Q2 2021 Xilinx Inc Earnings Call

[music].

Good afternoon, My name is Rob and I will be your conference operator, I'd like to.

I'd like to welcome everyone to the Xilinx fiscal second quarter 2021 earnings release Conference call.

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

If youd like to ask a question at this time.

Yes, the star and the number one on your telephone keypad, if youd like to withdraw. Your question you May 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 Matt Boyer. Thank you Mr. Boyer you may begin your conference.

Thank you and good afternoon with me are Victor paying CEO and bright fill CFO.

We recognize there have been a number of recent reports regarding a potential M&A transaction with xilinx our policy on M&A rumors is tonight or comment nor answer questions about them and we will abide by that policy with respect to these reports the purpose of todays call is to discuss our most recent quarterly results and outlook and we would ask the questions be limited to these.

Topics.

Let me remind everyone that during our conference call today, we may make projections or other forward looking statements regarding future events or the future financial performance of the company we wish.

We wish to caution you that such statements are predictions based on information that is currently available and that actual results may differ materially.

We refer you to the documents the company files with the SEC, including our 10 Ks 10, Qs and eight case. These documents contain and identify important risk factors that could cause the actual results to differ materially from those contained in our projections or forward looking statements. In addition to GAAP financial measures, we will be disclosing certain supplemental non-GAAP financial measures.

Used by management to evaluate the company's 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 items, 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 in analyzing the company's ongoing core business a reconciliation of non-GAAP financial information to the closest GAAP measure is included in our earnings release and has been posted on our Investor Relations website.

This conference call is open to all and is being webcast live it 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 let me very briefly touch on how we're operating will be ongoing COVID-19 challenges deployed discussed the business on supply chain and development activity has continued without much disruption most of the employees continue to work from home except in China were employees have been allowed.

To return to work.

And we've continued to progress on our strategy despite approaching eight months of largely working from home.

Overall, our teams are doing an outstanding job executing and delivering for our customers.

Now onto the business highlights.

Fiscal Q2 revenue grew 5% sequentially and was 767 million higher than the midpoint of our guidance.

DCG performed better than expected and had a record quarter why.

Wired and wireless revenues were slightly better than expectations in the quarter businesses 18 revenue grew sequentially.

The business was strong as expected, but offset offset somewhat from lower than expected TV revenue due to some emulation revenue shifting into Q3.

AIDC performed significantly better than expected with the auto business showing signs of recovery.

The advanced products category constituted 70% of total revenues zinc based revenues increased 28% compared to the prior quarter and were 22% from the company revenues are.

Our unique associated design win momentum continues to strengthen across our target markets and we're confident that thats, we'll see revenue will be a much larger portion of our overall business in the future.

Now I'll move out of the business specific highlights starting with DCG, we saw strong growth in our DCG business during the quarter with revenues crossing the $100 million Mark for the first time cloud.

Cloud service provider the deployment of our deal based compute AI clusters, and solar flare, Nick adapters contributed significantly to this growth.

DCG customer traction continued to grow in Q2, including a marquee smart Nic design win with a tier one us hyperscaler. This win is expected to realize well over 100 million in annual revenues by 2024 notable.

Notably we won against several of the other top market players mainly due to the unique value, we deliver with our adaptive smart Nic hardware and our strong our software capabilities from our souls where acquisitions.

Turning to other customer engagements and design win activity, we see growing 100 gig smart mic engagements with Hyperscalers and proof of concept activities for 200 gig solutions in Q.

In compute acceleration is great interest and our T. video server and we have multiple fintech customers engagements in banking in electronic trading exchanges.

Finally in stores, we saw the next generation storage platform commitments from new customers.

With respect to our progress in our platform software and ecosystem development. We've had close to 43000 downloads divided since announcement late last year.

To date Weve chain over 15000 developers and have over 1000 software partners leasing a growing list of applications.

We've also made progress with the developer community and to have 50 AI application. Examples open source on design wins you'd have detailed.

Moving to W.W.G. as expected we saw a significant revenue contribution from one of our tier one OEM customers that is ramping our fiscal seeds production this quarter.

These RFS so see deployments offer sub six gigahertz and massive mimo rated deployments in North America.

Our design win pipeline for office will see continued to expand globally. We're also beginning fee revenues from a tier one customer who is using our seven nanometer versus eight cap and we expect further revenue growth when deployments starting 2021.

As Fiveg deployment begins to ramp in more geographies, we are very well positioned to benefit from the significant increase in deployed radio units, especially and massive mimo configuration, our product leadership with RFS, so see and versus a cap and the value that these adaptive Esso seems provides our customers are unique in the industry.

We're also offering customization of our products to possibly meet our customers' caused power and formfactor requirements by hardening selected by TV, while maintaining our unique adaptive capability.

We'll share more details about this in upcoming announcements.

We also made great progress and the open ran space, where we see a big opportunity over the next several years.

We're working with key stakeholders to drive only on initiatives to ensure fiveg and future networks be open we developed inter operate and adaptable.

As I mentioned last quarter, we are a member of both the overran policy coalition and over analyze and it contributed to the Threeg PTC specifications for Fiveg mobile networks.

Our products empower our customers to innovate and get to market with a differentiated and custom solution faster than any other option. This unique capability will accelerate realizing the promise and performance of massive mimo and Olin.

Last quarter, we announced the tier one telco accelerated card for Olin distribution units and virtual based AD units in Fiveg networks.

Customer interest continues to be solid this area with positive feedback from market leaders like Nokia and Avenue.

Vodafone recently identified Xilinxs of technology front runner in the massive Mimo category for open ran enabled Radian unit hardware products. In addition, K MW recently announced that it is reelected xilinx as their strategic partner and silicon suppliers to the company's base station radio equipment business.

Moving now to the core markets Im delighted to say that we're very close to being back to our pre Coca 19 business level and poised to resume growth.

As you know our core markets, our diversified and provide a highly resilient foundation for our overall business. Our core markets provides significant and consistent cash generation to support reinvestment in these markets as well as in our strategic initiatives.

Aerospace and defense business grew in the quarter and set a new record weeks.

We expect this business to be a secular growth driver in the long term with some lumpiness from time to time glove.

Global defense budgets are generally trending up and we see emerging technologies like hypersonic and increasing adoption of AI.

During the quarter, our 20 nanometer.

Radiation tolerant Kintex Ultrascale at PJ received a platinum honor in the 2020 military and Aerospace Electronics Innovators award in the interconnect technology category.

The industrial business is recovering which is consistent with the recent manufacturing PMI data.

Hi, and our leadership in MP remains very strong, we recently announced the world's largest at the view 19 tea, which is in production but.

35 billion transistors view 19 key provides the highest logic density an io count on a single device ever built.

The 19, P. sustains or product leadership in the emulation and prototyping market that was established with our 28 nanometer generation of products.

We saw a recovery in the auto market over the last quarter, though it's not quite back to our pre covered run rate.

We expect this trend to continue into the second half of the fiscal year.

We had several design wins and aid us as well as in Dms, where we are a leader.

Similarly selective zones to power its new generation Isight system, debuting with the Subaru Riverside in Japan.

Our zinc MPS will see will be powering their next generation EPS system to offer features like automatic emergency braking adaptive cruise control and lane keeping assist we.

We also announced with continental the World leader in automotive radar systems that are zinc products will be powering their advanced radar systems content.

Continental have the industry's first production ready for the image radars that can support level to some level five autonomous driving we.

We expect the auto market to resume robust long term growth as the industry continues to recover and adoption of aid us grows.

Now, let me turn it over to Bryce.

Thank you Victor as Victor mentioned, we had a solid Q2 with broad strength across many of our end markets.

This strength drove total revenue of $767 million above the midpoint of guidance, we provided on our Q1 earnings call and 5% higher than our previous quarter.

By end market.

The datacenter group revenue grew 23% quarter over quarter, and 30% year over year.

Driven by continued build out of an AI compute strata cloud service provider and ongoing strength with our solar flare products.

Note, we prioritized our orders to comply with the most recent trade restriction rules, which resulted in a significant outperformance without the impact of the additional trade restrictions DCG revenue would have come in approximately flat to Q1 as originally expected.

Wired and wireless group revenue decreased 13% quarter over quarter, and 36% year over year. The expected sequential decline was due largely to the CMV related order acceleration seen in Q1.

Wired performed ahead of expectations will wireless business was largely in line with expectations.

Third outperformance was driven by ongoing access network build outs as well as some benefit from the recent trade restrictions.

In wireless we saw healthy ramp of our RFS to see product with a tier one OEM for fiveg deployment at a north American operator.

Across our core markets encompassing our IP and ABT groups revenue.

Revenue grew 10% quarter over quarter, and 5% year over year, driven by improving business conditions across multiple end markets.

More specifically, a b C or automotive broadcast in consumer revenue.

Revenue increased 36% quarter over quarter and declined 8% year over year with a strong rebound during Q2 in the automotive end market with meaningful improvement across multiple tier one Oems.

Solid broadcast end market performance during Q2 came in line with expectations.

Hey, IP or aerospace and defense industrial and test and measurement revenue increased 3% quarter over quarter, and 11% year over year with strong performance in aerospace and defense, which delivered a record quarter.

Hi, SM performed as expected while Tami results were less than expected due to an emulation customer program that started in Q2 and is now expected to extend into Q3.

Now some other financial highlights and metrics.

Company level gross margin was towards the high end of guidance with GAAP gross margin of 70.7%.

The performance was primarily driven by end market mix and lower costs.

GAAP operating expenses of $336 million or 44% of revenue were within our guidance range.

Higher sequential operating expenses were driven by higher bonuses due to our first half profitability and our salary increases in July.

GAAP operating income was $205 million or 26.8% operating margin.

Our GAAP tax rate was 0.4% inline with guidance note.

Our lower fiscal Q2 tax rate is driven by a tax benefit associated with divesting of appreciating stock Awards.

GAAP net income was $194 million and diluted earnings per share was 79 cents.

A 108% quarter over quarter increase and 11% year over year decrease diluted share count increase quarter over quarter to 246.8 million shares.

On a non-GAAP basis gross margin was 71.5% operating expenses were $332 million operating income was $216 million tax rate was approximately 1% net income was $203 million and non-GAAP diluted EPS was 82 cents a 26% increase.

From Q1, and a 13% decrease year over year.

Note the difference between our GAAP and non-GAAP is due to M&A related expenses and amortization and related income tax effect of non-GAAP adjustments.

Onto the balance sheet and cash flows total cash distort our investments increased a $100 million to $3.1 billion in the quarter.

Our total debt remains $2 billion.

Accounts receivable increased to $362 million and 43 days compared to 30.

Compared to 38 days last quarter. The day sales out increase was driven primarily by linearity of shipments inventory decreased to $282 million and days of inventory stood at 114 days same as the prior quarter.

We generated 248 million in operating cash flow or 32% of revenue and two.

And $232 million in free cash flow or 30% of revenue.

During the quarter, we paid dividends of $93 million through the first half of fiscal 2021, we have returned a total of $239 million or 52% of free cash flow.

Through both dividends and share repurchases.

Turning now to the outlook for fiscal third quarter 2021.

We expect third quarter revenue to be between 750 million, an 800 million, which at the midpoint is approximately up 1% quarter over quarter and 7% year over year. This.

This reflects continued strength in our core markets led by Tammy auto and broadcast end markets.

DCG is expected to be lower after a record Q2 in WWD is expected to increase as fiveg deployments and ramps continue.

Some additional color into our outlook by end markets.

Within AI fee.

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

Aerospace and defense sales are expected to moderate from a record quarter, but should still be in line with historical levels.

Industrial science and medical is expected to decline modestly as fiscal Q3 is generally a seasonally lower quarter. We continue to see general recovery in manufacturing activity in the us Europe and Asia.

APC markets are expected to continue recovery driven by strength in auto where we are seeing increased demand from our adas platforms at our tier one customers.

Our broadcast end market is also expected to strengthen as live sports and other live events like that.

Like the us election coverage increase.

DCG sales are expected to decline from a record quarter in Q2 as mentioned previously the DCG business saw some order acceleration during Q2 related to trade restrictions.

WWD is expected to be up modestly with a strong increase in wireless as fiveg ramps continue across multiple Oems in multiple regions offset by a decline in wired due to trade restrictions kobe related slowdown and seasonality.

Please note while we.

While way has been removed completely from our outlook across the business.

Fiscal Q3, non-GAAP gross margin is expected to be between 68.5 and 71.5%.

Non-GAAP operating expenses expected to be between 333 and $347 million.

Non-GAAP other expense is expected to be between 12 and $16 million.

Non-GAAP tax rate is expected to be between six and 9%.

In closing.

We are pleased with our performance in the first half of fiscal 2021.

Reflecting the strength of our business across diverse end markets and.

And continued transformation into a platform company are.

Our adaptive vessels fees, including zinc MPS will see RFS lessee, and our upcoming versalite or both.

Both broadening and deepening the market and customer set for xilinx, allowing us to compete more effectively in areas traditionally served by EPS Sps and a six.

We remain as confident as ever in the opportunities ahead of us and furthering our technical and market leadership.

Thank you and let me now turn the call to the operator for today.

The floor is now open for questions. If you do have a question. Please press the star and the number one on your telephone keypad once.

Once again that is the star followed by the number one on your telephone keypad. Please limit your questions to one to ensure that management has adequate time to speak to everyone. If there is extra time at the end of the Q and a session. You are welcome to ask a follow up question and.

And your first question comes from the line of Ross Seymore from Deutsche Bank. Your line is open.

Hi, guys. Thanks for let me ask the question just wanted to ask about some of the surprises in the quarter and what it means going forward on one side it looked like.

Yes, I did grow nearly as strongly but it looks like it's going to rebound in the out quarter in December because of the emulation side of things. So any color on why that keeps getting pushed out and then similarly on the datacenter side. It was a great quarter by any measure in September what's your guidance for December sounds like some of that goodness was a pull in due to the trade restrictions.

Fiction, so any sort of color about that would be helpful.

Yeah, Ross, let me, let me take that so look on the emulation and prototyping as you said some revenue just moved over but theres nothing fundamentally different about what we're doing there as they come in the prepared remarks, we really havent maintain leadership with a view 19, p. and we've established that for several years.

Now it's.

It's just situational in particular customer I wouldn't I wouldn't read anything into it beyond that.

Regarding the datacenter yet we are saying that we saw some poland because of the most recent restrictions, but you can think about that really is on order of one quarter. Poland. This is not a big Bang and again.

I guess, what I would say is that I.

I think that it's still indication that we're getting really good traction and datacenter of course, you know kind of what we said even without perturbations by trade.

Trade.

You trade restrictions things are.

Things are generally lumpy right now in the data center as we are still scaling the business and in general also pretty consolidated business. So that would have some some natural lumpiness and as that's causing some more perturbations on a quarter to quarter basis, but overall, we're still tracking a good growth.

And so it's still very confident about what's going on the data center.

Thank you.

Your next question comes from the line of Aaron Rakers from Wells Fargo. Your line is open.

Yes, thanks for taking the question just on the topic of Fiveg, We talk Horizon announced this morning that so I think they deployed more base stations on Fiveg in the last few months and the good of all of 2019, so in that context as we see the pace of this start to accelerate can can you just revisit.

How you guys see the content expansion in Fiveg and when just in general where or how we should think about the progression of that cycle and what it means for by like thank you.

Yes, good question Eric.

You said one of things that are really pleased about is we're starting to see our RFS proceeds being deployed six that stand in North America.

And we also see more deployments around the world. So we're very very excited that we are seeing that ramp.

Yes, I think just like the previous question with trade and a few other things in particular in Fiveg thats caused some part of patients, but if you step back in the Big picture right. We still are absolutely confident this is going to be a very significant opportunity for us we have the strongest lineup we ever had.

We have first of all.

Wind for Fiveg, we have our fiscal see deployment areas and you'll be hearing more about we're doing even with our RFS. So see family in terms of further.

Dividend announcements.

So yes, it's still the first wave you've heard me talk about three generations of equipment, what's being deployed right now it's still the first wave.

And we certainly see that it's good to see North America, starting to pick up.

China continues and add some choppiness because of the various trade issues.

But we are seeing other geographies starting to deploy and that is going to drive the big opportunity that we talked about but so far things right. So.

We got engagements with the second generation equipment, but thats yet to deploy and then they will be at least in the third generation if not perhaps some after that as well.

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

Hi, Thank you Victor I just had a follow up on the data center side also good to see as we hit the $100 million run rate on a couple of questions just want to make sure I understood. The upside that team largely came in the compute side.

Given more than 100 million dollar business could you. Please note.

I understand what what are the relative sizes of the various components within that business, all biggest storage versus compute versus others. Thank you.

Yes, I would say in the last quarter it was.

It was pretty much compute led the way followed by networking and storage and I wouldn't say that you know it's still continues to look like.

There is a good strength and that order all though between compute and smart Nick that's probably going to at any given time very right. Because again. This person is and just big wins and adoptions and then there is some digestion.

But I would say certainly.

We're seeing a lot of strong interest and compute and.

And again to refresh your memory on this some of the areas in terms of the applications were very strong and video data.

Database.

You could been fintech in smart neck, because of the low latency aspect you could also think of as computing as well.

But certainly in general separate apart from Finpac I think smart Nic in general were seeing a lot of a lot of pulled right. So we're very pleased about that big when that more key one that I've referenced but.

But we see continued other really.

Really good momentum and good pipeline development, there, so I would say compute and network of both strong and.

It varies from quarter to quarter, which is really higher.

By the way I don't want to say that nothing's happening in stores, we've seen good wins in storage as well. It's just that I think we've consistently always felt like our opportunity there is probably not quite as large as the other two.

And thats sort of what we're seeing right now.

Right, but the relative sizes.

Networking and storage and compute today right.

I'm, sorry say that again.

The relative sizes of the various segments that was my math question, what how big I think and I think in the long run compute it's still.

The largest.

And as I said in the last quarter compute was a very big contributor and then networking next.

And but.

But I guess, what I'm, just saying is that at any given quarter. It could move between compute and networking and occasionally storage, perhaps but I'd say as a more what are what I expect integrating over time in the long run compute is probably the biggest some of that will take a while to flow through networking will be very strong and we're seeing a lot of strength.

Okay, and then storage.

Got it makes sense. Thank you.

Your next question comes from the line of Tristan Gerra from Baird. Your line is open.

Hi, Good afternoon, just said.

Just as a follow up any type of loving you update that you think you could guide.

So data center in fiscal 22 now.

Now that you have more visibility with TEOA small to make hyperscaler. When you know how how should we try to quantify the data center revenue opportunity next year for the full year so signings.

Yes, and I would say that well, we do see strength.

Improving your multiple markets I think we're still quantitate pretty much a cautious approach here because there are still certain uncertainty in terms of the Tim the pandemic now that the Carter's respond of course, you have the presidential election.

I think I'd defer to give any guidance right now and at 422, certainly when we have our analyst day in December we'll go through all of that but what.

Well, what I would let me put it this way, though I would say is.

Despite a number of different things happening and this EPS like 21.

We do still feel like we will hit a double digit growth and over no over the long run as I said in my prepared remarks, where.

We're confident that datacenter will be our greatest growing market of all the markets. We serve in terms of growth rate and that we will have sustained solid double.

Double digit growth over the next several years.

Okay. That's great and then just a quick follow up it looks.

It looks that you're not holding ex the EPS. This year I wanted to understand how important EPS is in terms of the building.

Per community around the use of PGS in data center.

Is that something that you plan on on the hosting in the future has anything changed in terms of your vision on how to build SPG attraction.

Vitesse for data center or are there other means to develop that whole ecosystem.

Well I would say to you know the the equity ETF.

For everybody that was for us a very big event, and we literally would bring a thousand or 1000 plus in certain geography of people together altogether. So obviously because of the pandemic we.

We wouldn't be able to do that then we looked at thinking about doing things virtually and in the end what we decide to do is actually modify that little bit and we have a sequence of different events called adapt right. This is a new two.

To continue to essentially.

Convey the same information and get the same kind of users.

Users and various people together in a virtual setting so instead of having one big.

Big Bang kind of event, if you will where.

We are spreading out over a series of events virtual events that we call adapt.

I wouldn't say that we've changed our our view of how important is engaged with customers partners users and so forth and course adults as well.

I just think the the mechanism, which we're going to deliver this year in particular because of the pandemic and so forth, where where we're changing it we're changing it up a little bit thats all.

Great. Thanks again.

Your next question comes from the line of Blayne Curtis from Barclays. Your line is open.

Hey, guys. This is Tom O'malley on for Blayne Curtis and thanks for taking my question I, just wanted to triangulate a bit more into the data center business. There was clearly a portions of timber that was Poland, but the business has grown quite nicely from December to March to June when you when you ex out the Poland and you look into December you're obviously guiding that segment lower but should we think about that.

This growing off of that June base, or the Poland's enough, where you are resetting to lower base in December or should you see it higher than that $86 million or so that you provided in June.

You know I think I think when you started out talking about how you know looking at the run rate overall for the year I think thats how to really think about you know how we're growing here because again the quarter to quarter, we've always said.

Typically is birth, the and then you add on top of that you know very short fuse kinds of.

Government actions. That's also caused some perturbations, but the important thing to look to see is I think in this stage of where we are with that segment is the year to year progress and Thats why I said, even though we're not generally providing guidance side I just want to say in general we still feel confident about even in this year growing double digits right. So.

I think thats the key thing I mean in any given quarter we.

Arsene volatility some that you know.

To some extent I think its natural some that are a little bit unusual and just because of the.

I guess, what I'd say is the trading environment today.

And again I think that we're seeing lots of things that we watch for to is the fact that we have lots of customer engagements. The fact that we still see our pipeline growing and that we see it now again earlier discussion about not just on the computer side, but on the smart Nic and engagements as well as in.

Our agenda.

Memory so.

So were pretty.

So pretty good in terms of year to year progress and we're laser focused on keeping that consistently growing double digits.

Great. If you could see being for a follow up I just wanted to isolate the medical business clearly there is probably some increased revenue due to what's going on in the world right now and you guided air seats in the.

Aerospace and defense for a record quarter can you talk about what percentage of your business is medical I know that on prior calls you indicated that that percentage was maybe increasing a bit can you talk about what you expect for that business given maybe some pull ins given the state of the world.

This is bryce.

We don't break out exactly what his medical but we have seen a acts.

Accelerations in the area for the co bid.

For the Cove, it environment, and we do think and it's a driver for our business going forward long term, we had an announcement this quarter about it MP SSC product that will be deployed for AI X Ray.

Capability with one of our customers and we think Thats a good example of.

Victor strategy of the.

GAAP double EPS, so sees at the edge, bringing more capability in the environment and helping xilinx address more workloads. So you're right. It's a good driver for us and it's those types of applications at the edge.

That will be a driver for that particular end market.

And by the way I would like to add that aside from direct medical equipment, which were designed into a lot of places.

We also are seeing medical.

Medical applications and modeling and simulation in the cloud right. So we've talked about.

A number of.

Of ice fees that are focused on medical and they're doing cloud acceleration. So yes, we see that also within the CCG business. If you will.

Great. Thanks.

Your next question comes from the line of William Stein from Truest Securities. Your line is open.

Thanks for taking my question.

Two questions about data center.

First I'd.

Victor earlier, you talked about double digit growth in this market and one of the things that I've.

Trying to pay attention to is what you said at analyst days and the last one I think.

The company.

Presented this 36% Sam bogey from 20 to 24 I'm wondering if that's still a realistic expectation. It seems like you are beating it in some quarters not others is the long term view still that you can hit that 36% growth number or perhaps better or worse.

Yeah, I mean, I think I would say is that you know.

We don't think things have changed that much.

Other than yes, 2020 was challenging here for a variety of things so there'll be some impact for that but I'd say overall, we're still in that ballpark of growth right and again, we'll talk about that at analyst day, but we still feel very confident and we do really think that this is a long haul kind of stretch strategy right.

We're not we're not as focused on it what happens quarter to quarter, we want to make sure that we're progressing year on year and not just on revenue, but again the pipeline our ecosystem development, the alveolar sports business, which again I want to bring everybody back to we had no business there two years ago.

And and we're tracking to that being a good portion of our revenue fell by 21, and so I think that that new revenue stream, which is new we have to stand up an entire difference Mr.

Distribution channel and Vars and distributors system integrators, and we've done that now and I think yes, I think we are overall I would say you're not going to hear big changes.

Well stay tuned for the analyst day in terms of.

More granularity on that.

That's helpful. If I can have one follow up.

You've spoken a bit today and in the past about smart mics, and I think thats very good business for you there.

There is.

A competitor that highlighting this product they call. It deep you, although I'd say, they're not the only one there is at least two other companies that have highlighted similar products I am wondering if.

As Xilinx season is this a marketing distinction or is this a more meaningful.

Different product and if it's more it's the difference is more meaningful.

With xilinx potentially have a play in that market.

Yeah, Let me first start to say what I think is a good validation, which is that more and more people are saying smart Nic they have to do a lot more customization and the datapath and they can't get away with just mainly a fixed function with a little bit of flexibility that.

But the customers are demanding the ability to do more specialization for their unique needs, whether that's for security or just how to optimize intune right. The overall economics of their data center right.

And so I'd say, that's a good trend and people are now taking different approaches that.

That particular architecture is using a large array of fairly you know.

Typical embedded processor cores, if you will which really isn't the most effective efficient way to do that.

We approach it obviously with a really very very flexible and adaptive.

Infrastructure that we have on our products.

And we still have arm.

Arm SLC so from a software the software program portion of it that's.

Thats pretty typical but how we actually do the acceleration and how we allow people to customize and the Datapath is I think much more powerful to deliver high performance as well as low latency and really again customize to exactly what they need plus you know I mean, you could make very significant changes on the same piece of silicon after things of fabricated.

And just in terms of being able to make new features capabilities are fixed new software.

Holds asked me sorry security hold afterwards, we provide the most future proofing. If you will so I think we have that strong capability I think I would also add one final thing is that you know our software and systems knowledge was significantly increase when we completed the solar flare acquisition. So not only do we have is really uniquely powerful hardware possible.

Hardware, but now we also have.

Really good experts in terms of production quality drivers and overall system expertise. So I think thats, certainly served us well and competing against all the top players, including the one that you mentioned.

Thanks Victor.

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

Thanks for the questions guys solid quarter, Mike My questions are around a W.W.G. and.

Even in the late stages of Fourg, you guys were doing more than 200 million a quarter, a likely W.W.G. and I know we're on the early side here, but I thought we were expecting a content follow up and then also historically AFE Puget has been on the early side of the deployment.

So I guess why aren't we seeing more versus our expectations.

Some ways back and then also perhaps you had a competitor or Qualcomm that sounds like it's getting into the macro business as well do you have any views on their parts and whether there are competitive threat for you guys.

WG. Thanks.

Yeah. So.

Let me, let me address a number of those points. There. So maybe on the you know we typically enable people to get their really quickly.

I think we did see that right I mean, I think what happened with.

Samsung and deploying in South Korea or ahead of all geographies frankly, even ahead of China, which I think everybody largely expected. We go first and we were there right and where are they.

We were there in fact, we were there in such a big way, we were totally candid in saying that we don't expect to hold onto some of that because we have.

We enabled exactly what you said getting to market very rapidly and then overtime in the area in terms of the base band, where we traditionally not quite as strong.

We got a displaced.

But we continue to grow where we have been internally traditionally been strong and in fact, we have a strong hand in the radio and again. This is going to be more radio is more different configurations with massive mimo and the different bands and so on so.

I think you know we still absolutely believe that we will be the fourg kind of run rate, but again things are kind of in your.

Early stages, and then I guess the other thing is I don't want to keep getting back to the trade thing but.

It is quite significant that at this point.

One of our top customers and communication is zero right.

Right. So I just I just want to say that you know that that is a headwind that doesn't.

Just you know disappear overnight.

In fact, I would say considering we're holding losing one of our top customers in any segment, but in communications and especially Fiveg wireless that is a significant.

That is a significant challenge.

But despite that we still see that we're going to exceed that.

And then.

And what wasn't around in the.

Org again, not only because of there is so much more complexity and challenges in in fiveg, but the whole absent that we talked about about overran.

I think thats, a really potentially very big opportunity for us and we're the ideal solution for that so so stay tuned it's still I know its a.

Everybody is looking for the.

Quick inflection, but this is this is a long journey here and I think that we're still in very good shape.

Yeah, I think those are fair points did did you have anything to say on the Qualcomm announcement.

I'm sorry, yes look that's just broke now and look I'm not going to pretend to be fully up to speed on that.

I guess it doesn't surprise me again, because fiveg is such a big opportunity and it's just showing folks who have adjacency is they're not wanting to move in and look at you know I look at it more competition keeps you on your game right and that's why I feel like we're in a very strong position because we certainly off their game with integrating things like add on capability and RFS, we'll see.

What we've done with first oil and you'll hear more announcements soon about other technologies that we're bringing to bear in that market.

Thanks again Becker.

You're welcome thank you.

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

Oh, the Kevin Seaney on for CJ.

Just wanted to talk about wireless and I was just kind of curious on what are a couple of I guess a critical inflection you see over the next couple of years like is that no fiveg feedback coming out or some of the other thing you see ramping up and then I guess can you talk a bit more about design win activity you've seen maybe in second generation equipment versus what you were seeing in first gen equipment.

Yeah, I think in terms of the second generation and again people are in different stages. Some people are still fairly early others are pretty pretty far along I think one of the things that we think that just from a.

Just from a timing perspective, right verso was really not going to be a time for the first wave vertical is there for the second and again the public but one that publicly announce his work the work we're doing in Samsung.

And we feel very good about that.

Again, you know we have more.

More coming down the Pike in terms of the RFS a fee family. So that's been really successful and we've seen that Floyd I think you know we've talked about you know how a lot of the regions have not really deployed very significantly and so I do think the fact that North America is starting to to do their deployments and drive is a good.

Hi.

I think you know we've I think we've consistently felt that most of the action is going to be in subsets, but millimeter wave will be there and our SLC is being deployed into the millimeter wave systems as well.

So, yes, I think if it's still a.

Pretty early because we haven't seen those second generation equipment being deployed but.

But you know we're going to be in a lot of those systems both with.

With vertical in our fiscal seat and.

And again stay tuned for that.

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

Thank you very much good afternoon.

Victor I I'm a lot have been focused on the call here on W.W.G. and the data center businesses, where there's potential inflections and you guys are battling it out for design wins and that will make sense I wanted to actually focus on on the primary hey, I T and Abbvie businesses I think.

Thank you yourselves and your customer base or probably had some time to digest and on another.

Pick up in the Silicon Road map at your primary competitor and you guys have done some great work on those businesses with consistent roadmaps for a while so I just wonder if you could.

Update us on sort of the broad base design win environment that you're seeing versus Intel Altera I.

And what that might mean for the next several years and then just a quick one for Bryce I noticed it was a 14 week quarter and the guidance and that's probably a holiday quarter, but if that significant or not that would be helpful. Thank you.

Yeah, Matt This is Brian thanks for the question.

I'll start and then Victor I think will add a couple of points on first on the on the 14 week. We do think it will be relatively small those are holiday days, but we do have approximately $10 million in our forecast for that 14th week.

So that's about the size of it.

When we think about the core markets that you talked about really I think the first thing I'd say is our strategy for the adaptable EPS. So sees you could really see in some of the announcements during the quarter.

Five getting designs in various end markets that are going to help.

Propel the business faster than just the traditional SPJ markets, but also gaining new sockets. Examples were in automotive, where we had two announcements on MPS. So sees for automated driving systems and 440 radar I mentioned. The example of the healthcare AI X Ray does.

Design win that we had so we look across those end markets and we see that in the short term automotive.

ER and broadcast are gonna grow quickly as the economy recovers, but theres also drivers as those devices get put in play in the in the edge and in autos and we think that will be.

Significant for the company and then on the larger section of end markets Aerospace and defense.

Victor mentioned the radiation tolerant device that we got an award for we also think that radar innovation will help drive utilization for our our devices going forward and then once when we think about industrial.

The recovery is strong in industrial we think thats tracking the economy.

And again, we would just focus on the edge opportunities, we have for machine learning and AI and.

You know high performance low power device operations, which is where our products specialize and then finally, we talked about test measurement and emulation and that's a big business for us and we expect to have strong quarter going forward and.

We talked about our 35 billion transistor device that we have for that market that is optimized and we think that that market grows over time with product complexity. So really good drivers across all those businesses.

And we're confident that we will have growth in the coming years that will be beyond what is normal for the traditional SPJ market.

Yes, the only thing I'll add with regard to that competitive angle that you asked about is that yes, we continue to and we're we're confident we'll continue to get our share relative them overall.

In fact, I think we said it before in many instances now we don't.

If they do compete there not to say in the short list of I'd say.

The most challenging competitors, when we get down to design wins.

Very often it's really some other kind of products.

Or or certainly from a competitive perspective.

You know I I I like to feel that most of that is really attributed to the fact that we're innovating and executing so well have you said the fact that they may have some other challenges. In addition to that yes that could have some effect, but I think by and large.

We're making our own opportunity there and we think that will continue.

Thanks really appreciate the color there guys.

Your next question comes from the line of Michel Waller from Needham and company. Your line is open.

Hi, guys. Thanks for taking the question I am on for <unk>.

I'm on for Glenn.

I'm sorry, just one quick one for me it seems like India has been gained strong momentum in printing based on some of their recent benchmark results. Just wondering if you guys can update us on your progress in printing and how that opportunity shaping up for you.

And actually and then a quick one for Brian just on the tax rate beyond the December quarter. It looks like it's been a flux.

Fluctuating over the past few quarters, and just kind of wondering what we should seen beyond the December quarter.

Okay, I'll tackle that tax rate first and then Victor ill comment on the other so for the tax rate. Yeah, you probably noticed in Q2, we had ultra low tax rate, 1% on the non gap and what really happens in Q2 is our share based awards vest and if they have appreciated we get a tax benefit for that so that's.

What's driving the lower tax rate for the quarter, we look forward to see a more normal rate so michelle.

The Q3 guide is probably more normal and then when we think about longer term.

It will probably increase one or two points over time as our Singapore rate goes from zero to 5% so hopefully that.

Hopefully that answers the question.

Yes.

Yes, and then.

In terms of inference first of all I want to make sure everybody really does understand any difference goes well beyond the data center right. So for instance, all those applications you kind of referred to.

That one's in automotive wins were in.

We're in wins in other kinds of edge applications and I don't mean, just as computing, but just edge devices as well as endpoint devices. So we're doing very well I think in the broader inference within data Center I think we've always said is that most applications are not completely dominated by the AI portion.

No network processing.

All right and were able to accelerate other portions of the application and Thats why we kind of coined the phrase whole application acceleration right and so I think the areas, where we tend to shine is where we're actually accelerating other parts the application as well as including a high and yes. We continue to be focused on inference, we're not we're not really driving towards training.

So.

That the competitor you mentioned you know what they're doing that's fairly new we'll sort of see how that plays out and Ah, but again I think that we're accelerating not.

We're accelerating not only AI inference in the cloud, but also just applications that don't EPS already have at all and I think thats. The time deposits that we were not building hardware that has to be dedicated to only do one thing again, we have this great dynamic range. If you will of all the things that we can accelerate and support and enable people to really differ.

Okay.

Okay. Thanks, that's helpful.

Your next question comes from the line of streaming Petrie from SMBC. Your line is open.

Thank you hi, guys a couple of quick.

A couple of questions Victor first on the EPS Mark Nic market.

It looks like you know a lot of you guys were talking about or do you marvelled end to end video et cetera. It looks like there was an inflection in the market itself I know smart smart mics I've been around for a while I'm just curious as to what's driving that inflection and then I think you did mention about 100 million potential from one of the design wins, if you could give us some idea.

You know how big that business is for you and when do you see that you know hitting that hundred million run rate and then I have a follow up.

Okay. Yeah look I think the reason the reason why there's so much momentum in towards Smart Nic is one is there.

It turns are needing to upgrade just just the bandwidth that they have but I think the the clear recognition that you know having driver code to support you know more networking is you know really causing the economics of a of the data centers.

Be somewhat bottleneck by that so by Offloading, you know running that code, which you don't get paid for it right you don't get monetized monetize those cores by doing that if you could ship that off to the with smart Nic rather than just a dumb ondeck.

Ondeck then that's a big win in and of itself, but then there's it goes beyond that because there is lots of things that people want to do in terms of security and then Andy you could actually do computation right well data is in motion right and I think this is all part of the bigger picture that the data center architecture is being disrupted right.

May I think you know many people really people smarter than I have this right.

Coined the phrase that the entire data center is really the computer that people want to compose.

Resources of how many seats.

CPU cores. They need you know the amount of network bandwidth and a third so that you know that they need there and then storage and there's really going to be computing distributed throughout all of that and and we play in all those areas right with one scalable architecture and that is unique other people have to do that with.

Multiple different types of architectures and devices, though.

So the smart Nic is just one part of that whole I guess, what I would say is you know disruption in the revolution in the data Center architecture.

And again the flexibility the ability to customize exactly what people need and also to change things at a pretty a pretty.

Pretty significant way after they get them deployed I think those are the unique value that we enable our customers with.

So in terms of the 100 million that we talked about you know I think we referenced that we see that run rate hitting in the fourth 24 timeframe. Obviously the revenue starts somewhat for that but it will be a fairly quick ramp.

And that is just to be clear one one customer we've got multiple that we've already won and we've seen business from but.

But you know obviously there is different.

Different things in the pipeline that we havent, yet converted to wins and revenue, but yeah, let a lot of good activity in smarter.

Got it and then I'm more afraid of strategic question Vic.

Sure given all the M&A that we were seeing in particular, you know NVDIMM looking to acquire arm. It looks like you know suddenly you know there's a case to be made for having both the actual razor and the CP you together or at least you know as as part of the same package or module.

You guys have been you know have done extremely well on on the exploration side and you also have arm as soon as he capability, which as you know you've been investing in the last few years. So my question is does it make sense or why wouldn't it make sense for you guys to be a bit more aggressive on the CPQ front.

Even even kind of targeting some things like arm server market because that seems to be finally, you know taking on an hour I don't want to use board the door taken off but at least there seems to be a lot of interest in that market and you already have the expertise in house and I'm. Just curious you know given the larger Tam opportunity out there why wouldn't it make sense for you guys to.

I'll get that market.

So first I would say that this group has been very disciplined and respectful about Oh, what Matt said, it's top of not commenting or answering questions regarding the rumors so I'll.

Since you're asking me about how I think about CPQ market I'll focus it that way as opposed to any other noise around M&A you know I I believe but you know xilinx has got this unique.

Acknowledging capability that you know we invented the EPS Jay and this whole notion of you know silicon architecture that after manufacturing you can modify it to a very large extent three software and that being a very scalable architecture and over time, adding more and more capability.

Capability to that so the extent as you point out number of years ago now Weve had multicore RMS. So season. There. So we do have efficacy capability my my own background as I was back when I was doing real engineering, a microprocessor designer. So we certainly have many other people with that expertise, but we really feel like.

We want to stick to the core strength of this company right in the core strength of the company as us understanding how to create that.

Hardware architectures that are very capable, including the adaptability is flexibility together with the software that you need to sort of make that happen right and I think it serves us well to the states are really core strength.

Yeah, we do have expertise in those areas, but I think from a strategy perspective that is not something we're thinking about it going out to server class kinds of.

You know I think we have a lot of Cape billion, emphases, and we'll exercise that but really it.

Really it's the it's the combination of all those elements right. The EPS will see together with the adaptable engine together with now our AI engine or a multi core kind of many.

Many people consider spatial processor I mean, I think we have we have pretty much all the skill sets for the future, which is a heterogeneous computing high performance heterogeneous computing and and that's what we'll focus on right that that view of the world as both as opposed to say Hey, you know I'm going to take on companies that have historically been all about CPQ and compete.

So.

Got it thanks for account.

And your final question comes from the line of Chris Caso from Raymond James Your line is open.

Yes. Thank you a question is on overran and if you could expand upon some of the comments there about where you expect to play on that and I guess, specifically where would you expect content to go on its own content to go on their own ran architecture and what's the value proposition for <unk>.

Links against competing solutions, where were you guys went on that architecture.

Well I think with what we've done with our Arpus, let's see and then you know future things that were doing you know again, you could think of it in one sense as you know it's consistent with our story of how we are transformed into more of a platform company as opposed to a component or device company and I think you know as I said not all.

He is our 50 and unique silicon architecture, but we have our own IP and we work with customers in terms of you know, we talked about being forming a lot, but there's other functions you know primarily north on the radio side and some of the other things and digital front end that we've really gotten a lot stronger on in terms of just our same VIP.

Consistent.

Now for all ran right, we're still partnering too so I'm not referencing say that we have all the elements and you know from a software perspective.

I think both with our fuel costs are low enough and year and we work with other other players as well. So I think that you know a lot of it is not just the silicon, but we've come a long ways in terms of understanding the system.

Right and you'll hear more about that and I think in the old ran in particular, because orients going to have to be when that deployed inter operate with a lot of different things in these deployments are unique and all the different carriers have unique things and.

You know I think this flexibility that we just talked about that permeates all of our products is going to be very important and you already situation right.

To not have to do custom silicon for all those things that have one base of hardware platform that you can then customized for all the different deployment and different configurations.

So that's why I think we think we're really well suited for Iran, and we have.

We have both some of the knowledge and we will partner with others as well.

Thanks.

Yep.

And we have reached the allotted time for questions Mr. Victor Pang I turn the call back over to you for some closing remarks.

Thank you so look I just want to say in closing I'm extremely proud of my team's excellent execution delivering these very solid Q2 results. Despite COVID-19 challenges and even the most recent trade restrictions, we're making great progress on our data center customer wins and engagements as you've heard we're seeing good adoption of Alberto will continue.

Well, our software and ice fee as well as the broader ecosystem.

And you know Weve had a lot of discussion I, while the near term quarter to quarter revenue still lumpy, we're very confident in our data center strategy and we're very confident about being able to sustain double digit growth over the long run.

We expect W.W.G. business to resume growth again as RFS. If the volume continues to ramp and then once vertical also begins production deployment and of course as Fiveg in general becomes more broadly deployed around the world and all the different geographies.

Well over and it's still in its early days, it's gaining momentum and we believe this is a very big opportunity for us in the future lastly.

Lastly, our core business is showing strength in several markets, including very encouraging sign for recovery in the automotive business, which was impacted a little bit more than others.

So we're extremely focused on a platform transformation growing our ecosystem and deploying a very robust and complete software development environment. We're also.

We're also enhancing our capabilities to deliver customized solutions for our customers to meet their needs in the most optimal way balancing performance power costs again, enabling very fast time to market and also a degree of future proofing.

So while 2020 has been presented several challenges we remain confident in our strategy and sustained solid growth over the long run.

Well. Thank you for joining us this afternoon on the call and I'll turn it back to Matt for a few housekeeping comments.

Great. Thanks, Victor and thanks to everyone for joining US today, we will have a playback of this call beginning at seven P.M. Pacific 10, P.M. Eastern later today for a copy of our earnings release. Please visit our Investor Relations website. Our next earnings release date for the third quarter of fiscal year 2021 will be on Wednesday 20 separate January after the market close this.

Completes our call and thank you very much for your participation.

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

[music].

[music].

[music].

Good afternoon, My name is Rob and I will be your conference operator.

I'd like to welcome everyone to the Xilinx fiscal second quarter 2021 earnings release Conference call.

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

If you would like to ask a question at this time.

The star and the number one on your telephone keypad, if youd like to withdraw your question you May press the pound key please.

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 Matt Boyer. Thank you Mr. Boyd you may begin your conference.

Thank you and good afternoon with me are Victor paying CEO and Breitfeld CFO.

We recognize there have been a number of recent reports regarding a potential M&A transaction with xilinx our call.

Our policy on M&A rumors, it's tonight or comment nor answer questions about them and we will abide by that policy with respect to these reports.

The purpose of today's call. It's a discussed our most recent quarterly results and outlook. We would ask the question be limited to these topics.

Let me remind everyone that during our conference call today, we may make projections or other forward looking statements regarding future events or the future financial performance of the company we wish.

We wish to caution you that such statements are predictions based on information that is currently available and that actual results may differ materially.

I refer you to the documents the company files to the FCC, including our 10-K's 10-Q's and that case.

These documents contain and identify important risk factors that could cause the actual results to differ materially from those contained in our projections or forward looking statements. In addition to GAAP financial measures, we will be disclosing certain supplemental non-GAAP financial measures used by management to evaluate the company's financial results. We provide these measures to facilitate period to period.

Compare ability for purposes of evaluating continuing business operations by excluding the effects of nonrecurring and unusual items, 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 in analyzing the company's ongoing core business a reconciliation of non-GAAP financial information to the closest GAAP measure is included in our earnings release and has been posted on our Investor Relations website.

This conference call is open to all and is being webcast live it 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 helping well.

So at least we touch on how we're operating with the ongoing Coty 19 challenges deployed just got the business our supply chain and development activities have continued without much disruption.

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

Continued to progress on our strategy despite approaching eight months of largely working from home overall, our teams are doing an outstanding job executing and delivering for our customers.

Now onto the business highlights.

Fiscal Q2 revenue grew 5% sequentially and was 767 million higher than the midpoint of our guidance.

CE performed better than expected and had a record quarter.

Wired and wireless revenues were slightly better than expectations in the quarter businesses AI Ti revenue grew sequentially.

The business was strong as expected, but offset offset somewhat from lower than expected TV revenue JD. Some emulation revenue shifting into Q3.

AIDC performed significantly better than expected with the auto business showing signs of recovery.

The advanced products categories constituted 70% of total revenue.

Suddenly increased 28% compared to the prior quarter and were 22% for the company revenues.

Yes, Okay design win momentum continues to strengthen across our target markets and we're confident that we'll see revenue will be a much larger portion of our overall business in the future.

Now I'll move out of the business specific highlights starting with DCG, we saw strong growth in our DCG business during the quarter with revenues crossing the $100 million Mark for the first time.

Cloud service provider deployment of our video based compute AI clusters and software Nick adapters contributed significantly to this growth.

TCG customer traction continue to grow in Q2, including a marquee smart mic design win with a tier one U.S. hyperscaler. This win is expected to realize well over 100 million in annual revenues by 24 notable.

Notably we won against several of the other top market players mainly due to the unique value, we deliver with our adaptive smart Nic hardware and our stronger software capabilities from our software acquisition.

Turning to other customer engagements and design win activity, we see growing 100 gig smart Nic engagements with Hyperscalers and proof of concept activities for 200 gig solutions income.

In compute acceleration, it's great interest and Archie video server and we have multiple fintech customers engagement in banking and alot tronic trading exchanges.

Finally installation we saw the next generation storage platform commitments from new customers.

With respect to our progress and our platform software and ecosystem development.

We've had close to 43000 downloads divided since announcing it late last year.

To date, we've changed over 15000 developers and have over 1000 software partners leasing a growing list of applications.

We also made progress with the developer community that have 50 AI application examples open source and xilinx you'd have to count.

Moving to WWJ as expected we saw a significant revenue contribution for one of our tier one OEM customers that is ramping our tests of seeds production this quarter.

RFS, so see deployments offered sub six gigahertz and massive mimo rated deployments in North America.

Our design win pipeline for our philosophy continues to expand globally. We're also beginning to see revenue from tier one customer who is using our seven out of universal eight cap and we expect further revenue growth when deployments starting 2021.

That's five you deployed against the ramp in more geographies, we are very well positioned to benefit from the significant increase in deployed radio units, especially a massive mimo configuration, our product leadership with our Vezzosi Universal eight cap and the value that these adaptive associates provides our customers are unique in the industry.

We're also offering customization of our products, but hopefully meet our customers' caused power and formfactor requirements by hardening selective IP, while maintaining our unique adaptive capability.

We'll share more details about this in upcoming announcements.

We also made great progress and the open ran space, where we see a big opportunity over the next several years.

We're working with key stakeholders to drive all brand initiatives to ensure foggy and future networks be open we developed since our operate and adaptable.

As I mentioned last quarter, we are a member of both the overran policy coalition and over analyze and contributed to the Threeg PT specifications for Fiveg mobile networks.

Our products empower our customers innovate and get to market with a differentiated and custom solution faster than any other option. This unique capability will accelerate realizing the promise and performance of massive mimo and Olin.

Last quarter, we announced the tier one telco accelerated card for Olin distribution units and virtual based AD units in Fiveg networks.

Customer interest continues to be solid this area with positive feedback from market leaders like Nokia and Avenue.

Vodafone recently identified expenses technology front runner in the massive mimo category for open ran enabled radiated hardware products. In addition, Jmw recently announced that it is the elected xilinx as their strategic partner and silicon supplier for the company's base stations radio equipment business.

Moving now to the core market Im delighted to say that we're very close to being back to our peak over 19 business level employees to resume growth.

No our core markets, our diversified and provide a highly resilient foundation for our overall business.

Our core markets provide significant and consistent cash generation to support reinvestment in these markets as well as in our strategic initiatives.

Aerospace and defense business grew in the quarter set a new record.

We expect this business to be a secular growth driver in the long term with some lumpiness from time to time gloves.

Global defense budgets are generally trending up and we see emerging technologies like hypersonics and increasing adoption of AI.

During the quarter, our 20 nanometer.

Radiation oncology Kintex Ultrascale at PJ received a platinum order in the 2020 military and Aerospace Electronics Innovators award in the interconnect technology category.

The industrial business is recovering which is consistent with the looting manufacturing PMI data.

Hi, and our leadership in MP remains very strong, we recently announced the world's largest at the view 19 piece, which is in production but.

35 billion transistors the VA.

[music] 19 key provides the highest logic density and Io count on a single device ever built.

The 19, P. sustains or product, we shipped in the emulation and prototyping market that was established with our 28 nanometer generation of products.

We saw a recovery in the auto market over the last quarter, though and it's not quite back to our pre you covered run rate.

We expect this trend to continue into the second half of the fiscal year.

We had several design wins and aid us as well as India, and that's where we are a leader.

Similarly, slight dissolves to power its new generation Isight system, debuting with the Subaru Laguardia in Japan.

Our zinc MPS will see will be powering their next generation Adas systems offer features like automatic emergency braking adaptive cruise control and lane keeping assist we.

We also announced with continental the World leader in automotive radar systems that are zinc products will be powering their advanced radar systems content.

Continental has the industry's first production ready for the image radar that can support level to total five autonomous driving.

We expect the auto market to resume robust long term growth as the industry continues to recover and adoption of aid us grows.

Now, let me turn it over to Brian.

Thank you Victor as Victor mentioned, we had a solid Q2 with broad strength across many of our end markets. This.

This strength drove total revenue of $767 million above the midpoint of guidance, we provided on our Q1 earnings call and 5% higher than our previous quarter.

By end market.

The data Center group revenue grew 23% quarter over quarter, and 30% year over year, driven by continued build out of an AI compute cluster at a cloud service provider and ongoing strength with our solar flare products.

Note, we prioritized our orders to comply with the most recent trade restriction rules, which resulted in a significant outperformance without the impact of the additional trade restrictions DCG revenue would have come in approximately flat to Q1 as originally expected.

Wired and wireless group revenue decreased 13% quarter over quarter, and 36% year over year. The expected sequential decline was due largely to the CMV related order acceleration seen in Q1.

Wired performed ahead of expectations will wireless business was largely in line with expectations.

Wired outperformance was driven by ongoing access network build outs as well as some benefit from the recent trade restrictions.

In wireless we saw healthy ramp of our RF SSD product with a tier one OEM for Fiveg deployment at a north American operator.

Across our core markets encompassing our IP and ABT groups revenue.

Revenue grew 10% quarter over quarter, and 5% year over year, driven by improving business conditions across multiple end markets.

More specifically, a b C or automotive broadcast and consumer revenue.

Revenue increased 36% quarter over quarter and declined 8% year over year with a strong rebound during Q2 in the automotive end market with meaningful improvement across multiple tier one Oems.

Solid broadcast end market performance during Q2 came in line with expectations.

Hey, IP or aerospace and defense industrial and test and measurement revenue increased 3% quarter over quarter, 11% year over year with strong performance in aerospace and defense, which delivered a record quarter.

Hi, SM performed as expected while Tami results were less than expected due to an emulation customer program that started in Q2 and is now expected to extend into Q3.

Now some other financial highlights and metrics.

Company level gross margin was towards the high end of guidance with GAAP gross margin of 70.7%.

The performance was primarily driven by end market mix and lower costs.

GAAP operating expenses of $336 million or 44% of revenue were within our guidance range higher.

Higher sequential operating expenses were driven by higher bonuses due to our first half profitability and our salary increases in July.

GAAP operating income was $205 million or 26.8% operating margin.

Our GAAP tax rate was 0.4% inline with guidance note.

Our lower fiscal Q2 tax rate is driven by a tax benefit associated with divesting of appreciating stock Awards.

GAAP net income was $194 million and diluted earnings per share were 79 cents, a 108% quarter over quarter increase and 11% year over year decrease diluted share count increase quarter over quarter to 246.8 million shares.

On a non-GAAP basis gross margin was 71.5% operating expenses were $332 million operating income was $216 million tax rate was approximately 1% net income was $203 million and non-GAAP diluted EPS was 82 cents a 26%.

Increase from Q1, and a 13% decrease year over year no.

Note the difference between our GAAP and non-GAAP EPS is due to M&A related expenses and amortization and related income tax effect of non-GAAP adjustments.

On the balance sheet and cash flows total cash distort our investments increased a $100 million to $3.1 billion in the quarter and.

And our total debt remains $2 billion.

Accounts receivable increased to $362 million and 43 days.

Compared to 38 days last quarter. The day sales out increase was driven primarily by linearity of shipments.

Muntari decreased to $282 million and days of inventory stood at 114 days same as the prior quarter.

We generated 248 million and operating cash flow or 32% of revenue and $232 million in free cash flow, where 30% of revenue during.

During the quarter, we paid dividends of $93 million through the first half of fiscal 2021, we have returned a total of $239 million or 52% of free cash flow.

Through both dividends and share repurchases.

Turning now to the outlook for fiscal third quarter 2021.

We expect third quarter revenue to be between 750 million, an 800 million, which at the midpoint is approximately up 1% quarter over quarter and 7% year over year.

This reflects continued strength in our core markets led by Tammy Auto and broadcast end markets DCG is expected to be lower after a record Q2, and WWJ is expected to increase as fiveg deployments and ramps continue.

Some additional color into our outlook by end markets.

Within AI IP PMT sales are expected to increase meaningfully due to strong emulation and prototyping program revenues.

Aerospace and defense sales are expected to moderate from a record quarter, but should still be in line with historical levels.

Industrial sites and medical is expected to decline modestly as fiscal Q3 is generally a seasonally lower quarter. We continue to see general recovery in manufacturing activity in the us Europe and Asia.

APC markets are expected to continue recovery driven by strength in auto where we are seeing increased demand from our a das platforms at our tier one customers.

Our broadcast end market is also expected to strengthen as live sports and other live events like that.

Like the us election coverage increase.

DCG sales are expected to decline from a record quarter in Q2 as mentioned previously the DCG business saw some order acceleration during Q2 related to trade restrictions.

WWD is expected to be up modestly with a strong increase in wireless as fiveg ramps continue across multiple Oems in multiple regions offset by a decline in wired due to trade restrictions coveted related slowdown and seasonality.

Please note wawa.

While way has been removed completely from our outlook across the business.

Fiscal Q3, non-GAAP gross margin is expected to be between 68.5 and 71.5%.

Non-GAAP operating expenses expected to be between 333 and $347 million.

Non-GAAP other expense is expected to be between 12 and $16 million.

Non-GAAP tax rate is expected to be between six and 9%.

In closing.

We are pleased with our performance in the first half of fiscal 2021.

Reflecting the strength of our business across diverse end markets and.

And continued transformation into a platform company are.

Our adaptive ssds, including zinc MPS, so see RFS policy and our upcoming Versalite.

Our both broadening and deepening the market and customer set for xilinx, allowing us to compete more effectively in areas traditionally served by EPS Sps NSX.

We remain as confident as ever in the opportunities ahead of us and furthering our technical and market leadership.

Thank you and let me now turn the call to the operator for today.

The floor is now open for questions. If you do have a question. Please press the star and the number one on your telephone keypad one.

Once again that is the star followed by the number one on your telephone keypad. Please limit your questions to one to ensure that management has adequate time to speak to everyone. If there is extra time at the end of the QNX session. You are welcome to ask a follow up question.

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

Okay.

Hi, guys. Thanks for let me ask the question just wanted to ask about some of the surprises in the quarter and what it means going forward on one side it looked like.

Yes, I didnt grow nearly as strongly but it looks like it's going to rebound in the quarter in December because of the emulation side of things. So any color on why that keeps getting pushed out and then similarly on the datacenter side. It was a great quarter by any measure in September what's your guidance for December sounds like some of that goodness was a pull in due to the trade restrict.

And so any sort of color about that would be helpful.

Yeah, Ross, let me let me when you take that so look on the emulation and prototyping as you said some revenue just moved over but theres nothing fundamentally different about what we're doing there as I said in the prepared remarks, we really havent maintain leadership of your 19, P. and we've established that for several years.

Now.

It's just a situation where the particular customer I wouldn't I wouldn't read anything into it beyond that.

Regarding the datacenter.

Yes, we are saying that we saw some Poland because of the most recent restrictions, but you can think about that really is on order one quarter. Poland. This is not a big Bang and again.

I guess, what I would say is that.

I think that still indication that we're getting really good traction and data center of course, you know kind of what we said even without perturbations by trade.

Trade.

New trade restrictions things are.

Things are generally lumpy right now in the data center as we are still scaling the business and in general also pretty consolidated business. So it would have some some natural lumpiness and that's causing some more perturbations on a quarter to quarter basis, but overall, we're still tracking to good growth.

And so it's still very confident about what's going on the data center.

Thank you.

Your next question comes from the line of Aaron Rakers from Wells Fargo. Your line is open.

Yes, thanks for taking the question just on the topic of Fiveg, We talk Horizon announced this morning that I think they deployed more base stations on Fiveg in the last two months and they did have all of 2019. So in that context as we see the pace of this start to accelerate can you just revisit.

How you guys need the content expansion in Fiveg and just in general where or how we should think about the progression of that cycle would it be in provide like thank you.

Yes, good question Eric.

You said one of the things are really pleased about is we're starting to see our RFS conceivable being deployed.

And in North America.

And we also see more deployments around the world. So we're very very excited that we are seeing that ramp.

Yes, I think just like the previous question with trading a few other things in particular in Fiveg. That's caused some part of patients, but if you step back on the Big picture. We still are absolutely confident this is going to be a very significant opportunity for us we have the strongest lineup we ever had.

We have first of all.

When for Fiveg, we have our fiscal see deploy scenarios and you'll be hearing more about we're doing even with our RFS see family in terms of further.

Derivatives and announcements.

So yes, it's still the first wave you've heard me talk about three generations of equipment, what's being deployed right now so the first wave and we.

Certainly see that it's good to see North America, starting to pick up.

China continues and that's had some choppiness because of the various trade issues.

But we are seeing other geographies starting to deploy and that is going to drive the big opportunity that we talked about but so far things right. So well.

We got engagements or the second generation equipment, but thats, yet to deploy and then there'll be at least the third generation if not perhaps come after that as well.

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

Hi, Thank you Victor just to follow up on the data center side. So.

Good to see is the $100 million run rate.

Couple of questions just wanted to make sure I understood. The upside that team largely came in the compute side and given the 100 million dollar business could you. Please note.

And what what are the relative sizes of the various components within that business, how big a storage versus compute versus others. Thank you.

Yes, I would say in the last quarter.

Pretty much.

Led the way followed by networking and storage and I wouldn't say that it's still continues to look like.

Good strength and that order, all though between compute and smart Nick that's probably going to at any given time very right. Because again. This person is so big.

Big wins and adoptions and then there's some digestion.

I would say certainly.

We're seeing a lot of strong interest and compute and.

But again to refresh your memory on this.

Some of the areas in terms of the applications were very strong and video data.

Database.

You could been fintech in smart Nic because of the low latency aspect you could also think of as computing as well.

Certainly and general separate apart from Centex, I think smart Nic in general were seeing a lot of a lot of pulled right. So we're very pleased about that big when that Marty when that I referenced but.

But we see continued other really.

Really good momentum and good pipeline development, there, so I would say compute and network of both strong and.

It varies from quarter to quarter, which is really higher.

By the way I don't want to say that nothing's happening in storage, we've seen good wins in storage as well. It's just that I think we've consistently always felt like our opportunity there is probably not quite as large as the other two.

And that sort of what we're seeing right now.

Right, but the relative sizes.

Networking and storage and compute today right.

I'm, sorry say that again.

The relative sizes of the various segments that was my math question, what how big I think.

I think I think in the long run compute is still.

The larger.

And as I said in the last four to compute was a very big contributor and then.

Networking.

And.

But I guess, what I'm, just saying is that at any given quarter. It could move between compute and networking and occasionally storage, perhaps but I'd say as a more what are what I expect integrating overtime in the long run no compute is probably the biggest some of that will take a while to flow through networking will be very strong and we're seeing a lot of strength there.

Okay, and then storage.

Makes sense. Thank you.

Your next question comes from the line of Tristan Gerra from Baird. Your line is open.

Hi, good afternoon.

Just as a follow up.

That's a lot of annual update that you think you could guide.

So data center in fiscal 22.

That you had some more visibility with TEOA smart Nic Hyperscaler Wayne how how should we try to quantify the data center revenue opportunity next year for full year for Xilinx.

Yes, and I would say that well, we do see strength.

Improving your multiple market I think with so quantitative pretty much a cautious approach here because there are still certain uncertainty in terms of the pandemic. How the economies are in spot of course, we have the presidential election on so I think I'd defer to give any guidance right now and at 422, certainly when we have our AD.

I will say in December we'll go through all of that.

Well, what I would let me put it this way, though I would say is you know.

Despite a number of different things happening and this EPS like 21.

We do still feel like we will hit double digit growth.

And over no over the long run as I said in my prepared remarks.

We're confident that data center will be our greatest growing market of all the markets we serve.

The growth rate and that we will have sustained solid double digit growth over the next several years.

Okay. That's great and then just a quick follow up.

Thats, you're not holding XT EPS. This year I wanted to understand how important expenses in terms of the building.

Up their community around the use of PGS in data center.

Is that something that you plan on the hosting in the future has anything changed in terms of your vision on the had to build it.

Get traction.

Guidance for data center all.

Are there other means to develop that whole ecosystem.

Well I would say you know the VX.

Yes.

For everybody that was for us a very big event, and we literally would bring a thousand or 1000, plus and certain geography of people together altogether. So obviously because of the pandemic.

We wouldn't be able to do that then we looked at thinking about doing things virtually and in the end what we decided to do is actually modify that little bit and we have a sequence of different events called adapt right. This is a new two.

To continue to essentially.

Convey the same information get the same kind of.

Users and various people together in a virtual setting so instead of having one big Big Bang kind of event if you will.

Spreading out over a series of events virtual events that we call it that.

I wouldn't say that.

Weve changed our our view of how important is engaged with customers partners users and so forth and course adults as well I just think the the mechanism, which we're going to deliver this year in particular because of the pandemic and so forth, where where we're changing it we're changing it up a little bit that's all.

Great. Thanks again.

Yes.

Your next question comes from the line of Blayne Curtis from Barclays. Your line is open.

Hey, guys. This is Tom O'malley on for Blayne Curtis and thanks for taking my question I, just wanted to triangulate a bit more into the data center business. There was clearly a portion September that was pull ins, but the business has grown quite nicely from December to March to June when you when you ex out the Poland. When you look into December you're obviously guiding that segment lower but should we think about.

That business growing off of that June base, or the poems enough, where you are resetting to a lower base in December or should you see it higher than that 86 million or so that youve created in June.

You know I think I think when you started out talking about how looking at the run rate overall for the year I think thats, how to really think about how were growing here because again quarter to quarter, we've always said.

Typically as Berke, the and then you add on top of that you know.

Very short fuse kinds of.

Covenant actions. That's also caused some perturbations, but the important thing to look to see is I think and the stage, where we are with that segment is the year to year progress and Thats why I said, even though we're not generally providing guidance I just want to say in general we still feel confident about even in this year growing double digits right. So yes.

Thats the key thing I mean in any given quarter.

We are seeing volatility some of that.

That.

To some extent I think is natural some that are a little bit unusual and just because of the.

I guess, what I'd say the trading environment today.

And again I think that we're seeing lots of things that we watch for to is the fact that we have lots of customer engagements. The fact that we still see our pipeline growing and that we see.

Again earlier discussion about not just on the computer side, but on the smart Nic and engagements as well as in storage and.

Memory so.

So were pretty.

So pretty good in terms of year to year progress and we're laser focused on keeping that consistently growing double digits.

Great. If you could see me and for a follow up I just wanted to isolate the medical business clearly, there's probably some increased revenue due to what's going on in the world right now and you guided.

Aerospace and defense for a record quarter can you talk about what percentage of your business is medical I know that on prior calls you indicated that that percentage was maybe increasing a bit can you talk about what you expect for that business given maybe some pull ins given the state of the world.

This is bryce.

We don't break out exactly what his medical but we have seen.

Accelerations in the area for the co bid.

For the Cove, it environment, and we do think and it's a driver for our business going forward long term, we had an announcement this quarter abided MP SSC product that will be deployed for AI X ray capable.

Capability with one of our customers and we think Thats a good example of.

Victor strategy of the.

The optimal associates at the edge, bringing more capability in the environment and helping xilinx address more workloads. So youre right Thats a good driver for us and it's those types of applications at the edge.

That will be a driver for that particular end market.

And by the way I would also add that aside from direct medical equipment, which were designed into a lot of places.

We also are seeing medical.

Medical applications and modeling and simulation in the cloud and so we've talked about.

A number of.

Of ice fees that are focused on medical and they're doing cloud acceleration. So yes, we see that also within the PCG business. If you will.

Great. Thanks.

Your next question comes from the line of William Stein from Truest Securities. Your line is open.

Thanks for taking my question.

Two questions about data center.

First.

Victor earlier, you talked about double digit growth in this market and one of the things that I've.

Tried to pay attention to is what you said at analyst days and the last one I think.

The company.

Presented this 36% Sam bogey from 20 to 24 I'm wondering if that's still a realistic expectation. It seems like you are beating in some quarters not in others. The long term view still that you can hit that 36% growth number or perhaps better or worse.

Yes, I mean, I think I would say is that.

We don't think things have changed that much.

Other than yes, 2020 was challenging here for a variety of things so there'll be some impact of that but I'd say overall, we're still in that ballpark of growth right and again, we'll talk about that at analyst day, but we still feel very confident and we do really think that this is a long haul kind of stretched strategy right.

We're not we're not as focused on it what happens quarter to quarter, we want to make sure that we're progressing year on year and not just on revenue, but again the pipeline our ecosystem development, the alveolar sports business, which again I want to bring everybody back to we had no business there two years ago.

And and we're tracking to that being a good portion of our revenue fell by 21, and so I think that that new revenue stream, which is new we have to stand up an entire difference just.

Distribution channel and Vars and distributors.

And integrators and we've done that now and I think yes, I think we are overall I would say you're not going to hear big changes.

Yeah.

Stay tuned for the analyst day in terms of.

More granularity on that.

That's helpful. If I can have one follow up.

You've spoken a bit today and in the past about smart mics, and I think thats very good business for you there.

There's.

A competitor that's highlighting this product they call. It deep you, although I'd say, they're not the only one there is at least two other companies that have highlighted similar products I am wondering if.

As xilinx season. It is this a marketing distinction or is this a more meaningful.

Different product and if it's more it's the difference is more meaningful.

With xilinx potentially have a play in that market.

Yes, let me first started to say what I think is a good validation, which is that more and more people are saying in the smart Nic they have to do a lot more customization and the datapath and they can't get away with just mainly a fixed function with a little bit of flexibility that.

But the customers are demanding the ability to do more specialization for their unique needs, whether that's for security or just how to optimize intune right. The overall economics of their data center right.

And so I'd say, that's a good trend and people are now taking different approaches that.

That particular architecture is using a large array of fairly.

Typical embedded processor at its core is if you will which really isn't the most effective efficient way to do that.

We approach it obviously with a really very very flexible and adaptive.

Infrastructure that we have on our product.

And we still have arm.

So see so from a software software program portion of it Thats.

Thats pretty typical but how we actually do the acceleration and how we allow people to customize and the Datapath is I think much more powerful to deliver high performance as well as low latency and really again customize to exactly what they need plus I mean, you could make very significant changes on the same piece of silicon after things of fabricated.

It just in terms of being able to make new features capabilities are fixed new software.

Hold on I mean, sorry security holes afterwards, we'll provide the most future proofing. If you will so I think we have that strong capability I think I would also add one final thing is that you know are.

Software and systems knowledge it was significantly increase when we completed the acquisition.

Acquisition, so not only do we have is really uniquely powerful hardware comfortable hardware, but now we also have really good experts in terms of production quality drivers and overall system expertise. So I think that certainly served us well and competing against all the top players, including the ones you mentioned.

Thanks Victor.

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

Thanks for the questions guys solid quarter, Mike My questions are around a W.W.G. and even.

Even in the late stages of Fourg, you guys were doing more than $200 million quarter likely in W.W.G. and I know we're on the early side here, but I thought we were expecting a content follow up and then also historically SPG has been on the early side of the deployment.

So I guess why are we seeing more versus our expectations.

Some ways back and then also perhaps you had a competitor or Qualcomm that sounds like it's getting into the macro business as well do you have any views on their part.

And whether there are competitive threat for you guys in WWJ. Thanks.

Yes so.

Let me, let me address number those points there so maybe on the.

We typically enable people to get there I really quickly.

I think we did see that right I mean, I think what happened with.

Samsung and deploying in South Korea or ahead of all geographies frankly, even ahead of China, which I think everybody largely expected. We go first and we were there right and.

We are there in fact, we were there in such a big way, we were totally candid in saying that we don't expect to hold onto some of that because we are in.

We enabled exactly what you said getting to market very rapidly and that over time.

The area in terms of the base band, where we traditionally not quite as strong.

We got displays.

But we continue to grow where we have been internally traditionally been strong and in fact, we have a strong hand in the radio and again is going to be more radios more different configurations with massive mimo and the different bands and so on so.

I think we still absolutely believe that we will be the fourg kind of run rate, but again things are kind of.

In the early stages I guess the other thing is I don't want to keep getting back to the tricky thing but.

It is quite significant that at this point.

One of our top customers and communication is zero right.

Right. So I just I just want to say that that is a headwind that doesn't.

Just disappear over.

Disappear overnight.

In fact, I would say, considering where we're holding losing one of our top customers in any segment, both in communications and specialty Fiveg wireless.

That is a significant challenge but.

But despite that we still see that we're going to exceed that.

And.

And what wasn't around in the.

Fourg again, not only because of there is so much more complexity and challenges and in fiveg, but the whole absent that we talked about about Iran.

I think thats really potentially very big opportunity for us and we are the ideal solution for that so so stay tune it so I know it.

Everybody is looking for the.

Quick inflection, but this is this is a long journey here and I think that we are still in very good shape.

Yes, I think those are fair points did did you have anything to say on the Qualcomm announcement.

All right, Yes look that's just broke now.

I'm not going to pretend to be fully up to speed on that.

I guess it doesn't surprise me again, because fiveg is such a big opportunity and it's showing folks who have adjacencies or not wanting to move in.

And look I look at it more competition keeps you on your game right and that's why I feel like we're in a very strong position because we certainly up their game with integrating things like analog capability in RFS, we'll see what we've done with first oil and you'll hear more announcements soon about other technologies that we're bringing to bear that market.

Thanks, Ken vector.

You're welcome thank you.

Your next question comes from a line of CJ Muse from Evercore ISI. Your line is open.

Hello to Kevin Saini on for CJ. So just wanted to talk about wireless and I was just kind of curious on what are a couple of I guess, a critical inflection that you see over the next couple of years, Mike is that fiveg feedback coming out or some of the other thing you see ramping up and then I guess can you talk a bit more about design win activity you've seen maybe in second generation.

Equipment versus what you're seeing in first gen equipment.

Yes, I think in terms of the second generation and again people are in different stages. Some people are still fairly early others are pretty pretty far along I think.

One of the things that we think that.

Just from a timing perspective, right verso was really not going to be a time for the first wave, but first so is there for the second and again the public but one that publicly announced his work the work we're doing in Samsung.

And we feel very good about that.

Again, you know.

We have more.

More coming down the Pike in terms of the RFS a fee family. So that's been really successful and we've seen that Floyd I think you know we've talked about.

How a lot of the regions have not really deployed very significantly and so I do think the fact that in North America is starting to to do their deployments and drive is a good sign.

I think we've I think we've consistently felt that most of the action is going to be in subjects, but millimeter wave will be there and our associates being deployed into the millimeter wave systems as well.

So, yes, I think it's still.

Pretty early because we haven't seen those second generation equipment being deployed but.

But we're going to be in a lot of those systems both with.

With vertical in our fiscal seat and.

And again stay tuned for that.

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

Thank you very much good afternoon.

Victor I am.

A lot of been focused on the call here on W.W.G. and the data center businesses, where theres potential inflections and you guys are battling it out for design wins.

And that will make sense I wanted to actually focus on on the primary.

An ABL businesses.

I think yourselves and your customer base of probably had some time to digest and on another.

Pick up in the Silicon roadmap at your primary competitor.

And you guys have done some great work on those businesses with consistent roadmaps for a while so I just wonder if you could update us on sort of the broad base design win environment that youre seeing versus Intel altera.

And what that might mean for the next several years and then just a quick one for price I noticed it was a 14 week quarter and the guidance and Thats, probably a holiday quarter, but if thats significant or not that would be helpful. Thank you.

Yes, Matt this is Brian thanks for the question.

I'll start and then Victor I think will add a couple of points on first on the on the 14 week. We do think it will be relatively small those are holiday days, but we do have.

Approximately $10 million in our forecast for that 14th week.

So that's about the size of it well.

When we think about the core markets that you talked about really I think the first thing I'd say is our strategy for the adaptable Esso sees you could really see in some of the announcements during the quarter of getting designs in various end markets that are going to help.

Propel the business faster than just the traditional EPS PA market, but also gaining new sockets. Examples were in automotive, where we had two announcements on MPS will seize for automated driving systems and 440 radar I mentioned. The example of the healthcare AI X Ray.

Design win that we had so we look across those end markets and we see that in the short term automotive.

And broadcast are going to grow quickly as the economy recovers, but theres also drivers as those devices get put in play in the in the edge and in autos and we think that will be.

Significant for the company and then on the larger section of end markets Aerospace and defense.

Victor mentioned the radiation tolerant device that we got an award for we also think that radar innovation will help drive utilization for our our devices going forward and then when we think about industrial.

The recovery is strong and industrial we think thats tracking the economy.

And again, we would just focus on the edge opportunities, we have for machine learning and AI and.

Hi performance low power device operations, which is where our products specialized and then finally.

He talked about test measurement and emulation and that's a big business for us and we expect to have strong quarter going forward and we talked about our 35 billion transistor device that we have for that market that is optimized and we think that that market grows over time with product complexity. So really good drivers across all those business.

Yes.

And we are confident that we will have growth in the coming years that'll be beyond what's normal for the traditional SPJ market.

Yeah, the only thing I'll add with regard to that competitive angle that you asked about it is that yes, we continue to and we're we're confident we'll continue to get our share relative to them overall.

In fact, I think we said it before and in many instances now we don't.

If they do compete there not necessary in the short list of I'd say.

The most challenging competitors, when we get down to design wins.

Very often it's really some other kind of product or.

Or or certainly from a competitive perspective.

Yes, I like to feel that most of that is really attributed to the fact that we're innovating and executing so well as you said the fact that they might have some other challenges in addition to that.

Yes that could have some effect, but I think by and large.

We're making our own opportunity there and we think that will continue.

Thanks really appreciate the color there guys.

Your next question comes from the line of Michel Lawler from Needham and company. Your line is open.

Hi, guys. Thanks for taking the question.

I'm on for Glenn.

So just one quick one for me it seems like Nvidia has been gaining strong momentum and printing based on some of their recent benchmark results. Just wondering if you guys can update us on your progress in printing and how that opportunity shaping up for you.

And actually and then a quick one for Brian just on the tax rate.

Beyond the December quarter looks like it's been a flood.

Fluctuating over the past few quarters, and just kind of wondering what we should assume.

Seeing beyond December quarter.

Okay, I'll tackle that tax rate first and then Victor ill comment on the other so for the tax rate you probably noticed in Q2, we had ultra low tax rate 1%.

The non-GAAP and what really happens in Q2 is our share based awards vest and if they've appreciated we get a tax benefit for that so thats whats driving the lower tax rate for the quarter, we look forward to see a more normal rate. So.

Michelle.

The Q3 guide is probably more normal and then when we think about longer term.

I will probably increase one or two points over time as our Singapore rate goes from zero to 5% so.

Hopefully that answers the question.

Thanks, Yeah and then.

In terms of inference first of all I want to make sure everybody really does understand that difference goes well beyond the data center right. So for instance, all those up.

Patients you kind of referred to recently.

Recent ones in automotive wins.

We're in wins in other kinds of edge applications that I mean, just as computing, but just edge devices as well as endpoint devices. So we're doing very well I think in the broader inference within datacenter I think we've always said is that most applications are not completely dominated by the AI portion there.

Our network processing.

And were able to accelerate other portions of the application Thats why we kind of coined the phrase whole application acceleration right.

So I think the areas, where we tend to shine is where we're actually accelerating other parts the application as well as including AI and yet.

And yes, we continue to be focused on inference, we're not we're not really driving towards training.

So.

The competitor that you mentioned, what they're doing that's fairly new we'll sort of see how that plays out.

And but again I think that where it is.

We are accelerating not only AI inference in the cloud, but also just applications that EPS already have it all and I think thats a ton I think about it is that we were not building hardware that has to be dedicated to only do one thing again, we have this great dynamic range. If you will of all the things that we can accelerate and support and enable people to really differ.

Jade.

Okay. Thanks, that's helpful.

Your next question comes from the line of Srini Pajjuri from SMBC. Your line is open.

Thank you hi, guys.

A couple of questions Victor first on the smart Nic market.

It looks like you know a lot of you guys are talking about or do you Marvell and video et cetera. It looks like there was an inflection in the market itself I know smart smart mics I've been around for a while.

Just curious as to what's driving that inflection and then I think you did mention about 100 million potential from one of the design wins, if you could give us some idea how big that business is for you and when do you see that hitting that 100 million run rate and then I have a follow up.

Okay look I think the reason the reason why theres so much.

Momentum in towards Smart Nic is one is there.

There is the R&D into upgrade just just the bandwidth that they have but I think the.

The clear recognition that having.

Having driver code to support you know more networking is really causing the economics of a of the data set it's be somewhat bottleneck by that so by Offloading running that code, which you don't get paid for it right you don't get monetized monetize those cores by doing that.

If you could ship that off to the smartness rather than just.

Ondeck then that's a big win in and off itself, but then it goes beyond that because there is lots of things that people want to do in terms of security and then Andy you could actually do computation right well data in motion right and I think this is all part of the bigger picture that the data center architecture is being disrupted right.

Yeah, I think many people really people smarter than nine this.

Coined the phrase that the entire data center is really the computer that people want to compose.

Resources of how many seats.

Few quarters, they need the amount of network bandwidth and so that you know that they need there and then storage and there is really going to be computing distributed throughout all of that and and we play in all those areas right with one scalable architecture and that is unique other people have to do that with more.

Multiple different types of architectures and devices, though.

So the smart Nic is just one part of that whole I guess, what I would say you know disruption and the revolution in the data Center architecture.

And again the flexibility the ability to customize exactly what people need and also to change things that are pretty pretty.

Pretty significant way after the them deployed I think those are the unique value.

That we enable our customers with.

So in terms of the 100 million that we talked about I think we referenced that we see that run rate hitting in the first 24 timeframe. Obviously the revenue would start some for that but it will be a fairly quick ramp.

And that is just to be clear one one customer we've got multiple that we've already won and we've seen business from but.

Obviously, there is different.

Different things in the pipeline that we havent, yet converted to wins and revenue, but yes, a lot a lot of good activity in smart Nic.

Got it and then more of a strategic question.

Sure given all the M&A that we are seeing in particular, you know Nvidia looking to acquire arm looks like suddenly.

There's a case to be made.

For having both the actual rate or and the CP you together or at least you know as as part of the same package or module.

You guys have been.

Have done extremely well on.

Exploration side and you also have arm as soon as he capability, which as you know you've been investing in the last few years. So my question is does it make sense or why wouldn't it make sense for you guys to be a bit more aggressive on the CPQ front.

Even even kind of targeting some things like arm server market because that seems to be finally take.

Taken and I don't want to use board the door, taking off but at least there seems to be a lot of interest in that market and you already have the expertise in house and I'm. Just curious you know given the larger Tam opportunity out there why wouldn't it make sense for you guys to target the market.

So.

First I would say that this group has been very disciplined and respectful about what Matt said, it's top of not commenting or answering questions regarding the rumors so I'll.

Since you're asking me about how I think about CPQ market.

Focus it that way as opposed to any other noise around M&A I.

I believe.

That.

Enlink has got that.

Has got this unique.

Acknowledging capability.

We invented the DJ and this whole notion of.

Silicon architecture that after manufacturing you can modify through a very large extent three software and that being a very scalable architecture and over time, adding more and more.

Capability to that so the extent as you point out number of years ago now Weve had multicore armento season, there. So we do have FSC capability.

My own background as I was back when I was doing real engineering, a microprocessor designer. So we certainly have many others people with that expertise, but we really feel like we want to stick to the core strength of this company right in the core strength of the company as us understanding how to create that hardware arc.

Textures that are very capable, including the adaptability flexibility together with the software that you need to sort of make that happen right and I think it serves us well to data are really core strength.

But we do have expertise in those areas, but I think from a.

From a strategy perspective that is not something we're thinking about is going out to server class kinds of.

Seep use I think we have a lot of capability and efficacies.

And we'll exercise that but right.

Really it's the it's the combination of all those elements right. The EPS will see together with the adaptable engine together with now our AI engine Multicore Kyle is kind of many.

Many people consider spatial processor I mean, I think we have.

We have pretty much all the skill sets for the future, which is a heterogeneous computing high performance heterogeneous computing and and that's what we're focused on right that that view of the world as both as opposed to say hey, you're not going to take on companies that have historically been all about CP using computing.

So.

Got it thanks.

And your final question comes from the line of Chris Caso from Raymond James Your line is open.

Yes. Thank you question.

Question is on all ran and if you could expand upon some of the comments there about.

Where you expect to play on that and I guess, specifically where would you expect content to go on in silence content to go on their own ran architecture and what's the value proposition for for Xilinx against competing solutions, where were you guys went on that architecture.

Well I think with what we've done with our fifth we'll see and then future things that we're doing.

Again, you could think of it in one sense is if.

Consistent with our story of how we are transforming to a more of a platform company as opposed to a component or device company and I think you know as I said not only is our 50 and unique silicon architecture, but we have our own IP and we've worked with customers in terms of we talked about being forming a lot, but there's other functions.

Primarily north on the radio side and some of the other things and digital front end that we've really gotten a lot stronger on in terms of just our understanding of VIP system.

Now for over enrolled we're still partnering too so I'm not pressing say that we have all the elements and from a software perspective.

Turning both with out you'll start leveling off in year.

And we work with other other players as well so I think that you know.

A lot of it is not to facilitating but we've come a long ways in terms of understanding the system solution right and you'll hear more about that and I think in oriented, particularly because our brands going to have to be when that deployed inter operate with a lot of different things. In these deployments are unique in all the different carriers have unique things and.

You know I think this flexibility that we just talked about that permeate all of our products is going to be very important in the already situation right.

To not have to do custom silicon for one of the things that have one base hardware platform that you could then customized for all those different deployments and different configurations.

So that's why I think we think we're really well suited for rent and we have.

We have both some of the knowledge and will partner with others as well.

Thanks.

Yes.

And we have reached the allotted time for questions Mr. Victor pain, I turn the call back over to you for some closing remarks.

Thank you so much.

Look I just want to thank closing.

Certainly proud of my team's excellent execution delivering these very solid Q2 results. This by COVID-19 challenges and even the most recent trade restrictions.

We're making great progress on our data center customer wins and engagements as you've heard we're seeing good adoption of our video and we continue to grow our software and IC as well as the broader ecosystem.

And we've had a lot of discussion I will in the near term quarter to quarter revenue. So lumpy, we're very confident in our data center strategy and we're very confident about being able to sustain double digit growth over the long run.

We expect W.W.G. business to resume growth again as RFS a fee volume continues to ramp and then once vertical also begins production deployment and of course as Fiveg in general becomes more broadly deployed around the world and all the different geographies.

Well all around it's still in its early days, it's gaining momentum and we believe this is a very big opportunity for us in the future last.

Lastly, our core business is showing strength in several markets, including very encouraging sign for recovery in the automotive business, which was impacted a little bit more than others.

So we're extremely focused on a platform transformation growing our ecosystem and deploying a very robust and complete software development environment. We're also.

We're also enhancing our capabilities to deliver customized solutions for our customers to meet their needs in the most optimal way balancing performance power costs again, enabling very fast time to market and also a degree of future proofing.

So while 2020 has been presented several challenges we remain confident in our strategy and sustained solid growth over the long run.

So thank you for joining us this afternoon on the call and I'll turn it back to Matt for a few housekeeping comments.

Great. Thanks, Victor and thanks, everyone for joining US today, we will have a playback of this call beginning at seven P.M. Pacific 10, P.M. Eastern later today for a copy of our earnings release. Please visit our Investor Relations website. Our next earnings release date for the third quarter of fiscal year 2021 will be on Wednesday 20 separate January after market close this.

Completes our call and thank you very much for your participation.

Ladies and gentlemen, this does conclude today's conference call. Thank you for participating.

Now disconnect.