Q1 2020 Earnings Call
Good afternoon, My name is Catherine and I will be your conference operator.
I'd like to welcome everyone to the Xylene Q1, that's why 20 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 like to ask a question at that time. Please press Star then the number one on your telephone keypad.
If he would like to withdraw your question press the pound key.
Please limit your questions to one to ensure that management has adequate time to speak to everyone.
I'd now like to turn the call ever came at play here. Thank you. Mr. Prior you may begin your conference.
Thank you Catherine and good afternoon, everyone with me are Victor Thanks, CEO and Lorenzo Flores CFO .
We will provide a financial and business review of the June quarter, and the business outlook for the September quarter.
Let me remind everyone that during our conference call today, we may make projections or other forward looking statements regarding future events or the future financial performance of the company.
We wish to caution you that such statements are predictions based on information that is currently available and that actual results may differ materially.
We refer you to the documents that the company files with the SEC, including our 10-K's 10-Q's and eight Ks.
These documents contain and identify important risk factors that could cause the actual results to differ materially from those contained in our projections or forward looking statements.
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.
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.
Please note that we have also posted a document to our IR website that contains five quarter historical data for the new end market classification, we adopted in May 2019.
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 good afternoon, everyone.
Im pleased to share our results today as they exemplify the durability and resilience of our business.
We saw a solid growth in our W. W. G. In APC end market, which enabled us to achieve the midpoint of our Q1 fiscal 2020 revenue guidance despite unexpected challenges.
I'm proud of the tremendous effort by our employees to achieve our target. Despite the walkway shipping restrictions, which occurred midway through the quarter as well as the general uncertainty in the current global trade environment.
Now, let me share some highlights from our business units in core vertical markets.
Ill start with WWJ.
Despite our complete suspension of shipments to our way in the middle of the quarter. We saw a continued strong demand at many of our wired and wireless customers in support of global Fiveg deployments.
We remain well positioned during this initial wave of the Fiveg cycle, which we continue to believe we'll be factor is larger than the fourg cycle.
Following the deployments in South Korea last year, we are seeing the beginning of deployments in China, albeit for measured given the while we action.
We are actively ramping sales of products supporting radio applications. In addition to baseband.
As we noted in our analyst and Investor Day, we anticipate a mixed shift to radios as a portion of our base than revenues converts.
We've been monitoring the market closely and to date have not seen unusual inventory building at wireless customers.
But we will of course continue to wash its very closely.
Moving the DCG.
Our business did not grow as expected.
Largely due to the suspension of shipments to walk away for their F.A.S. deployment.
As well as the slowdown in orders due to a product transition at a significant memory customer the latter of which we expect to meaningfully recover next quarter.
That said, we continue to make good progress with multiple hyperscalers, both on F F and internal acceleration applications.
Our hyperscale customers have begun deploying our platforms in production for accelerating applications such as Sir.
Streaming video as well as network acceleration with smart mics.
Our veo continues to make progress with numerous proof of concepts or Pos fees.
We then customers top tier Oems.
We are anticipating revenue contribution to be meaningful later this fiscal year as those customers move those proceeds into production.
Learn as it will be sharing additional details regarding our core vertical markets later in the call. So now I'm going to turn over to other highlights in the quarter.
Revenue from the dance products grew 53% year over year and was 69% of total sales in Q1.
We saw broad based demand for our 16 nanometer Ultrascale plus family.
Which continues to be a stronger revenue driver for our business.
Last year, we introduced an extension to family with industry, leading 58 gig Pamfour is 30.
These products enable customers in the wired PMG and Andy markets to double the bandwidth of existing 25 gig system without deploying new infrastructure.
Our new Virtex Ultrascale, plus 58 gig devices will be shipping in production soon.
In addition, based on strong customer demand, we extended our Virtex ultrascale plus high bandwidth memory or HBM family by adding 16, gigabyte HCM capacity to that family.
These high capacity HCM products are ideally suited for workloads that process large datasets.
Such as adaptable AI inference database acceleration data analytics video transcoding and security processing.
The four gigabyte and eight gigabyte products are already in production and we are sampling the 16 gigabyte products today.
The 16 gigabyte products will go into production later this year.
Demand for our Zynq platform remains strong driven by the adoption of our MPS will see family in wireless and across our core vertical markets.
Revenue from our Zynq family grew 68% year over year, which represented approximately 23% of total revenue in Q1.
In fact cumulative revenue from our 28 nanometer zinc products has crossed the $1 billion Mark.
We see our 16 nanometer zinc products growing at an even faster pace.
In terms of our progress in Q1 with our adaptive computing strategy. We started sampling our first seven nanometer versus core and verso Prime series products to select customers.
We will be expanding our early access customer engagements throughout this quarter Q2.
Our reversal silicon testing to date indicates that we're solidly on track to deliver a tax increase in performance.
And significant power efficiency gains for a number of applications compared to the latest generation of fee days and general purpose processor.
We'll be showcasing our versatile platform and a new unified software development environment that will greatly enhance the user experience at our ixia. This October .
I hope to see many of you there.
Now shifting to M&A activities, we announced the acquisition of energy Kodak that adds a differentiated video compression software to our portfolio to support our data center business.
This product has already gaining traction with key cloud customers, including Twitch and Alibaba.
Video acceleration will be one of the key growth drivers for the DCG business.
We're also on track to close the acquisition of software in Q2 recall that this acquisition brings a new class of smart Nic Hyperscalers, HPC enterprise and telco networking customers.
These new Smarten excellent eliminate network bandwidth bottlenecks.
Free up the few cycles enable network and data center computing.
As well as customization for unique customer need.
Now before I hand off to Lorenzo for a detailed view of our Q1 financials and outlook for Q2 I want to provide some additional comments related to walk away.
Xilinx is committed to ensuring full compliance with all us export control regulations as touch upon the Commerce. Department's addition of walk away and its non US affiliates to the bureau of industry and Securities entity was in mid May Xilinx immediately suspended shipment of all products to walk away.
Then after review of the export administration regulations and entities lift restrictions, we determined that we could lawfully resume shipping select products.
We recently began fulfilling orders from walkaway during our current quarter.
These products are mostly 28 nanometer or older products and are not designed into fiveg applications.
We've also submitted request to the comp apartment for licenses to sell additional products to Wally.
Xilinx will continue to comply with all government and legal requirements across our global operations.
I want to emphasize that we cannot predict whether additional government actions may further impact our ability to ship walk away as the situation remains dynamic.
We hope a resolution of these issues that led to us in China trade actions is reduced as quickly as possible so market driven trade can resume.
In conclusion, we are focused on executing to our strategy and remain very confident in our significant and unique long term growth opportunities.
Driven by five G datacenter and automotive Destructions and our transformation to platforms.
Thank you and now I'll turn it over to Lorenzo.
Yes, Thank you Victor.
Overall, our business performed quite well this quarter, even with the challenges Victor just described.
Total revenue was in line with guidance at $850 million up 24% year over year and 3% sequentially.
Our results are a testament to the resilience of our revenue base from our broad set of end markets and diverse customer set.
The continued fiveg buildouts drove the growth in wired and wireless group with revenue expanding 66% year over year.
And 2% quarter over quarter.
Quarter to quarter wireless declined slightly and ward group, our broad customer base drove this growth in the quarter, although less than expected due to the well we're shipping restrictions.
Revenue from the data Center group.
Was below our guidance.
Declining, 13% year over year, and 4% quarter over quarter.
We showed growth in multiple hyperscalers and broader accounts, but the walkaway band did have an effect.
On DCG.
In addition, one of our memory related customers is going through product transition and had an inventory related slowdown.
In any IP, all end markets outperformed expectations with strength strength in industrial and less than anticipated declines in aerospace and defense and TMB.
80 grew 10% year over year, and 2% quarter on quarter.
In the quarter and the industrial and TMB were broadly strong and we had a modest amount of accelerated orders by some industrial customers.
In ABDC, we continue our long term growth trend with 10% year over year growth.
Quarter to quarter, we grew 8%, though we were weaker than expected in auto.
The other decline was due primarily to slower auto sales in China stemming from trade related factors.
Broadcasting consumer were stronger than expected in the quarter.
Gross margin was in line with guidance GAAP margin of 66.2% and non-GAAP gross margin was 66.6%.
The difference between GAAP and non-GAAP is due to M&A related amortization.
Operating expense with GAAP opex at $312 million and non-GAAP at $306 million was slightly lower than our guidance.
GAAP operating income was $251 million or 29.5% operating margin.
non-GAAP operating income was $260 million or 30.6% operating margin better than expected as gross margin was slightly higher and operating expense was slightly lower.
Our GAAP and non-GAAP tax rates were approximately 8%.
One detailed note here.
Some of you may be aware of the Alterra case related to the tax impact of share based expenses and cost sharing agreements.
We have not recognized any impact on our tax rate from the recent ninth Circuit Court decision as we view this matter is unsettled.
Please refer to our 10-Q for more disclosure.
GAAP net income was $241 million.
And diluted earnings per share 94 cents.
GAAP EPS grew 27% year over year.
non-GAAP net income was $249 million, yielding a record non-GAAP diluted diluted EPS of 97 cents a share a 29% growth over last year.
Diluted share count decreased slightly to 258 million shares.
Next I'll cover a few points on the balance sheet and cash flow.
Gross cash was $2.9 billion with $1.2 billion in long term debt.
Accounts receivable declined to $306 million and is at 33 days.
Inventory increased $21 million to $337 million as we build for future demand, particularly in 16 nanometer.
Overall, we generated $298 million in operating cash flow.
We continue to implement our capital allocation strategy as discussed during our analyst and Investor Day, we made multiple investments in our ecosystem and continued our strategic M&A activities.
During the quarter, we also repurchased approximately 3 million shares at an average price of $105.50 per share and paid dividends of $94 million.
Now onto our guidance for the second quarter of 2000.
We expect our revenue to be between 808 hundred $50 million.
The midpoint and wider than usual guidance range reflect a full quarter impact from the shipping restrictions to walk away.
Other than trade other current trade related uncertainty.
And our usual business variability.
More specifically our guidance range includes an estimate of revenue from the resumption of shipments of currently permissible products to walk away.
And contribution from other products that are pending government approvals for shipping licenses.
On wall way, while we aren't quantifying the revenue contribution our expectation for walk away. This year have been reduced by more than half.
Building on that point, our outlook for the W.W.G. business is for a slight decline.
Wired is expected decline to decline and wired wired is expected to decline in wireless is expected to grow slightly.
Again, we do anticipate a headwind from the hallway situation, but we expect strength across our broad customer base to provide some offset.
Data center is expected to rebound strongly.
Our backlog is healthy and indicates significant growth is coming from our advanced memory architecture related business, we are expecting growth from the expansion of business at other hyperscalers as well.
Finally, we expect some growth from for Upto, although that business remains volatile and relatively small.
Well, we expect the business to decline in Q2.
This is primarily a result of an anticipated pause in a customer specific program.
Driving a decline in TMB.
Industrial is expected to be negatively impacted by order timing and macro issues.
India is expected to grow providing a partial offset.
Our APC business is expected to grow in Q2, we forecast growth in auto in broadcast and we expect consumer to remain steady.
To recap we are guiding our Q2 modestly downward mainly due to the shipping restrictions on wawa.
That said, we believe that outside of the trade related issues.
Our revenue outlook continues to demonstrate the breadth and resilience of our business model.
Gross margin is expected to be between 65, and 66% on a GAAP basis, and 66 and 67% on a non-GAAP basis.
non-GAAP gross margin is essentially flat from Q1 as expected.
The decline in GAAP gross margin is due primarily to incremental acquisition related amortization expenses.
As we discussed at our analyst day.
GAAP operating expense will grow in Q2 and is expected to be $326 million.
The increase was primarily due to increased employee compensation and acquisition driven expenses.
The growth in compensation reflects our annual focal process, including stock grants and organic and inorganic growth to our employee base.
non-GAAP operating expense will be approximately $322 million.
While we expect solar flare to close this quarter precise timing of the close is uncertain.
Therefore, we have not included revenue or expense estimates in our outlook for Q2.
Depending on the timing of the close additional non-GAAP opex could be between $10 million to $15 million for the quarter as we onboard solar flare employees.
We also expect to have incremental revenue of mid to high single digit millions in the quarter.
This revenue would be slightly higher than corporate gross margin.
GAAP and non-GAAP other income is expected to be approximately $11 million.
Our tax rate is expected to be approximately zero percent for Q2.
This low rate is a one quarter phenomenon due to the tax accounting rules for share based compensation.
We expect the quarterly tax rate to normalize in the second half of the year to a range between seven and 10%.
We expect share count decreased slightly in Q2, which is the net result of our share repurchases offsetting our annual stock grants.
As I close.
Victor and I realize there will be a great interest in our outlook beyond Q2.
At this point in time, we are monitoring the China trade situation and the overall economic environment.
Given the uncertainty of regarding these important factors.
We are not reiterating or updating our full year guidance today.
We expect to provide an update on our fiscal 20 outlook at our October earnings call.
Overall, we believe our long term growth drivers remain very much intact.
Although our F Y 20 revenue expectations have been somewhat moderated by trade related concerns. We continue to believe that the second half of our fiscal year will be better than our first half.
Let me now turn the call back to the operator for QNX.
The floor is now open for questions.
If you do have a question. Please press Star then the number one on your telephone keypad.
Once again that is star followed by the number one on your telephone keypad.
Please limit your questions to one to ensure that management has adequate time to speak to everyone.
Your first question comes from Vivek.
Ryan with Bank of America.
Hi, Thanks for taking my question Victor since while we use us for.
So much importance to investors.
I was really hoping if you could give us some rough sense of how large it was as a customer and you are lost.
Fiscal year I realize that it was not 10% so you're not disclose that but any rough sense would would be really helpful. And then how much of a headwind was that in June and how youre thinking about it in the September .
Quarter, just because it's such a large variable in thinking about the business in the near term. Thank you.
Yeah, well look again, he is a very important customers for us and.
But as you said, we had no 10% customer in F Y 19, nor in first quarter, but by 20.
You know we're always important that said you know we are able to hit the midpoint to our guidance.
Because they are we were able to ship for half the quarter, but as I said, the resilience of the business and all the other markets being very strong, particularly I T. Also seeing some more strength in some of the other wireless as well as the wired growth as we expected and just plain lot of hard work, we managed to offset that I think you should take away. The fact at our analyst day. We had said that Q2 would be flattish to Q1 and now we're guiding slightly down from that shows that clearly there is impact. Despite the fact, we are able to hit the mid range.
And just in terms of you know the the.
The general size I mean, clearly as Lorenzo said.
This range that we gave for Q2.
Shows that our current expectations well less than half than what we thought to begin with so the way you should think about this is.
Kind of the exposure to volatility around this is greatly reduced now because of how we're thinking about the business.
Your next question comes from the line of Joe Moore with Morgan Stanley .
Great. Thank you.
I Wonder if you obviously, there's variability in that in the second half of the year, that's pretty clear how are you thinking about opex in that context could you see opex you know come down if the revenue expectations come down or just what's the flexibility around that.
Yeah. So I mean look I think if you if you take a step back and say other than the trade situation. You know our main thesis of everything we said during investor out there remains intact right. That's what window closed with the fact that we have really still strong growth drivers in fiveg, yes, we're always an impact but the rest fiveg. So their data center automotive and longer term and built on top of all the multiple diverse mark that we have and so forth. So I think when we think about it. We said you know and we are investing in order to sustain kind of mid teens kind of growth for the next five years nothing really in the near term says that we should get off of that that strategy and that the investment thesis right. So you know we are still essentially moving forward with our investment but of course, we're monitoring the situation very carefully.
Okay.
Your next question comes from the line of the C.J. Muse with Evercore.
Yes. Thank you for taking the question I guess your gross margin question revenues guided modestly lower but gross margins also lower and I think we all thought that a wireless, particularly hallway index what was the headwind and therefore, if that's getting pulled out why our gross margins at the mid point guided lower and then what gives you confidence that you can get back to that kind of 69% territory in the second half of the fiscal year.
So.
TJ couple of points first.
In this case.
I would say you should look at the non-GAAP .
Gross margin guide as.
More relevant to.
The question you asked.
And we have what I.
What I should have said, if I didn't say it or.
Clarify is that non-GAAP gross margin is basically flat quarter on quarter.
How that.
It becomes about due to the mix is.
We read you also said that the wireless part of our business.
It's going to grow.
Albeit slightly and significantly.
I also said that.
In AI tea, we should see a decline which is generally benefited gross margin. So the result is a mix of those factors that help.
Could I just add.
Yes, I'll, just add that isn't always being a little more large out it's the wireless sector as a whole right and so well wireless is down a bit it's still pretty meaningful part right. So I think we really.
You know I think thats the way to think of it in just the why we issue. It's as you know we still have very meaningful wireless business and then the other part that got Lorenzo said about.
The other segment.
So just just in case I wasn't.
Clear.
When I get my prepared remarks.
From Q1 to Q2 wireless business despite.
We're always shipping restrictions.
It is going to increase slightly.
Thank you.
Your next question comes from the line of Ambrish Srivastava with BMO.
Hi, Thank you very much I just wanted to get back to data center. This is such a big underpinning of the one of the big underpinnings of the investment case for for Xilinx [laughter].
Could you just provide us with a rough breakdown of.
And you have given numbers now for the last two years plus the additional quarters. What is the makeup of the business Victor If you think about the kind of the old traditional work horse for Xilinx, which was.
Storage servers, as Venice automation versus the new businesses that you're winning and then in your full year guide that you are not able to retrade, which I completely understand given the uncertainties, but do you expect data center. Because this was supposed to be the biggest growth driver I think up 55 to 65 at the analyst day.
Are you willing to stick to that or even that's off the table for now thank you.
So.
Where are those going to give you some clarity on on the first detail part about traditional versus what I would say is falling again is like.
No.
Walkaway actually rate tends to think of that as wireless business, but they are their cloud business is significant business.
Everyone is aware that they had been in production with Epas, though as we said one of the big hit.
For the quarter was we weren't able to ship.
Some additional deployment they were going to do enough, yes, the second as Lawrence or kind of express was kind of a.
The transition on a significant memory business and again both of those businesses are the new good interesting business right as opposed to traditional not really acceleration storage kind of business right.
But to your broader question around you know this is going to be one of our big growth. Our yes. It was going to be one on a percentage basis, you're right on an apples to basis, obviously since its still small you know that's or I guess, what I would say is that I just want to say that it wasn't the only thing that was going to drive our business of course right.
And you know look worse, though see our opportunities very very big we're going after that aggressively we're not regarding the year again, but we're we're sticking to our significant opportunity and growth there though.
Again stay tuned into Q2 and then.
We you know and one other thing is if you didnt actually explicitly assets, but we're confident that when a bounce back in Q2 with strong double digits, because we see the backlog right. We've already factor in that we can't ship to walk away. So that downside that we couldn't have predicted in there and we see the solid backlog. So Oh Lorenzo do you have a.
Approximate between little quote new wins.
No I actually have breached I don't want to make that cut up on the fly I don't have it handy, but what I what I can tell you. This helps as you know the the core data center business growth that Victor alluded to.
As we go from Q1 to Q2 is.
Almost entirely the new.
The new business, if you will.
And we can get back to you on the historical stuff sorry about that no worries. Thank you very much.
Your next question comes from the line of Blayne Curtis with Barclays.
Hi, guys. Thanks for taking my question, maybe two related.
We'll see just on the wireless side.
You know we did guide to back up your your back close to kind of peak levels and Thats without I guess some portion of law way. So I'm just kind of curious if you could comment on some of the strength and then I know JCI geographic breakdowns of revenue is never a great way to look at that means but Asia was up big I was wondering if you could comment on that as well.
Yeah I mean.
Again, just qualitatively you know I think this speaks to the overall strength of Fiveg, which again that that isn't our thesis is unchanged are obviously well always important both its not like we had no impact, but but its just speaking to the strength of the fiveg deployment is really happening.
Yes, Korea started last year, but that's not as though that's over and I think I'll remind everybody that while he's a key customer as the ZT.
And you know we are continuing to get to the and as well as all the other ones right we shipped to all the the.
So the big players in wireless so I think that's really.
What you're seeing and.
No I think that is that aligns with the the Asia growth story is the primary driver.
And we did see.
Maybe.
Significantly.
Less important in overall impact we did see some strength in the industrial end markets in Asia as well.
Thanks.
[laughter].
Your next question.
Comes from the line of John Pitzer with Credit Suisse.
Yeah. Good afternoon, guys. Thanks, Let me ask the question Victor just relative to the September guidance for wireless to be up slightly I understand the headwind coming from wall way I'm, just kind of curious if that all factors in base band basic displacement with radio.
Gross or LTAC displacement more something we see as a headwind in the second half of the fiscal year and as that becomes a bigger headwind. How do you how should we think about your ability to grow the business sequentially.
Yes, I mean as far the basic displacement as I said in my opening remarks, mr., so lean inside a little bit more is that accurate. It was factored in when we shared what we thought we would do at the analyst Investor Day. So we are planning on the fact that we will see some displacement.
You know I would say that.
You know, it's not that we've seen that today, but we are still no change in terms of when we think thats going to happen, let's put it that way.
And so that also means that you know as Lorenzo said you know, we still do feel that the second half will be stronger than the first half, but we'll give you the detail after the close of this quarter.
That again that factors in any basic displacement.
Thank you.
Welcome.
Your next question comes from the line of Ross Seymore with Deutsche Bank.
Hi, guys. Thanks for letting me ask a question I wanted to go to the ITC segment, you gave a little bit of color why that was better than expected, but I wanted to see it two parts on that was there any inventory dynamic there where there were some inventory build that was benefiting that in the June quarter in the September quarter Guide. It seems like if I put all the moving parts in right that it has to fall off pretty substantially on a sequential basis. So I just wanted to see if there was a little more color about what's happening in the September guide for that segment.
So let me.
Start with the gold the smaller piece the history. There there was some inventory build in the strength in industrial in Q1, low double very low double digit millions if you will in the Q2 guide.
Even as we went into this fiscal year and incorporated in what we said at analyst day.
We where a significant customer.
Who's program timing would cause a pause in this quarter in their revenue.
So that's factored in it is a significant.
Decline in.
The TMB part of the business specifically.
Is that something that'll bounce back in the next quarter.
We expected to bounce back in the second half of the year.
Great. Thank you.
Your next question comes from the line of William Stein with Suntrust.
Great. Thank you for taking my question.
I'm, hoping to dig into the Fiveg dynamics, a little bit the the way that you're describing this market it almost sounds like well if our customers can't buy from far away. There's a bunch of other vendors and they can buy from them and we're shipping there and so it's it's.
It it's almost as though they're switch your ability to switch is rather easy and I'm I'm surprised to hear that and maybe I'm, maybe I'm misinterpreting it but maybe can you comment as to the.
Performance and demand trends at your customers and what your.
And what your customers' customers. The carriers are telling you about their ability to to adjust in that regard. Thank you.
So no I do not think at all that we were trying to convey that and we don't believe that.
You know, it's not like they can just swap.
I think you know.
Maybe a better way to think about is the initial remember we're in the early phases of Fiveg. We're just in the initial phases of the first <unk>.
The initial deployments in the first day, we see multiple phases.
I think you know what we're seeing is.
In China for the very first phase is not that much change.
And you know.
As you know with the big players are way ZT than you know other vendors get some portion of the market, but it's relatively modest there's really no change to that qualitative thing.
And the other points outside China of course are not affected right everybody's rolling through that.
We we.
Our in Spain that we have great visibility and what's going to happen to lead or deployments in China.
Right, obviously, we can't because you don't know whats going to happen with trade situation and so forth and to your point, it's not just like they could just everybody. Good just swapped.
So yes, no we don't we didn't mean to imply that and we don't.
Subscribe to that.
Perhaps I misunderstood if I can squeeze a follow up in there has been a lot of speculation that way it might have built as much inventory as they could be for speculation is up to two years, which seems impossible to me do you have any perspective on why ways.
Potential build of your products.
Yeah look I mean, we had that question multiple times in the United States and we reiterate we absolutely do not see that.
Absolutely not we do not see that [laughter] and.
You know I'd and just so you know why we're so Adam and from our perspective I can't speak to anyone else's part is because to do the five do you need our most advanced parts.
And we know exactly that's going you can't buy that through other sources. So we're very confident about there is no anything near that kind of inventory build right.
Thank you.
You're welcome.
Your next question comes from the line of Tristan Grapple with Baird.
Hi, good afternoon.
Looking at the potential displacement feel a S.P.G.H. bass spend against AIDS sake, how should we look at the trajectory of your average content per base station you know in terms of magnitude a year from now.
Are we looking at maybe it's 50% of cat on Avalanche at your onshore China customer any quantification you could give us.
Well you know I mean, I think in our analysts converts there we kind of walk through that as best we can so one attempt to try and go through that again.
You know so if you were to take the trading off I would say, there's nothing different about how we feel about it today from what we shared at the analyst Investor day, the exact details of how they value content does vary by.
Oh, I am as well right or in the case of China and Wawa, It's like Okay. We can't ship then.
And you know it.
In those systems, then it's not a matter of the degree it's just that we're not shipping right. So.
So again I would just summarize and saying that Theres really no difference in how we think about.
Broadly the content, including a you know a six displacement, we've we factor that it right.
Okay. Thank you.
Oh.
Your next question comes from the line of Toshiya Hari with Goldman Sachs.
Hi, guys. Thanks for taking the question Victor I was hoping you could talk a little bit more about the automotive business. You mentioned that there was some weakness in the quarter.
Given some of the some of the unit trends in the market.
But.
How how how fast is the business grow our year over year basis.
What's kind of the outlook into into September and beyond and I think at the analyst day, you guys had talked about.
The design wins and those ramping over the next year or two any changes the outlook.
Again as it relates to automotive and then separately I mean, you guys gave accretion details for solar flare I was hoping you could do the same for Angie Kodak. Thank you.
Okay, Let me take the auto one and then perhaps so long as we can speak to that last part. So it's one of those that are there is darkness in the auto market I think broadly I think people have heard that in and there is there is correlation to the whole kind of situation right because a lot of there's a lot of business that they ship into China. So the fact that we had some issues. There has caused some slowdown in the things that are in production now.
If you kind of look at a lot of what we talked about in the I would say do is how we're being designed into new additions to what's already in production that continues with full momentum you know very broad in terms of next generation Adas.
In in cabin kind of systems and our occupancy.
A kind of new systems as well as fully autonomous driving so that continues and we feel very good about no change everybody's investing for.
Each of growth and then you turn into some stock. That's nonetheless, we will still we still do expect to see growth in this segment, but obviously that's moderated.
Yeah.
Two I'll I'll take the last two on on auto.
It was a little bit lower than the previous quarter this quarter.
We had expected to grow.
And what we're seeing is the impact of.
Would you characterize our business and.
Customers from outside of China, selling autos in China was first one of the drivers for.
The lower than expected performance due.
I appreciate the fact that you ask about the longer term growth trend as year over year, we did see a greater than 5% growth and maybe more importantly, if you take.
The trailing 12 months versus the prior trailing 12 months, we see double digit percentage growth in our auto business. So.
We still see very strong growth trajectory there over the course of time.
I'm not Angie Kodak is relatively immaterial transactions or you know.
We're not providing that kind of accretion.
Assessment that you asked for but we did in the transaction going to very very good.
Highly qualified IP team and so we're really pleased with that acquisition.
Thank you.
[noise].
Your next question comes from the line of Chris Caso from Raymond James.
Yes. Thank you.
I wanted to return to some of your earlier comments about Fiveg and some of the advanced parts that you're shipping in there and the question is what's your customers alternative to what you shipped in the event that.
Either they can't components over the long term or if because of the trade situation.
They choose to reduce their reliance on on on U.S.U.S. based suppliers.
I'd have to imagine with all this going on that's one of the things in their mind, what sort of long long term risk to that provide for you and do you think.
There are reasonable alternatives out there that would be competitive threat to you.
Well look I guess in the near term.
You know they.
Why everybody knows that has a a subsidiary high silicon that.
And they do use them quite a bit.
I have no I don't really have any insight. So I don't want to speculate exactly what they do I would imagine that if this situation prolong its still being into what they already use right, which is a six.
That can't happen quickly because they when you architecting some way it's not like you could just change that on the dime.
In terms of other replacement and if you you didn't say this but if you are referring to like in China domestic replacement those customer companies, we watch and they're all doing very low and things that certainly could not replacing anything approaching fiveg.
So I think thats, a fairly far out in terms of other kinds of strategies.
Replacement or whatever again, I don't want to speculate but.
You know basically as I said is for the near term I don't really see how they would do it other than just focusing on these things more.
Right. Thank you.
Your next question comes from the line of Christopher Rolland with Society.
Hey, guys. Thanks for the question.
Yeah on Fiveg I think you guys covered Korea.
I had a bit of a pick up in China.
But have you seen anything yet really or can you describe what you've seen in North America, Japan.
Perhaps any other geos topping that up.
Yeah, I mean, Japan is going to start.
We believe that will happen, but it will be kind of a little bit more of a moderated thing than what we've seen it what we see in the first two geographies going.
North America, you know well.
Personally has moved a little slower we don't see anything different than that and then probably Europe . After that so we don't see something really imminent.
Although there's certainly a lot of activities.
So that that's our outlook at the moment.
Your next question comes from the line of David Wong with Instinet.
Thanks, very much you mentioned that you were applying for licenses to ship the remaining put up where he wants to them are there any guidelines. The comments department provides for the types of licenses.
As to when you might be able to expect a decision.
[noise] up two clarification it wasn't licenses for all the remaining product.
Yeah, you know we what we've just recently began shipping its things that we feel even with a with a with the restrictions that we have we can legally ship what weve applied a license from some additional product, but certainly not all of them.
Because again, there's been no change to the overall restriction.
Respect to security for security right. So.
That's kind of what Lorenzo was trying to express is that the midpoint of our guidance for Q2.
Is just assuming that we can continue to ship the things that we just started shipping and it's our estimate what will ship.
The upper end of the range certainly would require us getting some approval for some additional product, but it is not all of the product.
And of course, we'd have to get that approval soon enough. So that we can ship, though you know there's still uncertainty and dynamics around that so and then in terms of you know when.
These things typically get responded to by the government or in usual circumstances, where we have heard is 69 days, but as you might have read there has been some recent.
I wasn't a meetings with the administration at various departments and saying that there are going to be expediting those companies sort of put in licenses and that might happen much sooner than that and matter of weeks, but nothing specific has been given and of course, we have no idea we were in the queue.
Great. Thanks very much.
Okay.
Your next question comes from the line of Chris Danley with Citi.
Hey, Thanks, guys. Just two quick clarifications. So they can you said you're trying to restore some of the lost one way business how much of that business. Do you think is just gone forever like you can't you can't ship and then how was how big was the one memory customer it's having the product transition in that data Center group.
Well, let me talk to the first one so.
You know I don't think that we've lost anything that we just won't completely lose because again that was just one or two things that they've got a complete replacement on a dime.
You know or are they just going to give up on that business and they're certainly not going to give up on fiveg and again as he said they've architected in a certain way that's not something that anybody could just change on a dime.
You know, it's just start you know prolong for very long period of time, which I, certainly hope isn't going to happen, which I expressed in my comments as well, we really certainly hope we could resolve these important issues as quickly as possible.
In which case then we will have some resumption, but you know I think again, if you kind of think about the guide if you. If you kind of look at it is even if we got the.
Meaningful you know the vast majority of everything we have five four in the license and we continue to ship what we have that's still less than half of the revenue. We would have expected for walk away. If nothing had it had occurred that's what.
Lorenzo had guided to help you understand on what we're doing so that tells you that of course that fiveg and the other things that we're doing we're very meaningful for us right.
And then the latter part of your question, Chris on the on the memory related customer.
[noise] Glu will just give you a very specific.
Number for them is there are less than 10% I will say that.
In.
In relation to the overall data center business, which is.
Relatively small as we disclosed the it's a significant customer.
Okay. Thanks.
Your next question comes from the line shave Rakesh with Mizuho.
Hi, guys just on the wireless growth a good to see you're going Green from Q1 to Q2, despite probably is it fair to say that you're doing.
That wireless business not just despite probably but also your basic no audio based spend exposure.
It's coming down and also if you could give us some color on how your seven nanometer versus ramping thanks.
So I'm a big fan again, I would you know I know, there's a lot of questions around that and I. Just wonder is there as we've always contemplated you know whatever replacement that we would see there nothing has really changed I again why is well you know the way to think of it is that even though I think you know it.
It's really not.
Oh five D designed in business kind of things right that.
So there you know it's not just a basic question is does walk away in wireless Fiveg, you know with with respect to first of all actually that's going you know really well you know as I said, we already sampled to the very leaning ER.
Customers, we got literally hundreds of people in the early access program, where they are already using the software and getting ready for designs. Obviously, we just initially shipped throughout this whole quarter, we'll be expanding sampling and so forth.
You know as I said, the silicon testing is really rock solid so we're very excited feedbacks been good.
I I will say that you know of course, you know so this is still sampling periods, though revenue will be very modest you know until we go into production in endpoint is the one you know you're not gonna see meaningful revenue, but in terms of momentum and taking our platform to the next level. We're we're in really good shape very excited about that.
Hi, Thanks.
Welcome.
Your next question comes from the line of Quinn Bolton with Needham.
Hi, guys just wanted to clarify I think coming out of the analyst day, you had sort of talked about W.W.P.G. being sort of flattish to down on a quarterly basis in the <unk> and into the second half of the fiscal year to incorporate that basic replacement, but on the call. I think this evening. You said you you you think now W.W.G. would be up in the second half despite the Wally shipment band. So just trying to reconcile those comments is the base business in Fiveg. Your wire just now better than 90 days ago or did I Miss something.
It's to Quinn.
It may have been some form of miscommunication or we didn't say anything specifically on this call about second half wireless.
Trajectory we are.
Your reserving the next few months to get much more clarity on the waterway situation and the larger trade situation. So.
Sorry, there was a miscommunication I really like what we did say is we expect our second half over overall to be overall okay.
Yeah, the whole business the ultimate deal our business in the second half, which we started out with a albeit it moderated now because unless we get full resolution of Wawa and can presume all shipping the while we then obviously, it's not going to be as strong as what we said well. We're still think qualitatively. We believe the second half of this fiscal year will be stronger and again, we will give you all the information after the close of business, which by the way. We know part of that is we'll get clarity on these oh licensees. We have put in that we discussed and we just think we'll be in better placed to give you something without speculating.
Thank you.
And operator, we're gonna do you have one more question. Please.
Yeah. So your last question comes from the line of Matt Ramsay with Kelly.
Thank you very much for squeezing me in Victor I wanted to ask a oh.
Bigger picture question on a cap personal lives are starting to sample and.
Potentially ramp the product here in the coming quarters, if you might give us a little bit of context around the software ecosystem and the software environment that you guys have built.
Behind the scenes for the product to maybe the level of first customer engagement you have any NRT funding on software that youre engaged and just the I guess the depth and breadth of the software engagement around that new platform any context would be really helpful. Thank you.
Yeah. That's a that's a very good question obviously, the it's a very just sort of a product that is very powerful and so we do need to bring along the software tools along with it as I said in my comments that you're gonna here, we're going to do so I don't want to I want to you know pre pre give details, but we are at X. The f. an October going to announce a new software development environment that isn't just reversal, but it will of course, you know go forward with personal and we are going to we've invested a lot in it and we are going to significantly improve the user experience and make it more accessible more developers.
So we are investing a lot. We're also doing other things beyond just our internal you know in terms of driving ecosystem and IP and libraries optimize libraries and you know other things around run time. So it's a good point, where we are investing a lot. It is important you will hear more details about that at ex yeah. So.
So hopefully you can make that or you know stay tuned.
I appreciate all right.
Okay.
Well, thank you everyone for joining us today.
Well have a playback of this call beginning at five PM Pacific eight P.M. eastern time today and for a copy of our earnings release. Please visit our Investor Relations website. Our next earnings release date for the second quarter of fiscal year 2020 will be on Wednesday October 23rd after the market closed.
I'm pleased now that high during the quarter Xilinx will be attending the key Keybanc Investor Conference on August 13.
And also we're very excited to be hosting our xilinx developers Forum on August sorry October 1st and second in San Jose and we look forward to seeing many of you there.
This completes our call and thank you very much for your participation.
Ladies and gentlemen, thank you for your participation. This concludes today's conference call you may now disconnect.