continue to benefit from a trend toward automation and then in aerospace and defense. We also think there's many programs there that will consider continue to grow that end market overtime. So.

You know if you're thinking about the long term growth rate. There, we do think it'll be a it will exceed the macro.

Yeah, maybe it's just part of sort of point out that in that in the in this quarter. Our expectation is you know.

In a core markets every sub market is going to grow except for perhaps I said because it was a record.

Right. So really this broad growth across all those core markets auto obviously had a severe downturn, it's still going to have an uptick from that but if I've got to ways to go to get back to it but you know the breadth is across every market, except for them, which had a record and and the the.

Our expectations there'll be no solid.

So yeah, it's a it's pretty broad.

Thanks, Mike.

Okay. Thank you.

Our next question comes from Matt Ramsay with Stifel. Your line is open.

Yes, good afternoon, I wanted to follow up a bit on the the process technology angle. There, obviously, some pretty big news out of.

Of Intel I'm in the last week, or so and Victor I'm completely.

I think I agree with you that architecture and a lot of the things you're doing on software et cetera are increasingly important in your end market. So I get the commentary that you gave with respect to that question I wanted to explore the other side of it which is sort of certainty of road map and certainty of supply given some of the commentary out of of Intel that owns your cheap.

Competitor, how have you seen your customers react in the last week since some of the news and Annie's certainty of road map and certain deals silicon supply critical to the long term design wins that you're getting or our or maybe a my over emphasizing that in my own thinking. Thank you.

No I think it's a good question I mean, I think you know.

I think that we've done very proud of our team in terms of the execution that we've been doing for number of generations actually I mean, if you've followed us get over we used to talk about how we had a three pete and getting leadership and we sort of stopped talking about that not because we're no longer doing but actually because.

You know, we expect that our customers have come to be very custom and expect that we just we say what we do and we do what we say and they can count on that right. So I think we continue to actually really well and that is important I think our you know delivery and execution in terms of providing supply and on time delivery and all those metrics are we.

Yes, really high marks we do customers that are.

You know studies console. He that's always part of the Kt eyes of my operations team. So we're very proud of our record there and that certainly.

What I would say some of the recent things.

Maybe underscore that more but I would say that that's always been a strength and I think our customers I'm all acknowledge that.

You know, we you know we've been in a strong position in automotive and you know you may have heard me say in the past you know people want to talk about certain sexy kinds of topic, but one thing that's super critical if you're in safety is your low PBM right. So how few failures that you have and it's really really hard.

It's really not very sexy, but we do a really good job at that and we get a very good praise for automotive customers. So I think it's a very important thing, but I think it's something that we've always been doing and I think would be leading to the other side is obviously more recently challenged.

But we just stay focused on making sure that we continue to execute with excellence and deliver high quality.

Thank you.

Our next question comes from the back are you. Thank you Ma'am your line is open.

Thank you for taking my question actually a quick clarification on <unk> question, if I may codification, how large was a solar flare in the quarter was it like low tens of millions any any enough amount would be useful.

And then the question pick that I just wanted to slightly challenge. This notion that the hesik conversion is complete because if it can happen I had one customer like onto it happened at other customers right. The traditional basic transition loss at Samsung, but then after that Nokia also announced smartphone basic suppliers for Fiveg handset Sbgs solutions.

Expensive so.

So I'm just asking technically if it can happen at one customer like onto it happened and other customers or is there just a difference that maybe it's happening on the based bank side and maybe not as much.

On the radio side down and if that is the case, how how sustainable is that it's one of technology question. Thank you.

Yeah, Okay, well, so look on silver flare, we don't breakout in fine granularity, but I would say that you know since we've acquired them. Their revenue is up Ashley multiple tens of percent so that is doing well.

And.

So just on that part now switching to basic thing is that I think you know if pricing is that it I've already said that we're not saying we don't think you'll ever happened again has come that really was around just explaining the year on year change and yes. As you know part of that was base band and absolutely were much stronger in radio and that's traditionally the case.

I think the important thing you need to maybe pick up on is that you know with that currently our products to the artist and versatile.

And in addition, I talked about how we are delivering customized solutions for our customers right and you know we've done that in the past and we've actually up leveled out a lot more where you know based on critical needs. We would do derivative products. We work with them in some cases were doing effectively joint engineering together, so were doing a lot more.

Calories than we ever had so it's not that I'm, saying inherently of course, you know it's possible that there'll be a super placements or I guess, what we're really saying is that where you know we're delivering tremendously more value than in the path and we have you know these really innovative products and I think it's going to be a tough value savings to be no and.

We always happy to compete that's always been the case.

As I said Weve you know we've done this in the past and yes, sometimes there's a secret places, but so we have a pretty big business and communications for a reason right and all of those.

Tier ones have you don't have a 16, though.

That's why keep getting back to its not really new but we've really up to our game to that's the bottom line.

Got it thank you Mike.

Our next question comes from BG retention listen to your line is open.

Yeah I picked up just another question on the millimeter is side I'm just wondering I'll walk you shows that in a in the U.S. looks like a rising and you SLF seem to be fine, but in D. and no T mobile access new slowing down, but just wondering what you're seeing Andy.

Listen globally on the majority of say, they're not follow.

You know we do have deployment to know made wave I think you know, but I do so think that 60 gig and blow bands that's going to be very important I think you know millimeter wave has its applications, but its oh, if at some technical challenges.

We can play in both new flavor.

You know I think it's pretty early you talked about was chair, but again, you know, we see opportunity and where you are working with people in both and we still really feel like.

Our bandwidth capability is really important in and quite a quite leadership and a lot away. So I think you know we feel confident that we can win both of those.

Spectrum.

And I think in China, you mentioned Archera sounds a district since you're seeing some of the other guys picked up just wondering when you look at DDW analytics and how have you seen goes opportunities and Ah. Obviously first half was pretty strong in China, how do you see a slow down into the back half like the dilution from this.

Most of five do you expansion Dove <unk>.

Thanks.

Yeah, well you know I mean.

First half a bit of a mixed bag, obviously, they China got impacted by coated a lot earlier and they had a hard shut down then they came back strong out of it there are obviously, so trying to hit their original goals for deployment in this calendar year over probably end up being more on the low side and I think our team estimates and the 400 K is sort of arrangements or the base stations.

Yeah. So you know I I would say that obviously you know there is it's very dynamic I think we've seen as I mentioned earlier some degree of share shifts, but if you're talking about Chinese versus non Chinese suppliers in the China market at least what we've seen we haven't seen anything much.

Really changed there there might be some changes, but nothing really material. Obviously I think it's been in the press quite a bit about whats recently been going on in terms of European people, saying that moving away from some of the Chinese suppliers in India as well. So you know I guess, we'll have to see.

But I wouldn't say right now we see any drastic share shifts.

Got it thanks.

Yes.

Our next question comes from Quinn Bolton need help your line is open.

[noise] you guys. Thanks for taking my question just wanted to come back to that does see I'd be if she just you've given us some sense of how much was accelerated into the June quarter I'm, just kind of thinking if you look longer term is there anyway to quantify how much of the business you used to do under the Sid exemption.

It's going to be permanently lost.

And then I'm going to quick follow up.

Yeah acquaintances Bryce yeah, as as I mentioned earlier, we're pursuing licenses for for the business. So at this point, we wouldn't really be able to quantify if any will be permanently lost you know the customers, we'll look to shift a as they can also too.

Change the mix of the products. So we'll pursue licenses and see if I you know this can be equal out and there'd be no permanent loss.

That's right. That's obviously the goal and go ahead with the follow up.

And then just wanted to follow up the North American Orifices. She deployment that you mentioned earlier is that can you just discussed the timing is that taking place now or does that need to wait for the CBR rest of the C. Band auctions later this year before that deployment begins thanks.

No that's that it's starting now so.

It is just beginning but you know some of that we obviously think that's going to your long lived or when do you expect to have more expanded opportunities and especially digital front and on radio with our facility.

Thank you.

Yep. Thanks.

So I think are we going to do anymore questions.

Okay.

Go ahead operator.

Our next question comes from Attorney Petteri <unk>.

MBC does your line is open.

Thank you for squeezing me in first a clarification. Then then a question Brian I'm on the tax rate you're guiding for I think.

Three or 4% I'm, just curious as to how we should model going forward and then the question again Victor.

You seem pretty excited about the whole ran opportunity I'm just curious as to when you expect.

All right and Rollouts to start and and is it because you see more opportunity for SPG isn't all around that and that gives you that excitement or is there anything else. I mean, if you know as opposed to you know selling components to it you know Ericsson Nokia if there's all these components to it and Orion vendor.

It was the different for you if you could kinda talk about that that'd be helpful.

Okay. I'll go quickly so on the tax rate, yes don't use the Q2 tax rate for your model going forward our equity grants vest in Q2, we typically have low tax rate in Q2, and that's what happened that's what's happening a lot of those have appreciated and so we have a tax benefit in Q2, I would you know look back to Q1 and.

Q4, and use a blend of those for you're looking forward.

<unk> yeah on the Orient side I think the thing if you think about it people looking at how they can fundamentally reduce some of their hardware costs, but also then they'll differentiate and do that through other means there from a software perspective, and if you think about it you know that is something that we have always brought to the table.

Our customers the ability to differentiate with.

Hardware that is you know so adaptable right that the same hardware can be used and deliver different architecture of support different standard the optimize in different ways and in fact, you can change it right even after you've deployed it. So I think really what it is is the reason why we're excited.

Because we feel that you know what their people are trying to accomplish fundamental with all ran it is something that we really help enable and have always help the naval under tremendous wage, though and plus with the RFS, we'll see again I think you know we've.

Creating more value, we're solving more of the whole radio problem and so we just see that as Oh, another big opportunity right now.

Not only the tier ones, but also with tier twos and and we'll see I you know I I do think it's still new technology. So it's gonna be hard to call. The exact infections, but you know I'm sure you've heard that you know a momentum in the interest behind this is really picked up over the last several months so.

Okay.

Thanks, everyone for joining the call I just wanted to do one closing because I know.

And understandably so there's been a lot of questions around the see everything I just don't want to lose by the fact that we had a record quarter in D.C.G. you know the strain of displaying strength and multiple areas within that ramp up in compute and on the network side and as well as a storage activity, we've really made tremendous progress in growing our ecost.

System in the software story, you know 34000 downloads just from a fairly sorry, 40000 downloads or short period of time and continue to grow it gives us and so I don't want to lose sight of or the fact that we had really great strength. There and of course is some puts and takes and W.W.G., but we're really excited about the RFP opportunity as well.

I was no personal continues to be getting really good design activity. So I'm just want to leave you with the strength and then in the current quarter as we said the core markets, which had some puts and takes in the last quarter is going to come back really strong. So you know we're excited about the go forward and I Hope. This is helpful for you.

Thank you.

I'll now turn the call back over to Mr. par or your for closing remarks.

Thank you and I appreciate everyone for joining US today, we will have a playback of this call beginning at seven P.M. Pacific time, 10 PM Eastern time today for a copy of earnings release. Please visit our Investor Relations website. Our next earnings release date for the second quarter fiscal year 2021 will be Wednesday October 21st after that.

Market close.

This completes our calling thank you very much for your participation.

This concludes todays conference call you may now disconnect.

Hey shot though.

[noise].

[music].

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Good afternoon. My name is Sean tell and I'll be your conference operator, I would like to welcome everyone.

Holdings first quarter 2021 earnings release conference call all lots been placed on mute that any background noise. After the speaker's remarks, there will be a question answer session if you'd like to ask a question at this time.

That's the star the number one on the telephone keypad, if you'd like to withdraw your question close the pelkey. 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 that well, yes. Thank you Mr. Board you may begin your conference.

Thank you and good afternoon.

With me are Victor Pang, CEO and bright sell our CFO.

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 of the company.

We wish to caution you that such statements are predictions based on information currently available and the actual results may differ materially we refer you to the documents the company files with the FCC, including our 10-K is 10-Q's and a case.

These documents contain and identify important risk factors that could cause the actual results could 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. We provide these measures to facilitate period to period comparability for purposes of evaluating continuing business operations by excluding the effects of nonrecurring and unusual item.

Such as amortization of intangibles and certain onetime items related to acquisitions. We believe that sharing these non-GAAP measures will be helpful for analysts 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 it has been.

Posted on our Investor Relations website. This conference call is open to all and is being webcast slides can be accessed from art Xilinx Investor Relations website, Let me now turn the call over to vector.

Thanks, Matt and thanks, everyone for joining todays call I Hope you and your families are healthy and well.

Let me start with an update of the cold 19 situation before I discuss the business highlights and result.

Our supply chain has been operating without any significant disruption and the business performed well overall, despite the covered 19 challenges.

Most of our employees working from home, except in China, where employees have been allowed to return to work.

Employees and contractors, who must be out on site, we have adopted daily health screening, we required masks and our practicing social business.

No restrictions continue to be enforced worldwide.

We're not experiencing any significant operational challenges and continue to execute well on our strategy.

Well, we provided guidance for fiscal Q1 on our April earnings call a significant uncertainty about how much impact over 19 would have on supply chain and overall demand.

As we progressed through the quarter that business is performing better than expected their local market offsetting weakness in others.

The straight to the strength of our business model and addressing a diverse set of end market and our progress in executing our strategy in a challenging environment.

We also talked and benefit in Q1 from customers accelerating order due to the U.S. Department of Commerce removal of license exception.

All end users also known as the I'd be licenses.

Given the better than expected performance in recent actions impacting our tax rate, we provided an appropriately revised guidance in late June.

Fiscal Q1 revenues by 727.

Which is at the midpoint of our revised guidance.

Compared to the original first quarter guidance and April DCG, and W.W.G. revenues were stronger than expected and more than offset weaker revenues in a b C and to a lesser extent.

Yeah, I T was lower than expected due to a meaningful customer program timing issue that move revenue into Q2.

As I mentioned a portion of already afraid was attributed to the removal of de licenses and not primarily affected our ATM W.W.G. that.

The advanced products category constituted approximately 68% of total revenues.

I think based revenues declined 7% compared to last quarter, primarily due to lower zinc sales and <unk> automotive businesses.

Thanks, Houseware, 18% of total revenue I.

I think revenue and design win momentum continued to be strong across our target market and we're confident are well see revenue will grow to be a larger portion of our total revenue overtime.

Now move on to specific business highlights starting with BCG.

We made significant progress in our DCG business during the first quarter.

We had growth in the adoption of our smart mics solutions.

Cloud service provider deployment of Abbvie obeys compute AI clusters, and strong revenue from Telefonica Dr., we secured multiple new design wins with Hyperscalers and OEM customer.

The compute space, we saw great interest in our recently announced our T. video server and adoption by Fintech customers.

Networking, we have seen 100 gig martinic engagement momentum with Hyperscale customers and are conducting proof of concept for Q1 hundred gig smart mics solution.

Finally in storage, we saw next generation stores platform commitment from one of the top three Oems.

Smart as this devaluations initiated by Fintech customers and qualification by leading video customer.

We continue to make great progress transforming xilinx <unk> platform company and growing our ecosystem.

We had over 34000 downloads divided since we announced late last year.

To date, we've trained nearly 14000 developer and we have approximately 1000 software partners or releasing a growing list of production applications.

We announced the establishment of Xilinx adaptive compute cluster at for the world's most prestigious universities to train. The next generation of software developers on our powerful adaptable platform.

These clusters provide critical infrastructure and funding to support research and innovation in the depth of compute acceleration in HPC application.

And the communications market one of our tier one OEM customers is expected to ramp article see two production this quarter.

Six gigahertz massive mimo radio applications for North America deployment, and our design win pipeline, our associate continues to build.

Our strategic engaging with Samsung continues to deepen as we collaborate on their second generation Fiveg radio that includes Beamforming using our seven nanometer personal eight cap.

We believe we are in this our strongest competitive position ever with breakthrough products like RFS, we'll see in personal the ability we give our customers that differentiate with all our adaptable products and lastly, our commitment to deliver customized solutions to meet our customers' needs.

Our strong position comes at an excellent time, because as you know already as an emerging opportunity for us and the old brand momentum has been building over the last several months.

We recently joined the open ran policy coalition to support the development and deployment of open ran Fiveg technology.

We've been an active member of the all ran a life and have contributed to the Threeg ERP specifications Fiveg mobile network.

We're actively working with many key stakeholders to ensure fiveg future networks will be open we developed.

Our operate and adaptable.

Moving onto our diversified core businesses, we continue to benefit from the solid foundation deep markets provide in terms of verification and consistent cash generation, which enables us to reinvest in these markets as well as our high growth markets.

During the quarter within the industrial business, we saw a surgeon products related to health care applications. As a result of covered 19, and we expedited approximately 350 orders worldwide. This port global efforts control dependable.

Aerospace and defense continues to be a secular driver within our core business.

We further strengthened our position, we recently announced the industry's first 20 nanometer space, great PJ, delivering full radiation tolerant and ultra high throughput and bandwidth performance for satellite and space application.

The launch for the first 20 nanometer product for these applications advances the space industry by three process no generation.

This breakthrough product is the first to enable machine learning in front of together with unlimited on Barbara reconfiguration for real time onboard processing and space.

In the auto business, we have secured a strong position and Ada es, including driver monitoring system.

In the last six months, we've won five major tier one with our Zynq product family.

We believe the auto business bottomed out during our fiscal first quarter and we have started seeing signs of improvement in recent bookings.

We are cautiously optimistic about the auto business beginning to recover in the second half of the year.

As vehicle sales recover we expect to see our design wins translate to revenue and resume robust long term growth.

Now before I turn it over to Brian Let me share what I believe our solid Q1 results demonstrates in these extraordinary time.

We can and our operating safely and effectively to deliver for our customers and execute on our strategy, even with most of our employees working from home.

Our diversified core markets continue to provide a solid and resilient foundation.

System, we generating cash flow, even during a global downturn.

Our DCG and W.W.G. businesses grew despite significant headwinds, which validates our long term growth strategy.

The auto business appears to have bottomed out and we're confident overtime it to what we're doing robust growth for us and all while we continue to make progress moving to adaptive platform growing our ecosystem in software based and delivering optimized solutions for our strategic customers.

We're in a better competitive position than ever to increase our market share expand our stand at immersive coded pandemic as a stronger company.

Thank you and now over to Brian.

Thank you Victor as Victor mentioned.

Visibility and confidence improved throughout the quarter, resulting in total revenue of 727 million inline with the revised guidance. We provided on June 29.

And significantly above the guidance range, we provided on our April earnings call.

The company executed well and delivered GAAP gross margins of 68% non-GAAP gross margins of 69%.

We reduced expenses quarter over quarter. After the Q4 restructuring helping to achieve GAAP operating margin of 24% non-GAAP operating margin of 26%. Despite the lower overall level of business due to the pandemic free cash flow was $230 million or 32% of revenues, reflecting our efficient fabulous business.

Model.

Our continued profitability allowed us to return a $146 million or 63% or free cash flow to our shareholders through dividends and share buybacks. During the quarter. We also lowered our cost of capital and increased liquidity with the new debt offering.

Our balance sheet is strong and gives us options to pursue business opportunities.

Our business has been stable during recent crises benefiting from servicing a broad set of customers and end markets.

Im impacted by covet and other headwinds and others gaining by the move to digital and online services, specifically datacenter. Good revenue grew 10% quarter over quarter at 104% year over year, driven by accelerating adoption of our smart mics solutions cloud service provider deployment of compute AI solutions and country.

And you had strong revenue contribution from the solar flares acquisition.

Wired and wireless group revenue increased 27% quarter over quarter, but declined 33% year over year. Please note the year over year decline was largely due to the effects of trade restrictions on while way as well as a stick related product transitions, which has largely run their course.

In the quarter, we saw better than expected performance in both wired and wireless businesses.

Wired outperformance was driven by access network in Fiveg related core network build outs as well as accelerated orders related to the IB rule changes.

Wireless outperformance was driven mainly by Fiveg rollout in China.

Wireless also experienced some see Ivy related order acceleration.

Hey, IP or aerospace and defense industrial test and measurement and markets revenue declined 13% quarter over quarter and 2% year over year. As these end markets came off the second quarter a record quarter in Q4.

Test measurement and emulation and the team may end markets declined more than expected due to a meaningful customer program rescheduled the Q2.

But was offset by outperformance in the industrial end market in part due to see Ivy accelerations.

ABCD or automotive broadcast in consumer revenue decreased 24% quarter over quarter, and 29% year over year, reflecting the impact of Colvin 19 on our more consumer oriented markets.

The automotive end market was significantly impacted by factory shutdowns and a steep drop off in global auto sales.

Lack of live sports and shutdown and TV and movie productions negatively affected the broadcast end market.

Company level gross margin was that the top end of guidance with GAAP gross margin of 68% and non-GAAP gross margin of 69% the difference between GAAP and non-GAAP is due to M&A related amortization.

GAAP operating expenses of 318 million or 44% of revenue and non-GAAP operating expenses of $314 million or 43% of revenue were inline with our revised guidance.

Operating expenses were higher than initial guidance due to increased variable compensation related to the revenue outperformance in the quarter.

GAAP operating income was $176 million or 24% operating margin non-GAAP operating income was $187 million or 26% operating margin.

Our GAAP tax rate was approximately 43% and non-GAAP tax rate was approximately 8% below our revised guidance.

Non-GAAP taxes were lower than expected due to more of our income coming from lower tax jurisdiction.

As a reminder, our GAAP tax rate was impacted by a one time charge related to effects of a third party legal proceeding related to cost sharing arrangement.

Please refer to our 10-Q and 10-K for more disclosures on this item.

GAAP net income was $94 million and diluted earnings per share or 38 cents.

A 42% quarter over quarter decrease and 60% year over year decrease again, please refer to the cost sharing arrangement tax reserve in our disclosures.

Non-GAAP net income was $160 million non-GAAP diluted EPS was 65 cents per share a 17% declined from last quarter and 33% decrease year over year.

Diluted share count decreased to 245.5 million.

Now onto some balance sheet and cash flow items gross cash was $3 billion, a $2 billion and total debt, reflecting our issuance in may of 750 million in 2030 notes.

This debt issuance positioned us to repay the 500 million dollar 2021 notes due next march as well as to increase our liquidity position.

Accounts receivable increased to 305 million and is that 38 days compared to 33 days last quarter.

The Dsos increase is driven primarily by linearity of distribution billings within the quarter.

Net inventory decreased to $292 million and days of inventory stands at 114 days.

Down from 122 of the prior quarter inventory depletion was largely driven by higher than expected revenue relative to the original forecast the lower inventory and slightly higher cost of sales resulted in the days of inventory reduction.

Overall, we generated $245 million and operating cash flow or 34% of revenue and $230 million in free cash flow or 32% of revenue, reflecting the strong cash generating ability of our fabulous business model.

During the quarter, we repurchased approximately 700000 shares at an average price of approximately $78 per share unpaid dividends of $92 million.

Turning now to the outlook for fiscal second quarter 2021.

Note that our guidance for this quarter reflects a narrower range than what we provided on our April earnings call, which was lighter than normal due to the uncertainty around cobot impacts.

The range, we provide today is more inline with what we think are reasonable guidance ranges for our business going forward.

We expect second quarter revenue to be between $730 million and $780 million, which at the midpoint is up approximately 4% quarter over quarter and down approximately 9% year over year.

Reflects overall business strength with strong recovery in our core markets led by Tammy and Andy as well as in auto and broadcast market.

Our datacenter group is expected to be flat to slightly down offer record Q1, and WWJ is expected to decline due to digestion of CMV accelerated orders.

Overall, we're pleased with the strength of our business over the first half.

We see signs of strengthening in multiple markets through the rest of calendar 2020, but the economic conditions are still quite fluid with a pandemic and us China trade relations.

Some additional color into our end markets.

Within 80.

May sales are expected to increase meaningfully due to strong emulation and prototyping program ramp revenues.

Aerospace and defense sales are also expected to increase due to certain defense related programs.

Hi, SM is expected to decline after a record quarter, but still in line with historical levels. We have started to see some pickup in manufacturing activity. It as Europe and Asia has started to recover from coven 19 impacts we remain vigilant as the pandemic continues to play out in the us with potential follow on effects to the.

Economy.

EBC markets are expected to recover from lows in Q1.

Auto market is expected to strengthen broadcast is also expected to increase with innovative new applications related to higher quality Internet based videos as well as pro Avi customers building inventory ahead of potential demand in the December quarter.

Datacenter group sales are expected to be flat to slightly down from a record quarter in Q1 as customers Digest smart Nick deployments as we've stated in the past we expect our DCG business to continue to have quarterly revenue fluctuations driven by large customer order cycles.

We have a solid pipeline of design opportunities with hyperscale customers and see strengthen our networking efforts both in smart mics solutions and traditional Nick adapters for solar flares.

WWD is expected to be down sequentially with wireless moderately down as CIO fee related digestion is partially offset by a significant fiveg related RF SSC ramp for a tier one OEM.

Wired business is expected to be down more than wireless due to see Ivy related digestion in general.

Broad work from home shifts have changed demands on network capacity and we expect increased investment in broadband communications and security overtime.

Note also that our outlook captures orders from all customers as we believe we now have a better handle on what we are able to ship to countries and customers impacted by trade restrictions.

Fiscal Q2, GAAP gross margin is expected to be between 68.5% and 71.5% non-GAAP gross margin is expected to be between 69.5% and 72.5%.

GAAP operating expense is expected to be between 326 and $340 million non-GAAP operating expenses expected to be between 322 and $336 million. As a reminder, our fiscal Q2 contains annual employee compensation increases related to our.

Local process.

GAAP as well as non-GAAP other expense is expected to be approximately $15 million.

GAAP tax rate is expected to be between zero and 3% non-GAAP tax rate is expected to be between one and 4%.

In closing.

I want to emphasize the stability and profitability of xilinx diverse core business as well as a tremendous opportunities idlings has across all of its businesses.

Our strategy remains on track as we continue to progress on our transformation to a platform company.

We will continue to invest in our product roadmap highlighted by our seven nanometer versatile platform and derivatives as well as our Vitesse software platform an ecosystem.

We also continue to execute on our zinc roadmap, including our RF SSP and the new NPS plus the offerings.

We believe that we will emerge from the global pandemic with a stronger market position, we remain well positioned to expand our market leadership and capitalize on opportunities across all our end markets at the global economy continues to recover from covert 19.

Let me now turn the call back to the operator for today. Thank you.

The floor is now open for questions.

You have a question. Please press star the number one on your telephone keypad. Once again that is star followed by the number one on your telephone keypad. Please limit your questions to one to ensure management has adequate time to speak to everyone.

There's extra time at the end of the Q and a session. You are welcome to ask a follow up question.

First question comes from John Pitzer with Credit Suisse. Your line is open.

Good afternoon, guys. Thanks first let me ask question Credulous strong results and appreciate all the detail.

Im wondering if you can help us just understand all the CIA be rule changes how much of it impacted you think that had on the June quarter. How much do you think it will impact from a digestion period.

In the September quarter, and I guess, it's a backdoor way to try to get an answer around the RFS. So see ramp that price kind of commented on in his prepared comments, how big is that opportunity and is this the beginning of something even bigger.

Yes, great question.

Got it.

Look I think.

The as puts and takes there frankly, and what I would say that it's hard to really quantify with precision order magnitude think of it as low tens of millions.

Our strength is due to what we said in that within the data center, we had a very strong quarter we had.

Great and WWJ.

But there was some theme.

So in the Q1 now in terms of Q2, we really see very little.

Further on a effects.

Yes.

You did say that in certain areas, though maybe a little bit of I'd digestion of that but for the most part I don't think it's really that meaningful.

With regard to the RFS, we'll see that.

That is a very significant win and we're really excited about effective.

North America deployment.

And it's just to start so we do think that that is.

Something that we'll continue to deliver good good revenue are now.

As we said many times and in general.

Deployments by definition or somewhat birthday, so it's not like.

What we see.

Going forward now in every single quarter, we'll see that kind of thing, but overall, it's the beginning of what we've said for quite some time. The artist to these are really unique product out there and we're really excited to see another deployment.

And so yes, I do think it's the.

It is started something bigger and I think it is.

Just the beginning of this one particular significant deployments.

Thanks helpful.

Sure.

Our next question comes from Joseph Moore with Morgan Stanley. Your line is open.

Great. Thank you.

I Wonder if you could talk a little bit more about the picking the datacenter business that you saw.

It sounds like it was more kind of driven by the networking side is that the right interpretation and then I have a follow up on this morning piece.

Yes, there was there was good uptick in terms of.

It's Martin as well as compute and and also we are seeing fintech adoption.

I'm good interest in Fintech.

Good amount that is so if player but we also have other.

Engagements going on so.

So it's really nice fee I was a record quarter for us and we're really excited about that and.

Of course, we're selling a stage, where you might see some parsnips from quarter to quarter, but obviously the trend is our direction and certainly what we're doing with the ecosystem is encouraging so.

And then how are you thinking about petsmart, Nick business or you look at it seems like Theres, a part of that business thats going to be large deployments that hyperscale.

Where people standardize around certain solutions and then there is lots of smaller pieces of it how are you thinking about.

Which segments, you're attacking and how.

How is that business pursued definitely through solar flares versus true through other customers.

Yes, what I would say is first of all.

We are definitely see opportunity with the hyperscalers as well as I think enterprise overtime.

The players.

I think everybody knows how discounts tend to move more aggressively and takes a little bit longer to move into the enterprise.

And so yes.

And by the way I think this combination of things going on I mean people just our need to go to the higher bandwidth, but also people are doing different levels of offload and processing. So.

And it's just the beginning and it's really exciting.

Area for us in terms of Fintech.

So if I already had a position obviously in.

Financial technology, a lot of it was around there very low latency techniques.

And with the only thing that expanding but now we're seeing it going beyond some of the traditional applications that they are in as well.

And that both in terms of so theres products, but also taking look at Apio further out.

Great. Thank you very much.

Welcome Joe.

Our next question comes from Tcl Hari with Goldman Sachs. Your line is open.

Hi, guys. Thanks for taking the question I.

I had one for Bryce.

Not so much related to this quarter, but I guess it's been.

A couple of months or maybe to several months since you joined the company I'm guessing.

You've had some time to.

More and more about the company.

The outlook and the opportunities.

How are you thinking about sort of medium to long term financial model I know you guys how its.

An analyst day coming up and a couple of months I don't expect you to previous anything but in terms of driving efficiencies.

From an opex perspective.

And how you're thinking about the balancing cash flow going forward any any insight would be helpful. Thank you.

Okay. Thanks.

So first as you mentioned, we're only giving guidance for Q2 and we are planning.

Investor Day for the second half in the October November timeframe, we'll get back with the date will where we'll be specific on the balance sheets on just really quick let's start there. The business has been strong Victor pointed out in his commentary we're profitable in this crisis, we've been profitable and prior crises. So.

We feel fortunate that we're adding cash ending or adding earnings to the balance sheet and we're in a good position to be able to.

Consider additional opportunities both organic and inorganic so the companies and a strong position financially and and Thats great. When we think about the long term business model.

With the company's described before significant growth opportunities in datacenter and W.W.G. and then also higher growth rates in our core markets.

And we'll detail this in.

When we have that Investor day meeting, but we're excited about the opportunities in automotive, we think we'll be able to extend opportunities and test measurement and emulation and also the aerospace defense.

Industrial medical businesses all of those.

I have.

Products that are improving our position in those markets and we're pretty bright on the prospects for growth in those markets. So that's what we'll discuss when we get.

When we get to that point.

Our next question comes from average service deal with BMO. Your line is open.

Hi, Thank you very much Bryce you mentioned that.

The basic transition is behind the company and I'm, just wondering what kind of timeframe.

According to because.

In closing the case that links has transitioned so.

What gives you the confidence unless it's for a couple of quarters that you're talking about that we will not see a.

Basic transitions.

Really quick follow up.

On the advanced products side, the down year over year versus core is that largely related to zinc and lead the rate.

Protection of that.

Performance versus core thank you.

So on the first piece I think the Ace a transition we're talking about our for designs that.

Were specific to Fiveg infrastructure.

We knew some of the designs that we would lose and so we think we're past that.

Don't think we're saying that will never have an ASIC transition again, but the effect on our business from a quarter over quarter perspective that we saw from last year to this year is largely complete complete and we're competing for.

For new business.

And then the victory on AD.

Well I guess I just would like to say again I think it was really trying to clarify.

Year over year drop right and we had talked about the previous earnings calls and Thats. All these referred to and again.

I feel that we have a stronger position than ever against a fix and.

Competing as a six is not new as you said, but I think people have over.

Rotated into this notion that we always get designed out that.

Really not than the case and.

I think again prices just trying to clarify that year over year change.

Once you complete the second half the question.

Im sorry could you repeat the second half please.

Yes, sorry, whats Heather and thanks, so jumping in Victor clinics education, Yes. My question was on the advance products being down.

More than decor and then.

Am I correct in assuming that Thats largely.

Because it's usually contra intuitive to see the advance product stonemor, but im assuming thats, because probably likely due to Wally has less to zinc in automotive is that the correct assumption.

Well the way the way to think about it is since we had a lower quarter on aerospace defense test and measurement in emulation, and we had a number of accelerations related to CMV. The CIA accelerations, where in a lot of cases older products and so that was a slight mix change just base.

Based on the end market mix for the quarter and we'll expect that to flip as we go into the second quarter, where you have.

We will have increased business and aerospace and defense test measurement emulation et cetera. So it's really just a reflection of.

That that market mix for the quarter well that's that part and then as you said on zinc specifically, yes, automotive certainly was down quite a bit.

So.

The portion of that do that is definitely the zinc auto.

Okay makes sense. Thank you Sir.

Our next question comes from Christian Eric with Baird. Your line is open.

Hi, good afternoon.

How should we look at the are you.

When you want to Nelson Erakat versus opportunities that you have in China.

In addition of at the medium term, which one is the bigger opportunity and also when do you benefit in China non wildly lamps as Dave diversify.

Basin suppliers.

So with regard to RFS, we'll see.

We see deployments in multiple geographies fact at this point and we have deployments and all the major geographies. So.

And we think that will continue.

Again, that's been out in a market now for a while this though no product like in terms of fully integrated Monolithically integrated.

Hi performance 80 season, Dax together with the digital.

Processing, so thats, one unique and I really think that that that's going to have a long life and the deployed and all the regions.

I suspect to share shifts I guess, that's what you're referring to in China.

We've seen some of that but I would say that.

[music].

It's not super meaningful from what we can see.

Hi, Thanks.

Some of the other geographies I think everybody is aware that of course, there's some more shifts to non Chinese vendors in general not just walk away in Europe, and India, certainly as moving in a different direction in the is really delayed in terms of fiveg, but just in terms of wireless infrastructure as a whole.

So I'd say, yes, we do see some shifts I mean nothing.

As of yet.

Very material, but obviously, it's still a dynamic situation.

And it puts it in your comments I guess is around some of the recent restrictions around that impacts on silicon and.

And again I think it's probably still a very dynamic situation.

Great. Thank you.

Our next question comes from CJ Muse with Evercore ISI. Your line is open.

Yes. Good afternoon. Thank you for taking the question.

Yes, so I wanted to clarify John's early earlier question on the CIA Poland's was there any impact to DCG.

And then front for the main question for gross margins.

Very nice range, particularly at the higher end.

That range and Im curious what would have to happen for you to hit that 72.5.

And I guess as part of that.

Anything.

Mix wise that stands out to certain products.

Or is just really just a function of WWJ following up pretty severely in the quarter. Thank you.

Yes, Thanks, CJ, it's Brian I'll start on that one.

Some of the CIA the acceleration volume did go to data center, a small portion of it so thats fair basically three groups.

Data Center, WWJ and industrial all had some of the.

Orders that were accelerated in the quarter.

On the on the gross margin changes as you highlighted that really not changes and price or cost much during the quarter. It's really end market mix that drives the gross margin as you sort of alluded to and so in the second quarter, we're expecting stronger mix of.

Space and defense and test measurement in emulation and that typically drives our our margin higher and we think.

We put that range out there and it's all going to depend on the end market mix as we get through the quarter, where we'll end up in that range.

Thank you.

Yep.

Our next question comes from Prudential Barclays. Your line is open.

Hey, guys. Thanks for taking my questions. Another question I, just want to understand living pieces on the CMV pull and.

Maybe you can just talk about I mean, if you look at the strongest group and WWJ.

It's up 20, some percent it not down that much.

In the guide I'm, just trying to understand.

One are you just saying that you have products that are backfilling and when you look at that tens of millions of dollars.

Correct to think that WWDC, you got the biggest conservation.

It was mixed across the three groups I mentioned.

When we think about it we look at Q1 in Q2 and both quarters are stronger than we originally anticipated the major driver being strength in data center, W.W.G. and industrial businesses for the two quarters.

Low tens of millions like we described in Q1.

And.

The reason, we say it's difficult to see as when we accelerated some of that product in Q1, we essentially had to displace product that we were shipping to other customers and so some of that most acute too. So we just suggest look at both quarters were ahead of expectation in both quarters, we do think.

The net effect in Q1 was in the low tens and it was across those three end markets yes.

I'd like to actually.

Jump in and get it sort of say.

The business is strong independent of the and I think.

The causes some movement across the quarter.

I would also be clear that in some cases the CMV wasn't.

Positive effect because of concerns around the continuing escalation between us and China. So.

I don't think people should walk away from the saying that our strength was based on that.

Portion of what we saw.

In that order of magnitude no not that.

Not that meaningful and really what the look at going ahead.

Virtually we have strengthened in multiple markets. So.

I think thats.

People trying to tease that out, but I wouldnt over rotate into the emphasis on.

And then there's maybe a quick follow up since they are trailing product could you still ship to it as a customer wanted to it or is there part of this restriction that you no longer can ship to it.

We're we're asking for licenses.

From the government. So those products had an exception that exception was removed we apply for licenses, we've gotten a number of licenses so.

Our hope would be that we'll be able to continue shipping the products to customers. Yes look it's it's a mixed bag right means some wont.

I have by the way.

Well should understand that this is not.

Acting just Chinese companies. These are multinationals that have operations in China as well. So we had at devices at different covered those.

Okay. So were Chinese companies, but this is why.

There are really puts and takes right.

And some of it.

We feel like we work with the customer go figure out another way in some of it is not going to be there. So.

Thanks.

Okay.

Our next question comes from William Stein with Suntrust. Your line is open.

Great. Thanks for taking my question, it's really about the datacenter end market.

I apologize if I missed this but I think you said this was going to be flat to down in September there has been quite a lot of discussion about.

Digestion period wondering if youd be willing to comment on how you expect that to extend over the next couple of quarters have customers perhaps.

Overbuilt in a meaningful way, where we should expect some period of digestion beyond the quarter.

And the other question relates to this and Thats about the split if you can remind us between.

Let's say vertical applications like networking versus a PJ as a service he just remind us what that split is approximately thank you.

Okay. So the first part.

Again back to the when you say digestion I don't know, whether referring to see I'd or just general digestion I mean.

In terms of the market that had some impact with regard to the.

The data said it was probably the least so thats one thing just to sort of put that in in terms of a qualitative sense.

But I think in general right like when we have deployed within the data center.

Usually as they do a buy and then use that for a while they don't continuously by that's just the nature of most of the purchases that as we said in the path as we're scaling this business quarter to quarter things do vary a bit. So this flat glass the fight was down off of a record quarter.

I don't think you should read too much into the.

A tremendous amount of digestion going on right.

So thats one part of.

The question I guess in terms of.

Hey adds versus.

So to sort of networking opportunities.

We don't breakout.

Specifically, we just kind of put that as one sub category within compute.

And I would say that we saw wins in some sort of good momentum in both areas.

But in terms of smart next as well as an compute.

I would say that.

For the near term.

This is good strength in both probably right now.

A lot of really good activity on on the.

Smart mics side I think the.

The real time video system that we adjust the space within great interest. There first time that we have a much more of a turnkey solution. So.

We'll see how that plays out as revenue but.

I think the strength in both areas compute as well as though.

Okay.

Thanks sector.

Our next question comes from Christopher Roland.

Hello Your line is open.

Thanks, guys.

You Victor could update us on the timing and migration path to seven nanometer and are there some applications or end markets are customers, where process technology leadership is particularly sensitive and that we can get some sort of accelerated growth for for that end market.

Or applications, how are you thinking about that thank you.

Yes, that's good question so.

So is progressing really well.

We're on track.

Exactly as planned to go into the ready for production at the end this year.

Thats.

Of course, we had the big announcement in terms of Samsung in their Fiveg equipment.

We have.

Well in customer engagements in many many different industries. So.

Thats one that.

Most notable that we've made public.

But thats really going to be a broad market thing and this production is just the first device and the product family, which there.

Multiple sub families. So 79 million transition is just beginning.

And Thats why indeed, we're actually still doing 69 million tape outs because of the strength of the 59 regeneration. So I think this transition is starting to happen. We're in the early phases of that.

And again, we're still getting very strong.

And wins that activity on the 60 nanometer and I think you might be wondering like GE.

Certain parts of the answer is already talking about five or whatever.

I think they are really important thing to keep in mind is.

At seven nanometers and for that matter at 69 as well.

We significantly increased the capability of the products that we put out there right.

Kind of mentioned the RFS, we'll see multiple time.

Nobody has integrated RFK duly add on capabilities together with digital logic, even after being in the marketplace for a couple of years.

First so again that no other products like that are more direct competitor in that area that are much more evolutionary move in terms of their architecture. So, we're we're providing capability and value to our customers through a lot of innovation architecturally we're not as rely like in the old days and just moving to process those because.

If you follow this industry back when it was just pure pj's right.

Not heterogeneous acceleration where that full season of the architectures.

And Matt at a lot more getting to the next node because that's the only way you really deliver more capability right. So I think we've really we continue to move to advance nodes, but we're really innovating in architectural level on other forms of integration. So I think thats why you may you may see like Okay. Why wouldn't you be moving to the next architecture, but thats left.

Hopefully that helps.

Thanks, Patrick.

Our next question comes from Ross Seymore with Deutsche Bank. Your line is open.

Hi, guys. Thanks recently asked a question I just wanted to talk about the AI T. segment for a bit I think everybody understands why that was weak recently, but going forward can you just help us size first how big the TMB side of things and then as you think about growth in September and maybe even to the calendar fourth quarter. This year how are you looking.

The company specific growth versus the macro site getting better.

Finally in that TMT side, which tends to be so lumpy.

Sure. Thanks, Ross so on the Tammy can be a sizeable business for US you saw we had.

Record Q4 in that business and in Q1, it it was a little bit lower but we do expect it to strengthen in Q2 again.

Particular business, we do a good job of optimized optimizing our products for the customers and we have a strong product line that will improve their ability to get short development times faster validation et cetera, So theres lots of opportunity for the company.

In that particular business when we think about AI in general and we think about the macro theres, probably we do expect to grow faster than the macro.

We're all looking at and hoping for of the recovery.

We do think that the market will benefit from the recovery and we'll track that but we have tailwinds in terms of being able to gain share with the products that were developing in the space. So GMI market looks good.

Industrial.

We'll recover along with the macro economy on the medical aside we expect that that'll continue to benefit from.

Trend toward automation and then in aerospace and defense. We also think Theres. Many programs there that will consider continue to grow that end market overtime.

So if you're thinking about the long term growth rate. There, we do think it'll be it will exceed the macro.

Yes, thats right to point out in the.

This quarter our expectation is.

In the core markets every sub market is going to grow except for.

Perhaps.

Some because of as a record.

Right. So really this broad growth across all of those core markets auto obviously had a severe downturn, it's still going to have an uptick from that but it's still got to ways to go to get back to it but you know the breadth is across every market, except for them, which had a record and and the.

Our expectation there'll be solid.

So, yes, it's pretty broad.

Thanks Victor.

Okay. Thank you.

Our next question comes from Matt Ramsay with Cowen Your line is open.

Yes, good afternoon.

I wanted to follow up a bit.

On the process technology angle, there, obviously, some pretty big news out of.

Of Intel in the last week, or so and Victor I'm completely I think I agree with you that architecture and a lot of the things you're doing on software et cetera are increasingly important in your end markets. So I get the commentary that you gave with respect to that question I wanted to explore the other side of it which is sort of certainty of road map.

Uncertainty of supply.

Given some of the commentary out of Intel that owns your chief competitor.

How have you seen your customers react in the last week.

Since some of the news and is certainty of road map and certainty of silicon supply critical to the long term design win that youre getting or or maybe I am I over.

Emphasizing that in my own banking. Thank you.

No I think it's a good question I mean I think.

[music].

I think that we've done very proud of our team in terms of the execution that we've been doing for number of generations actually I mean.

If you followed us we used to talk about how we had a threepl and getting leadership and we sort of stopped talking about that not because we're no longer doing but actually because.

We expect that our customers have come to the very custom and expect that we just we say what we do and we do what we say and they can count on that right. So I think we continue to actually really well and that is important I think our.

Delivery and execution in terms of providing supply and on time delivery at all those metrics are we get really high marks we do customer set.

Studies console Thats always part of the KC eyes of my operations team. So we're very proud of our record there and that certainly.

I guess, what I would say some of the recent things.

Maybe underscore that more but I would say that that's always going to strengthen I think our customers.

Oil acknowledged that.

We have we been in a strong position and automotive and you may have heard me say in the past.

People want to talk about certain sexy kinds of topic, but one thing thats Super critical if you're in safety is your low PBM right. So how few failures that you have and it's really really hard it's really not very sexy, but we do a really good job at that and we get very.

Very good praise for automotive customers. So I think it's a very important thing, but I think it's something that we've always been doing and I think would you leading to the other side is obviously more recently challenged.

But we just stay focused on making sure that we continue to execute with excellence and deliver high quality.

Thank you.

Our next question comes from the back are you, making American your line is open.

Thank you for taking my question actually a quick clarification on that question. If I may clarification, how large was solar fare in the quarter was it like low tens of millions any any rough amount would be useful.

And then the question victory I just wanted to slightly challenge. This notion that the hesik conversion as compete because if it can happen had one customer like onto it happened at other customers right. The addition of.

Thanks transition wells at Samsung, but then I'll turn that Nokia also announced multiple basic suppliers for Fiveg and said Sbgs solutions on expensive so.

So I'm just asking technically if it can happen I had one customer like onto it happened and other customers. What does that just a difference that maybe it's happening on the base band side and maybe not as much.

On the radio side down and if that is the case, how sustainable is that just thats motor technology question. Thank you.

Yes, okay, well, so look on cell with where we don't breakout in find granularity, but I would say that since we've acquired.

Revenue is up substantially multiple tens of percent so that is doing well.

[music].

And.

So just on that part now switching for basic thing is that I think pricing said it I've already said that we're not saying we don't think you'll ever happened again has come that really was around just explaining the year on year change and yes. As you know part of that was based and and absolutely were much stronger and radio and that's traditionally been.

Okay.

I think the important thing you need to maybe pick up on is that.

With that currently our products for the artist and versatile and in addition, I talked about how we are delivering customized solutions for our customers.

And.

We've done that in the past and we've actually up level that a lot more aware based on critical needs. We would do derivative products. We work with them in some cases were doing effectively joint engineering together, so one of delivering a lot more value than we ever have so it's not that I would say inherently currently of course, it's possible that there'll be a super placements.

I guess, what were really saying is that where you know we're delivering tremendously more value than in the path and we have.

Really innovative products.

And I think it's going to be tough value segment to be no and.

Always happy to compete that's always been the case.

As I said Weve.

We've done this in the past and yet sometimes there's a sequel placements but.

We have a pretty big business and communications for a reason right.

All of those.

Tier ones that have a 16 so.

That's why keep getting back to its not really you, but we've really upped our gain too thats the bottom line.

Got it thank you.

Our next question comes from VJ retention with Bill Your line is open.

Yes, just another question on the millimeter is side I'm just wondering.

I'll walk you shed as Adam.

The U.S. looks like horizon and.

You SLS seem to be fine, but.

Hey, Dan D. and.

T mobile accessing the slowing down, but just wondering what you're seeing on the U.S. and we'll begin the majority of say that follow.

Yes, we do have deployment to know made wave I think.

But I do think that the six gig and.

Glow bands Thats going to be very important I think.

It has its applications, but it's.

It also has some technical challenges.

We can play in both new flavors.

I think it's pretty early you talked about share.

Yes.

We see opportunity and where you are working with people in both and we still really feel like.

Bandwidth capability is really important and.

Right.

Quite leadership and a lot away. So I think we feel confident that we can win both of those.

Spectrum.

And I think in China, you mentioned our channels on the restrictions you are seeing some of the other guys picked up just wondering you look at the audio analytics and how you're seeing those opportunities.

And.

Obviously first half was pretty strong in China, you see us sort out into the back half.

Patients from the most of five do you expansion data.

Thanks.

Yeah, well I mean.

First half ones are different mixed bag, obviously, if China got impacted by coded a lot earlier and they had a hard shutdowns and they came back strong out of it there are obviously, so trying to hit the original goals for deployment in this calendar year, probably end up being more on the low side and I think our team estimates in the 400 cash soda range in terms of base stations.

Yes so.

I would say that obviously.

There is.

It's very dynamic I think we've seen as I mentioned earlier, some degree of share shift, but if you're talking about Chinese versus non Chinese suppliers in the China market.

At least what we've seen we haven't seen anything materially changed there that might be some changes, but nothing really material.

Obviously I think it's been.

Quite a bit about whats recently been going on in terms of European.

People, saying that moving away from some of the Chinese suppliers.

In India as well.

So.

Yes, we'll have to see.

But I wouldn't say right now we see any drastic share shifts.

Got it thanks.

Yes.

Our next question comes from Quinn Bolton with Needham Your line is open.

Hey, guys. Thanks for taking my question just wanted to come back to that does see Ivy.

Issue, just you've given us some sense of how much was accelerated into the June quarter, I'm, just kind of thinking if you look longer term is there anyway to quantify how much of the business you used to do under the safe exemption, that's going to be permanently lost.

And then I've got a quick follow up.

Yes.

When this is bryce.

As as I mentioned earlier, we're pursuing licenses for for the business. So at this point, we wouldn't really be able to quantify if any will be permanently lost the customers.

We'll look to shift as they can also too.

Change the mix of the product so we'll pursue licenses and cfive. This can be equaled out and there'd be no permanent loss.

That's right. That's obviously the goal and go ahead with the follow up.

And then just on the follow up the North American RFS a seat deployment that you mentioned earlier is that can you just discuss the timing is that taking place now or does that need to wait for the Crs and the C band auctions later this year before that deployment against thanks.

No that that is starting now so.

It is just beginning but some of that we obviously think thats going to your long lived.

We expect to have more extended opportunities and especially digital front end on radio with our fiscal C.

Thank you.

Yes. Thanks.

So.

Thanks.

Are we going to do any more questions.

Okay.

Go ahead operator.

Our next question comes from Cerny Pet Gerry.

Okay and leasing your line is open.

Thank you for squeezing me in first a clarification and then a question Bryce on the tax rate you're guiding for I think.

Three or 4% I'm, just curious as to how we should model going forward and then the question yet Victor.

You seemed pretty excited about the whole ran opportunity I'm just curious as to when you expect Orion.

Rollouts to start and.

Is it because you see more opportunity for SPG isn't all around that and that gives you that excitement or is there anything else I mean, if you know as opposed to selling components to.

Ericsson Nokia if you sell these components to it or and vendor how is the different for you.

If you could kind of talk about that that'd be helpful.

Okay Pago quickly so on the tax rate, yes don't use the Q2 tax rate for your model going forward our equity grants vest in Q2, we typically have lower tax rate in Q2, and that's what happened that's what's happening a lot of those have appreciated and so we have a tax benefit in Q2 I would.

Look back to Q1 in Q4 and use a blend of those for you're looking forward.

Victor on your end side I think the thing if you think about it people looking at how they can.

Fundamentally.

Reduce some of their hardware cost, but also then they'll differentiate and do that through other means from a software perspective, and if you think about it.

That is something that we have always brought to the table for our customers the ability to differentiate with.

Hardware that is.

So adaptable right at the same hardware can be used and deliver different architecture to support different standards the optimize in different ways.

And in fact, you can change it right even after you've deployed it so I think really what it is the reason why we're excited is because we feel that you know what their people are trying to accomplish fundamental with all ran it is something that we really help enable.

I have always help enable under tremendous way, so and plus with the RFS, we'll see again I think we've.

Creating more value, we're solving more of the whole radio problem and so we just see that as.

Another big opportunity right.

Not only the tier ones, but also with tier twos and.

And with the.

I do think it's still new technology, so it's going to be hard to call. The exact infection, but im sure youve heard that momentum in the interest behind this has really picked up over the last several months so.

Okay.

Thanks, everyone for joining the call I just wanted to do one closing because I know.

And I understand we saw there's been a lot of questions around the CW thing I, just don't want to lose by the fact that we had a record quarter and DCG, destroying displaying strength and multiple areas within that both in compute and on the network side and as well as storage activity.

We've really made tremendous progress and growing our ecosystem and the software story 34000 downloads just from a fairly sorry, 40000 downloads short period of time and continue to grow it gives us and so I don't want to lose sight of the fact that we had really great straight there and of course is some puts and takes and WWJ, but.

We're really excited about the RFP opportunity as well as universal continues to be getting really good design activity. So.

Just wanted to leave you with the strength and then in the quarter as we said the core markets, which had some puts and takes in the last quarter is going to come back really strong so.

We're excited about the go forward and I Hope this is helpful for you.

Thank you.

I'll now turn the call back over to Mr. partner for closing remarks.

Thank you.

Appreciate everyone for joining us today, we will have a playback of this call beginning at seven P.M. Pacific time, 10 PM Eastern time today for a copy of our earnings release. Please visit our Investor Relations website. Our next earnings release date for the second quarter of fiscal year 2021 will be Wednesday October 21st after the market close.

This completes our call and thank you very much for your participation.

This concludes today's conference call you may now disconnect.