Rick Muscha – Senior Director, IR Jon Olson – EVP, CFO Moshe Gavrielov – President, CEO

Ryan Carver – Credit Suisse Romit Shah – Nomura Ambrish Srivastava – BMO Capital Markets Vivek Arya – Bank of America Merrill Lynch Blayne Curtis – Barclays Capital Tristan Gerra – Robert W. Baird Srinivas Pajjuri – CLSA Research John Vinh – Pacific Crest Securities Ross Seymore – Deutsche Bank Joe Meares – SunTrust Robinson Humphrey Ian Ing – MKM Partners Harlan Sur – JPMorgan

Good afternoon. My name is Chris and I will be your conference operator. I would like to welcome everyone to the Xilinx Second Quarter Fiscal Year 2015 Earnings Release Conference Call. [Operator Instructions] I would now like to turn the call over to Rick Muscha. Thank you. Mr. Muscha, you may begin your conference.

Thank you and good afternoon. With me are Moshe Gavrielov, CEO, and Jon Olson, CFO. We will provide a financial and business review of the September quarter, and then we'll open the call for questions. 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 documents the company files with the SEC, including our 10-K's, 10-Q's, and 8-K's. These documents contain and identify important risk factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements. This conference call is open to all and is being webcast live. It can be accessed from our Xilinx investor relations website. Let me now turn the call over to Jon Olson.

Thank you, Rick. Xilinx sales were $604 million during the quarter and profitability at $0.62 per share was significantly higher than expected. Sales for Q2 fiscal 2015 were down 1% sequentially and in line with our guidance. All primary end-markets performed as we expected. With respect to the sub-end-markets, aerospace and defense, industrial, scientific and medical, test and measurement, automotive, and data center, all increased while all other secondary end-markets decreased. 28-nanometer sales were flat and 40-nanometer sales declined as anticipated, reflecting an overall decline in our new products category. Our base category, which is comprised of our oldest products, increased significantly during the quarter, driven primarily by the timing of programs in the aerospace and defense end-market that we discussed with you last quarter. On a year-on-year basis, new products were up 21%, mainstream down 8%, and base products down 14%. Sales to communications customers were down significantly as expected, with two customers accounting for the majority of the decline. Both wired and wireless communications were down double digits sequentially, while data center sales increased. Turns were 48% for the quarter. Gross margin at 71.9% was a record for the company and better than expected, due to product and customer mix. Operating expenses were slightly better than expected at $235 million, including amortization of $2.4 million. This resulted in operating income of $200 million, up 22% from the same quarter a year ago. Other income and expense was a net expense of $6 million, slightly better than forecasted, mainly due to higher interest income on our investment portfolio. Net income for the quarter was $172 million or $0.62 per diluted share. A number of factors contributed to the high level of profitability including a higher gross margin percentage than forecasted, a tax credit for approximately $2 million utilized during the quarter, and a lower number of shares outstanding. Operating cash flow for the September quarter was $204 million before $8 million in CapEx. Diluted shares for the quarter were $267 million. This was $6 million less than forecasted due to the increased buyback activity during the quarter and the impact of the lower stock price. There was a 6.7 million share dilutive effect from our convertible note. We continue to be committed to returning cash to shareholders. During the quarter we stepped up our buyback activity, repurchasing 4.8 million shares for $200 million. We also paid $77 million in quarterly dividends. For the first half of the fiscal year, we returned over $450 million to shareholders in the form of repurchases and dividends, significantly more than we generated in operating cash flow. Let me now comment on the balance sheet. Cash and investments decreased $49 million to approximately $3.6 billion. We have $600 million in convertible debt and $1 billion in fixed-rate debt, resulting in a net cash position of approximately $2 billion. Inventory increased slightly during the quarter. The vast majority of our inventory is in new products for which we continue to have strong forecasted end-demand. As we discussed last quarter, our plans are to reduce inventory dollars by the end of the fiscal year. Let me now turn to a discussion of guidance for the December quarter of fiscal 2015. Our backlog heading into the quarter is up sequentially. We are expecting significant sequential growth from our 28-nanometer product family. We expect both wired and wireless communications to increase modestly. China wireless deployments continue to be gated by the availability of components essential to the ramp of FPGAs. We remain optimistic about the global LTE deployment and our strong position in wireless deployments. We expect the industrial and aerospace defense segment to be up, driven by continued program-related strength in aerospace and defense. Broadcast, automotive and consumer is expected to be flat. As a result, we are expecting total sales for the December quarter to be flat to up 4%. The midpoint of this guidance is predicated on a turns rate of approximately 46%. Gross margin is expected to be approximately 69%. The sequential decrease in gross margin percent is driven by product mix as 28-nanometer revenue grows and older product revenue declines. In addition, as inventory begins to decline, we expect a negative impact to gross margin. For the full fiscal year we expect gross margin percent to be between 69% and 70%. Operating expenses in the December quarter are expected to be approximately $230 million, including $2.5 million of amortization of acquisition-related intangibles. Other income and expense for the December quarter is expected to be a net expense of approximately $6 million. The share count is expected to be approximately 272 million shares. The tax rate for the December quarter is expected to be approximately 13%. Let me now turn the call over to Moshe.

Thank you, Jon, and good afternoon to you all. While September revenue was in line with our guidance, I'm very pleased that we continue to deliver strong profitability. Gross margin increased to a record 71.9% and operating margin to 33.1%, both significantly higher than our expectations. These contributed to earnings per share of $0.62. As we had predicted, 28-nanometer revenue was flat sequentially, driven by a forecasted pause in China LTE activity. As we head into the second half of our fiscal year 2015, we're anticipating 28-nanometer revenue to renew its significant growth. This will be driven by a broad set of applications in wired communications, industrial, data center, defense and automotive markets, complemented by the strength of increasing LTE deployment. We anticipate 28-nanometer sales to exceed $150 million in the December quarter, driving overall sales growth for the company. 28-nanometer product generation is without doubt the most successful node in our history, will serve as the growth driver for the company for several years going forward. Our 28-nanometer sales target in fiscal year 2015 is $600 million, an increase of approximately 60% from the previous fiscal year. At the 20-nanometer node, independent customer feedback indicates that we have approximately a one-year lead over the competition, both in terms of our ultra-scale silicon maturity and quality of results. This significant technology leadership is delivered in the broadest and most compelling midrange product family, complemented by the industry's only high-end family. This is manifested in the largest FPGA in the industry which delivers over 4x the capacity of competitive devices. All these are enabled by the unmatched abilities of our Vivado tool suite, which is uniquely delivering only to Xilinx customers fastest time to market, most efficient device utilization, fast [ph] performance and lowest power. The record success of the 28-nanometer portfolio, which is still in the early phases of revenue growth, combined with the competitiveness, breadth and execution to date for already delivered 20-nanometer solutions and about to be delivered in early 2015 16-nanometer ultra-scale portfolio will drive increased share gains against both ASICs ASSPs traditional programmable competition. Now I will turn the call back to the operator for Q&A.

Thank you. The floor is now open for questions. [Operator Instructions] Your first question is from the line of John Pitzer with Credit Suisse. Your line is open. Ryan Carver – Credit Suisse: Hi. Thanks for taking the question. This is Ryan Carver in for John. I know one of the things that has been difficult is to quantify sort of number of base stations being deployed in China. I'm wondering if you could maybe help us understand relative to sort of the 3G cycle, you know, this quarter or sort of the cycle to date for 4G versus sort of the ramp in 3G. And I guess what I'm trying to think about is, you know, kind of dollar content for base station. I think you guys have talked about a 2x increase from 2G to 3G and a 3x increase from 2G to 4G. But it seems like wireless revenue, at least from sort of the peaking period in 2010, is probably down currently. So I'm just trying to understand from a like-for-like perspective in terms of base station units, how you guys sort of think about that and if the content growth is actually playing out as expected.

Yes. Well, first off, Ryan, it's very difficult to compare these two ramps because we are still very much in the middle stages of 4G and we've already seen that the predictability has been quite difficult, primarily because of shortages in the supply chain vis-a-vis what China Mobile might prefer they want to do. So, comparing the number of base stations generation to generation, I just can't -- I don't have any good rule of thumb for you to figure that out. I mean I do think that 4G number of base stations deployed will be a greater number of base stations than 3G in the end when you think of all the technologies. And we are still very much in the ramp-up of that capability across China. So I would say the way I had thought about 3G ramp was that it was very fast, very sharp, up, level off for a while and then came down relatively sharply. This is -- this has had a lot more volatility relative to 4G versus 3G. So it's a pace issue that to me has turned out to be very different so far. And again, it's because of the supply chain issues they have. Now relative to content, I think we've said in the past that all base stations are not necessarily created equal in terms of their -- both the OEMs who manufacture them relative to FPGA content by OEM, and also then again the various models of centralized versus distributed, remote radio heads versus centralized, things like that. But when you look at the manufacturers that are using, in the radio, cars, in particular, all FPGA implementation, it's really clear to us that there's a 50% revenue increase over 3G. Those manufacturers who are using ASIC deployments with FPGA companionships, then that percentage doesn't hold quite as easily. And so it does depend on the mix of which OEM we're talking about. And each of those OEMs have different levels of logistics issues in the 4G technology rollout as we sit here today. Ryan Carver – Credit Suisse: Good, thanks. And as a quick follow-up, I think the magnitude of the industrial performance for the September quarter was certainly a bit above expectations. Can you just kind of walk through how this -- how you think this is going to play out? You obviously are guiding it a bit higher in December quarter. How should we think of that kind of going into the first part of next year? And I guess as a correlation to that, what's, you know, do you guys expect gross margins to come down as base units, kind mix lower as a percentage of revenue?

Yes. We have a huge end-market mix going on right now that's driving that gross margin up this quarter as a result of all of our industrial -- all sub-segments within the industrial category going up in the September quarter. And then the guide is for aerospace and defense subcategory to go up, the other two being ISM and test and measurement will be flat to down. So there's a little bit of a difference there. The aerospace and defense is clearly program-related. And we pushed a lot of programs -- several programs got pushed into the September quarter, out of June into September for us, that's contributing to this. And we are expecting strong aerospace and defense again one more quarter. And this is a very seasonal bracket around the government fiscal year. Typically, in March you would see aerospace and defense then declining. And then our belief is the offset to that will be the communications business growing significantly during that time period. Ryan Carver – Credit Suisse: Great, thanks. Good results, guys.

Next question please?

Your next question is from Romit Shah with Nomura. Your line is open. Romit Shah – Nomura: Thanks. Hi, Jon. Hi, Moshe. And yeah, congrats on the good results. I imagine it's a pretty tough environment out there. Jon, just seeing the strong growth in base products and industrial aerospace combined with the 72% gross margin, I think may start to feed speculation that sales this past quarter were artificially boosted by last-time buys. And so I was wondering if you could address that. And then I have a follow-up.

Yes. So it is true that the aerospace and defense and industrial, scientific and medical category does have very long design-in and long tails relative to when they ramp to production. So that would lead you to believe or understand that many of our older products, when those end-markets grow, it's more of our older products that are contributing to the biggest part of that, not just our new products, which is a little different than maybe some of the end-markets we have. And so when you see this new product category going down and communications going down where there's a lot of new products sold into the wireless technology, you have this big swing in the mix, meaning comms down, new products down, base products way up because of those particular two end-markets that grew quite dramatically. So inside of those -- the base products is the last-time buy, but it isn't the only element of base products and it isn't the only element that gets sold into those technologies. Essentially Virtex-5, Virtex-4, those are not considered last-time buy products, were very strong contributors in the aerospace and the ISM end-markets as well. But also some of the even older products and some of those were considered last-time buys. So I don't know about the word artificial. We'll take whatever business we get. But you're right; there is this big push-up of these end-markets that will -- there'll be a flop as the seasonality hits us later on aerospace and defense, and it will come down some. And that's driving the 72% gross margin. We remain confident on the 68% to 70% range for running the business at this point in time. And we did have this higher profitability because of the end-market mix, and will return to a more balanced mix over time. Romit Shah – Nomura: Okay, that's helpful. And then I guess in light of the current macro environment, which seems to have weakened recently, and your comments about supply chain constraints in communications, how do you feel about the fiscal 2015 target of 5%. Is that still a realistic target for this fiscal year?

Yes. So we aren't forecasting the fourth quarter in this call, and that may get you to think that we're backing away from the 5%. But quite frankly, it's really highly dependent on this wireless supply chain shortage issue. We've had large wireless OEM customers say we would be taking more FPGAs if we had more power amplifiers. They've made that statement to us. And so the whole notion that China Mobile claims they want to do a couple hundred thousand more base stations this year, I don't see where those units -- excuse me, the supply chain is going to be able to support that in the short order based on what we see. And so the fourth quarter for us is a growth quarter for 28-nanometer. It is a growth quarter vis-a-vis what we think will end up in December. Whether we -- it's definitely possible we could get to the 5%, but we are not making that commitment at this point in time due to this reduced visibility. Romit Shah – Nomura: And is this issue with the power amplifiers, is this just a timing issue, meaning that you're not sure if you're going to, you know, ship X number of FPGAs in March or whether it will spill over to June? Or --

We don't believe we're going to lose share - we're losing any share in this time period. It is a matter of when they are going to ship, the timing of that, when the allocation of power amplifiers increases, if it ever does. We don't produce those, so therefore I can't give you a good reading on when that is going to be alleviated. But we don't think this impacts the total dollars for the overall China LTE deployment for us. It's timing. Romit Shah – Nomura: Okay. Thanks, Jon.

Your next question is from the line of Ambrish Srivastava from BMO Capital Markets. Your line is open. Ambrish Srivastava – BMO Capital Markets: Thank you. My first question, Jon and Moshe, with respect to communications for the reported quarter, it sounds like it was weaker than what you had guided to because you had said down but it came in way lower, down 19. My question really is, given how big you now are at Huawei and also given your success on the radio side, are you aware of any ASIC conversions going on with HiSilicon? Because it's our understanding that HiSilicon's business has been on a tear the last couple of quarters. So that was my first question. And second is on the capital allocation, Jon. Could you just remind us what is the company thinking on capital allocation and also how much buyback do you have in the arsenal? Thank you.

Sure. On the comms, comms was down quite a bit. And the biggest part of it was the wireless piece that was down versus the wired. But wired was also down quite, you know, from a double-digit perspective, you know, pretty healthy. But think of it more like two-thirds of that was wireless and maybe a third was wired at the highest level. It really -- I mean none of that was caused by any substitution from an ASIC perspective at all. This is -- HiSilicon and Huawei continue to work very closely together. There are ASICs on the board. We don't, you know, we're not being substituted out in any of the companionships that is anything material that would drive a lower overall Huawei number from us versus our expectations. So I guess the answer to your question is really no, we're not seeing that necessarily on the wireless side. From a capital allocation perspective, we did increase our repurchase level quite significantly in the first half of our fiscal year. And our strategy has really been to first define what we think the right answer for the dividend is and try to be a consistent increaser of dividend over time, and then the remainder of the cash allocated to return back to shareholders. It's really opportunistic from using repurchases as the balance to that. And as we see, you know, as we see what happened in the stock market to us last quarter, we thought it was appropriate for us to increase our buyback significantly. We aren't gated by a 70% number or an 80% number or 100% number. We're gated but what we think is the right time to buy back and our confidence relative to the business model that we have. And so we've made the call to increase it significantly in the first half. We still have, on the current authorization, a little less than $200 million available as approved by the Board of Directors. Ambrish Srivastava – BMO Capital Markets: Okay. So it's consistent, no change. Thank you, Jon.

Right.

Your next question is from the line of Vivek Arya from Bank of America Merrill Lynch. Your line is open. Vivek Arya – Bank of America Merrill Lynch: Thank you for taking my question. I wanted to talk about the 28-nanometer revenue target at $600 million. I'm wondering what is the contribution from wireless in that. Is it fair to think it's about 35%, 40% of that, or is it less or more? I just want to get some rough ballpark of how much wireless contributes to that.

Yes. Actually I'm a little bit at a loss. I'd have to look into that for you, Vivek. You know, Kintex is by far the biggest driver, and that's in the neighborhood of 40% or 50% of our overall number in wireless. And Kintex is the primary parts that go into the wireless technology for China, at the 28-nanometer level. But I think I need to go dig into that. I haven't really looked at the end-markets split of 28-nanometer that closely. I don't want to throw out a bad number. I don't think I mind giving you a range; I just don't have the number at my fingertips. Vivek Arya – Bank of America Merrill Lynch: So I guess, Jon, maybe where I'm going with that question is that, what is giving you the confidence that you will be able to achieve $600 million at 28 nanometers given that wireless is the growth driver and there is some uncertainty on the pace of the build-out and then just the supply of other components? Why do you think you will be able to achieve $600 million in 28-nanometer revenue?

Vivek, this is Moshe. Our target is 600. If you examine our comments closely, that's driven by a whole host of markets. The amount of design wins, the breadth, the depth transcends all markets. And what happens is at different points in time, different markets tend to grow at different rates. Generally speaking, if you take out the ones which are lumpier, and wireless falls into that. There are, you know, in particular, wireless in China tends to come in big lumps, driven by external elements. But if you take that out, then 28-nanometer has been growing constantly every single quarter since we started. It took a huge leap in the December and March quarters, and those were driven by wireless. But then as -- and that's LTE in China. But as that took a pause, then the other elements continued to grow. So it would be appropriate it to think that wireless is a driver, but it's not the only driver, and to assume that over time what happens is design wins in other markets start to turn to revenue. We expect some of those, and they are turning to revenue, have been over the past quarters. One which will start in the next calendar year to accelerate is, for example, automotive. In addition, we do expect wired comms to somewhat -- a little later than we had expected, but we do expect that to catch on. So long answer to a question, but it is multi-markets, it's not only wireless. Vivek Arya – Bank of America Merrill Lynch: Got it. Very helpful, Moshe. And maybe just as a follow-up to that, I think the investor worry is that if, let's say, the China base station build-out does peak, right, over the next couple of quarters, are there enough of other applications out there to help you grow into your target revenues? Because when I look at the last eight or ten years of the communications and data center revenues from you guys or even with your competitor, it's only grown half the time. Right? So it coincides with the CapEx cycles and it seems like that CapEx cycle could peak next year. So do you think there is enough of range of applications outside of wireless and China base stations that you can still grow the overall company at above the rate of semiconductors?

You know, I'm loathe to provide anything vis-a-vis the rate of semiconductors. So I'd rather just focus on our numbers. And those are the ones that we are responsible for. And what is driving our growth now is a very virtuous product cycle with a huge and very broad number of design wins across all applications. And that is -- and hence, we are very confident that 28-nanometer, just due to the breadth and depth of our offering and the number of design wins, will be by far our largest node. And that is driving our growth. As part of that, this long-awaited ability to grow the fam through ASIC replacement and ASSPs is starting to happen. Again, it's happening a little more slowly, unfortunately. But there is no doubt, and as the Zynq product offering starts to gather momentum, that it's all ASSP replacement because it clearly changes -- enables us to displace ASSPs. ASICs are happening at the high-end. They are happening quite broadly now as the ASIC market is devolving and it's becoming less and less viable except for high-volume, very high-volume consumer type applications. So all of those are growth vectors. And that is helping grow our market. It's helping grow the entire programmable market. And that should enable us not to be necessarily linked to any previous cycle. It is a growth arena potential, and I absolutely would agree that we have yet to demonstrate that. But that is happening in terms of design wins. The transition to revenue will enable us to do that. So we are very confident in that trend. And the growth -- I'll take one example. Automotive is a market we had very, very, very peripherals play in, in the past. And we expect -- and it's a market that develops relatively slowly. But in terms of our design wins and our confidence in those design wins we expect to see significant growth in calendar 2015 and calendar 2016 and calendar 2017, in that area. We really did not have a huge play in previous generations. Wired comms, again, is another area where 28-nanometer has yet to fall into a stride and rhythm there. And that's more delayed and we had expected. But again, those design wins are now moving into production and they will, over the next year or so, translate to revenue. So I think there's a lot -- if you look at the data and the details, and there's a lot of reasons that -- to not to believe that previous cycles are necessarily a perfect predictor of what will happen now. This time it is different. Vivek Arya – Bank of America Merrill Lynch: I hope so. Thank you.

Thank you.

Your next question is from the line of Blayne Curtis with Barclays. Your line is open. Blayne Curtis – Barclays Capital: Hey. Thanks for taking my question. Just wanted to go back, Jon. You said that the quarter played out fairly as you expected, and obviously you didn't tell us exactly what numbers to model. But obviously comm was down significantly and industrial up. Jjust wanted to make sure that that was your comment, that it all played out. And you've seen fairly soft comments on the wired side. I was surprised that wireless was the weaker one. What is wired looking like as you go forward? You're looking for growth. Have you seen these pockets of weakness that others are seeing?

Yes. The characterization that the quarter played out as we anticipated, all end-markets went in the direction we said. Comms was down a little bit more and industrial and aerospace and defense was up a little bit more than we'd anticipated. And so there was a little bit more of a pronounced down and up in those two specific, you know, those specific cases. And I'm sorry, and the rest of your question, Blayne -- Blayne Curtis – Barclays Capital: The second part was the wired, there's been several data points that wired is kind of getting worse. You seem to see it going up.

Yeah. Wired was -- the wired issue is that we had a couple of very large customers who had taken a lot of product the previous quarter for -- a lot of this was around access and transport capabilities. And there's some inventory adjustment going on in some cases and also they're beginning a transition from 40-nanometer technology to our 28-nanometer technology, so they were buying quite a bit of the older products earlier. And they're going to start to transition all their new products to 28-nanometer over time. So it was again customer specific. The overall trend for wired is still up. And as Moshe just articulated, we are expecting 28-nanometer in wired to grow in the coming quarters pretty significantly. Blayne Curtis – Barclays Capital: Okay. And then just secondly, on the industrial A&D market, huge sequential. Was that primarily defense as you had talked about? Was that the vast majority of the contribution? And then when you look into December, it's growing again. Is that still the defense snapping back after the transition? And can you just go over the seasonality there again? I was kind of confused on the comments. Does it come back down to a more normalized level?

Yeah. The high-level category, which includes aerospace and defense and industrial, scientific, medical, and test and measurement, all three of those categories grew in the September quarter. Aerospace and defense subcategory grew a lot. And that was consistent with what we had talked about before, that it was way low the last couple of quarters on a run rate basis and it was going to bounce back and catch up. Going forward in December, aerospace and defense subcategory is going up and the other two are flat to down. And so the increase won't be as pronounced in that overall category but it will be driven by aerospace and defense. Then what is typical for us is, in March and June, is that the aerospace and defense subcategory goes down because of the seasonality around bracketing the end of the government fiscal year in September. And we have had this effect fairly consistently over many years of the company. So there is definitely going to be some up in those categories and then some down in aerospace and defense as we get to March and June quarters. I hope that was clear. Blayne Curtis – Barclays Capital: Yeah, very clear, thank you. And just the node that defense is on, I mean into that context of the last-time buys.

The last-time buy node is 130-nanometer, a part of our 130-nanometer capability. And again, aerospace and defense, industrial and scientific and medical buy 130, 90, 40, 28-nanometer. It's across the board, but it's always weighted towards the lower, you know, the older products just because of the nature of that business, very long design-in and very long qualification. Blayne Curtis – Barclays Capital: Okay. Thanks, Jon.

Next question?

Your next question is from the line of Tristan Gerra with Robert W. Baird. Your line is open. Tristan Gerra – Robert W. Baird: Hi, good afternoon. Just as a follow-up to some questions that have already taken place regarding the December quarter outlook. A quarter ago you stated your expectation for revenue to be down starting in the December quarter. Since then, China Mobile raised their TD-LTE base station target by 200K so that's at least $60 million in incremental revenue, which will be about 10% of your September quarter revenue. Are there other end-markets representing an offset to your expectations for the quarter going to the December quarter? Could be the wired market? Or is it because you don't think you're going to ship more than incremental 200K TD-LTE base units by yearend or by calendar year end?

Yeah. I'm not sure I got the very front end of your declarative statement on what we said. I don't believe -- if you said we said wireless would be down in December, we did not say that last quarter. Tristan Gerra – Robert W. Baird: Total revenue.

We did not say total revenue would be down either in the December quarter. We've said that we were going to grow in the second half of the fiscal year, which is December and March. So that's not us that said that. And so inside of that growth is a strong growth in wireless and a strong growth in wired that we had modeled into the second half. To your point around the incremental 200,000 base stations, earlier I made the comment around the shortage issue, and I have a lack of confidence that China Mobile will be successful in getting all the base stations to deploy that. And this will push out into calendar 2015. Tristan Gerra – Robert W. Baird: Okay. And as a follow-up, is it fair to assume that, as a result, your China exposure within wireless is going to continue to increase in the March quarter, and as such, I guess we could make implications for gross margin given the mix?

So, yes, we do believe our China mix will continue to increase as we go throughout the year. And it is true that the gross margin will move back down, as we said, in December and again in March as mix -- as our overall product mix and customer mix gets a little more normal to our business and then we fall into the 68% to 70% range that we've been forecasting. When you take the effect of what happened to us this quarter and our belief of the margin number for March, we do believe that the gross margin will be between 69% and 70% for the full fiscal year. Tristan Gerra – Robert W. Baird: Great. Thank you.

Next question?

Your next question is from the line of Srinivas Pajjuri with CLSA Research. Your line is open. Srinivas Pajjuri – CLSA Research: Jon, a couple of questions. On the supply constraints that you mentioned, do you think that's only impacting the radio card build, or do you think that's impacting the baseband card build as well?

Srini, I think it's impacting both because I think it's -- certainly, our business is more impacted by the radio card, meaning we have a higher revenue content in our overall wireless business than radio. It's about half radio and the rest, the other half, is between baseband and microwave backhaul business. But for us, you know, having shortages on the radio card is a bigger deal to us, but I do believe that the power amplifier issues are both baseband and radio card. Srinivas Pajjuri – CLSA Research: Okay, fair enough. And then maybe for Moshe, you mentioned that, I think, you have about a year lead in 20-nanometer. Given that 2016 is just around the corner, how big do you think 20 is going to be for the industry?

We expect the sum of 20 and 16 to approach what 28 will be. And it's difficult for us to make the division between the two. Fundamentally, 20-nanometer for us will be two years ahead of 16-nanometer and two years ahead of any competing product in an advanced node. So typically that provides us with a pretty reasonable portion of revenue. And our product offering in 20 is very broad. It has the midrange and it has a high-end and super-high-end component to it. So we're very bullish on what it will provide. But clearly it won't be as good as 28, which for a variety of reasons actually is broader and will have a longer life due to some cost-related elements. So that's why our analysis is 20 and 14, 16 will be, combined, at best like 28. Srinivas Pajjuri – CLSA Research: Okay, great. And then, Jon, just one clarification. As we head into the next quarter, you are guiding down the share count pretty meaningfully. Is it just the buybacks and the convert? Or is there anything else I should be aware of? Thank you.

No. It was our best estimate of choosing share price to compute the dilution with, from the converts, and then implementing our buyback strategy. Srinivas Pajjuri – CLSA Research: Great. Thank you.

Next question?

Your next question is from the line of John Vinh with Pacific Crest Securities. Your line is open. John Vinh – Pacific Crest Securities: Hi. Thanks for taking my question. First question that I had was just wanted to clarify the expectations for a rebound in wireless in the March quarter. Is that solely predicated on the constraints on RFPAs starting to ease? Are you also making some assumptions about some FDD-LTE contributions in the March quarter as well?

Yes, I think it's more, John, I think it's more around the phase three introduction for the TD and the fact that we would end up with, I would say, a full quarter of that effect. While there will be some builds of FD during that time period, we believe it's not the biggest driver; it's really around TD. And again, we don't -- since we don't make the power amplifiers, we don't know for sure when it's easing. We're going by what our customers are telling us, that they believe the March quarter, that they'll be ordering more FPGAs for us, so they must be confident that they are going to have an adequate supply to be able to do that. But it's really around the phase three timing is what we're counting on the most in order to drive that growth in the March quarter. John Vinh – Pacific Crest Securities: Got it. And then my follow-up question is, if you look at kind of the ramp of China Mobile and TD-LTE, it seems like their macro base station deployments could be down next year. Should we think about China wireless peaking this year, or is there a possibility that some of the FDD contributions could drive continued growth in China wireless next year?

Yeah, there are a lot of moving parts, as you can imagine, here with what might get pushed into calendar 2015, being the March quarter, versus what might happen to us in December. Our belief is that calendar 2015 will be higher than, you know, maybe it's only slightly higher, but higher than calendar 2014 relative to our overall China-related business. And yes, some of that will be FD, particularly in the second half of calendar 2015. John Vinh – Pacific Crest Securities: Got it. Thank you.

Your next question is from the line of Ross Seymore with Deutsche Bank. Your line is open. Ross Seymore – Deutsche Bank: Hey, guys. Congrats on the strong result and guide. Jon, a lot of questions about the industrial and aerospace and defense. Now that it's 40% of your revenues, at least in this last quarter, could you give us a rough estimate about how big that aero and defense side is? And how long does that tend to adjust to the downside similar to what it has now done for, it looks like, a couple quarters to the upside when it does in fact turn? Thanks.

Yes. So it's, I mean it's typically aerospace and defense has been around 15% of our total revenue of the company. And obviously this last quarter it's a little higher than that, by a percent or two. So it is larger. And some of it was created by the fact that we had such a low point, lower than we would have expected, in the summertime, and that's driven that up little bit. So it's one of those things you have to look at over the whole year and compare it to the previous year to kind of get a normality. I would definitely expect, based on some of the programs that have gone through, are going through for us in September and December, that March will be down, I would say, quite a bit. I don't know if I want to use the word significantly because we are not always sure of what programs are going to be happening out there, and it seems like the military activity on a worldwide basis is pretty brisk right now. So there's all kinds of things that surprise us sometimes on what programs come back and requiring more product. Ross Seymore – Deutsche Bank: And is the typical seasonality for the other two portions of that first cut segments to be an offset seasonally in those March and June quarters?

Yeah, generally, the industrial, scientific and medical is a little bit softer in the summertime leading into September. Sometimes it is, sometimes it isn't. But yes, there's going to be offsets there. There's going to be offset in automotive. Our automotive business, while it grew this quarter, September quarter we do expect next year for it to grow quite significantly. And Moshe talked about some of the drivers earlier on that one. So yes, we do see offsets in that category test and measurement. Again that can be sometimes choppy. We do expect some growth there as well. Ross Seymore – Deutsche Bank: If I could sneak one more in really quickly. Can you just walk us through why the inventory coming down is going to weigh on the gross margin? And just how did the inventory get so high to begin with? I think it's at an all-time record as far as I can tell. Then I'll go away. Thanks.

Yeah. It's definitely higher on a dollar -- forget the days part for a minute because that's a mathematic or arithmetic calculation, it involves our cost of sales number. But if you look at the absolute balance of net inventory, it is higher than we would have liked to have it. And if you recall back a few quarters ago, we made probably, now a year ago, we said that we were going to start to grow inventory for two reasons. One is we wanted to make sure we had adequate supply for the peaks of 28-nanometer, specifically in the wireless segment. And think of China in that particular area. And number two, our primary foundry building -- our foundry building 28-nanometer product was going to be constrained, and we wanted to build ahead of that constraint to make sure we had adequate inventory. So we built up a significant amount of safety stock. When this volatility started to happen in the China wireless, because of logistics constraints of other products, we had built up an overshot, if you will, the amount of safety stock that we needed to build. And so we started to cut our wafers a quarter or two ago, and the effect of that is, as the outs happen from the foundry, that effect is going to start December and March for us. So what that really means is, from a, why-is-there-margin impact, is we built up inventory a lot. We built up some products effectively several quarters ago at slightly higher cost. Costs are reflected at actual costs. And as that moves through inventory and out as reduced inventory, you end up having to flesh out some of the more expensive inventory. And you are seeing some downward margin pressure. Again, as you look at the whole year time period you are going to see right at our expectations, maybe even a little higher. We said 68% to 70% and now we are forecasting 69% to 70%. So the overall business model thesis is intact. There are some fluctuations driven by the inventory build and decline. Ross Seymore – Deutsche Bank: Great, thank you.

Your next question comes from the line of William Stein with SunTrust. Your line is open. Joe Meares – SunTrust Robinson Humphrey: This is Joe Meares calling in for Will Stein. Thanks for taking my question. I guess, understanding that you are not going to be forecasting out beyond the quarter, there has been some expectation for increased weakening the macro environment. I just wondered if you could give Xilinx's view there.

Yes. That's not without notice on our part, as the European GDP forecast continue to go down and I would say quite a bit of volatility and toughness in the U.S. China actually has been the source of strength for us, not just the wireless piece but also industrial side. And Japan has been kind of okay for us on a year-on year basis. There's a lot of activity going on there that can put some pressure, particularly on CapEx, in the comms space. We alternately feel good and not so good about what's going on there with respect to some of our customers and the effect that they are having, it is having on them. But to balance that out, Joe, there is certainly strength in our new product growth, which, as companies produce new products and start to ramp new products, even in this macro situation we end up selling a lot of products because we have increased content going in some of these pieces of equipment. So we do think we have some counterbalance to the macro effect. And that's why we are still forecasting growth in the second half of our fiscal year. Obviously, any sort of very large scale macro collapse would impact us just like everybody else. We're not immune to that. Joe Meares – SunTrust Robinson Humphrey: That's very helpful, thank you. And just as a follow-up, I guess if you could give any comment on demand trends in the channel? And that's it for me.

Yeah. Demand trends in the channel, our smaller customers continue to be a little on the weak side, as they have been throughout the year. Our overall distribution revenue though is still, because of the new product effect has been on an upward trend. But some of the I'll say smaller customers, large customer balance is still, you know, we are still seeing the effect of slightly more business coming from the larger customers than smaller customers. Joe Meares – SunTrust Robinson Humphrey: That's very helpful. Thanks again.

Next question please?

Your next question is from the line of Ian Ing with MKM Partners. Your line is open. Ian Ing – MKM Partners: Thanks. First question, ultra-scale 20 nanometers, any data on yield improvements, how that's comparing to 28 nanometers? And also for 28, any manufacturing cost reductions that remain at this point? Thanks.

So, ultra-scale is doing extremely well both in terms of product introduction on the midrange, which we led with, and the high-end. And we are about to deliver the ultra-high-end solutions to our customers. With regards to defect density and maturity of the products, it's ahead of where we were at the same point in time at 28-nanometer. And 28-nanometer was very smooth introduction for us. But 20-nanometer, and this is the second-generation we have done with TSMC, has been extremely smooth. So it's going really well. And it's moving into production on all fronts. And the defect densities are ahead of where the 28-nanometer was at that same point in time. The product quality is even higher than what the 28-nanometer was at an equivalent point in time. So for us this is as smooth an introduction as we have ever seen or actually smoother than we've seen, both in terms of the product design in the manufacturing flow.

I'll make a comment on 28-nanometer. 28-nanometer, we are certainly very pleased with where we are on a defect density basis, which is the biggest driver of cost reductions typically. We aren't down to our lowest level or our lowest expectation yet, but we're doing extremely well there. But that being said, there are always things we are working on relative to reducing packages and test times and things like that. So we still believe we have some more cost wring out on 28-nanometer, however we -- a lot of the cost reduction has already been reflected. Ian Ing – MKM Partners: Yes. And then for the wired business I know you said there's some program timing issues that have been impacting you. But are you confident it's going to be a better environment? It seems the telecom spending environment is not exactly robust in the developed markets. So, just your thoughts on that going forward.

Yes. I mean I think we have counted on wired CapEx being a little more favorable than it -- I mean historically we've said very positive things about the CapEx environment. But it really hasn't come true quite the way we thought. But again we have an increased content level at some of the very large communications manufacturers and in certain of their new products with our 28-nanometer generation, both broadly with the very high-end Virtex parts and Zynq, additive to what we already have with, I'll say, regular Virtex and our Kintex lines. So we are expecting the new product growth to help -- be additive to us despite the mixed CapEx spending environment. Ian Ing – MKM Partners: Okay, thank you very much.

Your next question comes from the line of Christopher Rolland with FBR Capital Markets. Your line is open.

This is Joe on for Chris. Thanks for letting me ask a question. So the first question, do you guys have any visibility into hardware versus software for base station upgrades? And if you would talk about maybe the content opportunities relative to each other and any shift between the two going forward, I'd appreciate it.

I think we are generally seeing hardware deployments, not conversion of existing base stations via software to make those deployments, really not seeing a great deal of that happening. It's really a lot of new base stations and a lot of new radio heads associated with that. Again, the frequencies are radically different. You do need different radio heads. You do need different software implemented in the FPGA. And then we also have Zynq going forward. So, we really aren't subscribing to the point that there's software upgrades going on in that market, to a large degree.

Okay, thanks. That's helpful. And then just as my follow-up, just to follow on to the question about the channel, can you talk about inventories in the channel? And then do you guys have a good grasp on inventories, especially in China? Any color there would be appreciated.

Yes, our inventories have been pretty lean in the channel. And in fact, the inventory management logistics relationship we have with Avnet is quite good and quite -- and we work together to keep it very lean. So it's not always indicative of what their businesses are not, in other words, what our inventory balance is with them doesn't necessarily imply good or bad business on expectations on their part as we do have this really tight coupling of logistics. But I would say overall, from an inventory in the channel or inventory at customers across our broad set of end-markets, other than the wireless lumpiness that we've had with excess inventories and a little bit at a few customers in wired, we generally do not see inventory building in the channel across our broad base of end-markets outside of some of the comms areas.

Operator, we have time for one more question.

Okay, certainly. Your last question comes from the line of Harlan Sur with JPMorgan. Your line is open. Harlan Sur – JPMorgan: I think you brought up a good point of China being more than just wireless. So how did the China industrial segment trend in the September quarter? And how are you seeing that here in the December quarter?

So generally China industrial has been on a positive trend throughout the year, and we do expect that to continue to show strength. And the penetration across a variety of applications that are vision-related or scientific and medical, which is a huge new opportunity for China's manufacturers to serve that market, we are getting really good uptake in those particular categories. They are building; their industrial base is obviously expanding in China. And there's more manufacturers that are local manufacturers that are contributing equipment to that versus them importing equipment from other areas. So we are participating in that ramp as well. So all in all, we have been pretty positive in that area. It's definitely a source of growth for us in the industrial, scientific and medical category. Harlan Sur – JPMorgan: Good to hear. And then data center was a bright spot within your comms business in the second quarter. What were some of the applications that drove this growth? And then how are some of the new applications like workload acceleration and enterprise SSD controllers shaping up to be potential meaningful contributors on a go-forward basis?

The biggest area of growth this last quarter was storage. And that has been our largest individual contributing revenue area to this point in time, even though the acceleration business and the switch integration capabilities in the data center are other big areas for us that are emerging and we have an increasing number of design wins there; we just don't have the growth in revenue yet. That will come next year. So it's really been -- more of the growth right now has been around storage. And we do anticipate next year to have these other two categories grow more significantly. Harlan Sur – JPMorgan: Great. Thank you very much.

Okay. Thanks for joining us today. We have a playback of this call beginning at 5:00 p.m. Pacific Time, 8:00 p.m. Eastern Time today. For a copy of our earnings release, please visit our IR website. Our next earnings release date for the third quarter of fiscal year 2015 will be Wednesday, January 21, after market close. This quarter we will be presenting at the Barclays Global Technology Conference in San Francisco on December 10. In addition, please do save the date for our 2015 analyst meeting on March 10 in New York. More details to follow. This completes our call. Thank you very much for your participation.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.