Matt Poirier - IR Victor Peng - CEO Lorenzo Flores - CFO

Joe Moore - Morgan Stanley C.J. Muse - Evercore John Pitzer - Credit Suisse Ambrish Srivastava - BMO Toshiya Hari - Goldman Sachs Tristan Gerra - Robert Baird Blayne Curtis - Barclays Chris Danely - Citigroup

Good afternoon. My name is Erica, and I will be your conference operator. I would like to welcome everyone to the Xilinx Second Quarter Fiscal Year 2019 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. [Operator Instructions] I would now like to turn the call over to Matt Poirier. Thank you. Mr. Poirier, you may begin.

Thank you, Erica, and good afternoon, everyone. With me are Victor Peng, CEO; and Lorenzo Flores, CFO. We'll provide a financial and business review of the September quarter, the business outlook for the December quarter and the revised outlook for fiscal year 2019. We will then 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 the documents the company files with the SEC, including our 10-Ks, 10-Qs, and 8-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. As we discussed in last quarter’s earnings call, in addition to GAAP financial measures, we will also 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 non-recurring and unusual items, such as amortization of intangibles and certain one-time items related to acquisitions. We believe that sharing these non-GAAP measures will be helpful for analysts and investors in analyzing the company's ongoing core business. A reconciliation of non-GAAP financial information to the closest GAAP measure is included in our earnings release and has been posted on our Investor Relations website. This conference call is open to all and is being webcast live. It can be accessed from our Xilinx Investor Relations website. Let me now turn the call over to Victor.

Thanks, Matt and good afternoon, everyone. I'm very excited to report that executing on our new strategy is returning results in FY19 that are well ahead of our original plan. We have broad strength in our business in Q2 with growth in six out of nine of our end markets. Establishing ourselves in the data center and accelerating growth in our core markets resulted in a new quarterly revenue record of 746 million, which is up 19% year-over-year and drove the non-GAAP EPS, up 30% year-over-year. Given our first half FY19 results and the continued near term strength we see in multiple markets, we're raising our guidance for all of FY19 to be between $2.95 billion to $3 billion. Now to be clear, we are watching the macro environment very carefully. Nonetheless, we feel this is the appropriate forward guidance. So let me share some recent business highlights. So, communications was very strong in Q2, driven by LTE upgrades, pre-5G and some early 5G deployments. Our wireless business grew very significantly with broad based strength in both radio and baseband applications with major OEMs across multiple geographies and we resumed shipping to ZTE. Our wired business grew due to customer transitions to next generation product in several applications, including OTN Metro, access and data center interconnect. In the data center segment, we continue to build momentum with hyperscale companies and acceleration deployment. So for example, Twitch, a subsidiary of Amazon, shared at our Developer’s Forum how they achieved the industry’s first broadcast quality live streaming platform using a new video and coding format, VV9 and all accelerated on our FPGAs. Samsung announced at their Tech Day their smart SSD product, which was the result of a year-long collaboration between our companies. Samsung’s smart SSD combines our 60-nanometer ultrascale plus FPGA with their leadership storage technology for accelerating computing near the store data. With regard to FAS, our leadership position in China market expanded, as Alibaba changed their FPGA as a service from beta access to general access. And this falls on Huawei’s general access that occurred with their FAS program this past June. And recently, Amazon Web Services doubled their FAS availability zones four 4 to 8, adding London, Sydney, Frankfurt, and most recently China. Now continuing in terms of data center in our platforms, earlier this month, we announced Alveo, a portfolio of very powerful adaptable accelerated cards that will increase the performance in industry standard servers, both in the cloud and in our on-prem data centers, a very broad range of applications including AI inference. And Alveo did ship for revenue very late in Q2, but the revenue ramp really begins in the second half of FY19. We expect revenue to grow at a good pace, but in absolute terms, will be relatively modest for FY19. We do expect Alveo to contribute meaningful revenue in FY20. Now, we also made excellent progress in our data center partnerships and ecosystem. So, working with AMD, we achieved an industry record for the highest AI inference throughput performance at 30,000 images per second, with less than 2 milliseconds latency, all packed in a 4U server form factor with epic CPUs and 8 Alveo accelerator cards. Huawei has announced that they are integrating and deploying Alveo acceleration cards in their server and product portfolio and we are collaborating together to foster an applications ecosystem in China. Inspur, a leading global data center and cloud computing solutions provider announced that they'll be qualifying to Alveo cards together with their server platforms. And on the investment side, we made multiple investments last quarter in applications ecosystems, both in the data center as well as in other markets for a breadth of applications, including database acceleration, mobility and next generation technology. And with respect to acquisitions, we did complete our acquisition of DeePhi Tech, which is an AI Technology Company and integration is going quite well. Their products and technology significantly strengthens our AI capabilities and what we can offer for use cases in the cloud at the edge and at endpoints. Now moving on to our progress overall as a platform company, our 28 and 60-nanometer Zync product families continue to grow very robustly. Zync sales achieved a new record, growing 70% from a year ago quarter and that represents 18% of sales. Growth was across a broad set of applications in the communications, automotive, mostly advanced driver assist systems and industrial end markets. Our Zync RFSoC products had a revenue growth for approximately 4x versus the prior quarter’s revenue and we have well over 100 unique customers at various stages of engagement and we see our opportunity pipeline growing in double digit percentages. And finally, the most profound recent milestone by far was our official announcement of our 7-nanometer Versal product family, the NC’s first ACAP. ACAP to refresh your memory stands for adaptive compute acceleration platform and this is a new product category that goes far beyond the capabilities of FPGAs. ACAPs are adaptable, scalable and are heterogeneous compute platforms that is both hardware as well as software programmable. So the Versal family will accelerate a very broad range of applications, including AI inference and applications that have embedded AI in them across multiple end markets and from use cases that span the cloud to the edge and endpoints and indeed communications infrastructure that connects them. Versal delivers effectively the power of full custom silicon without the high cost and very long development cycles of silicon. And they could be optimized to accelerate applications on the fly and actual running systems. So we're on track to tape out the first 7-nanometer Versal product at TSMC later this quarter and we hope silicon next year. So in closing, I'm extremely proud of our team’s excellence and innovation and consistent execution. I'm excited to see the fruits of our efforts in our Q2 and our expectations for the full fiscal year. We continue to be deeply focused on executing our strategy for sustained, robust long term revenue growth and shareholder value. So thank you and now, I’ll turn it over to Lorenzo.

Great. Thank you, Victor and good afternoon, everybody. As Victor said, we are very pleased with our business performance this quarter and our outlook for the rest of the fiscal year. Xilinx established several financial records and we are again in the fortunate position of increasing our guidance for FY19. I will elaborate on that guidance after reviewing the quarter. Now for Q2. Revenue was at an all-time high of $746 million, growing 9% from last quarter and 19% year-over-year. We exceeded the high end of our guidance on the strength of our advanced products, which grew 25% over last quarter and 43% year-over-year. Victor pointed out the strength of Zync. It grew 70% year-on-year and highlights our progress as a platform company. From an end market perspective, we saw strengths from three of our four primary end markets. Data center and TME grew significantly with both businesses contributing to the increase in sales. In communications, wired grew more than expected and wireless was particularly strong. Automotive, broadcasting consumer was stronger than expected as automotive and broadcast growth more than offset a slight decline in consumer. Industrial and A&D declined as expected with a decrease mostly in A&D. Finally, channel revenue was in line with expectations at 19 million. Note, we remain below target levels of channel inventory. Gross margin was 69%, slightly below our guidance, due to the strength of wireless and lower A&D in our end market mix. GAAP operating expense was 282 million and non-GAAP operating expense was 279 million, both in line with our guidance. GAAP operating income was $233 million or 31.2% and non-GAAP operating income was $236 million or 31.6%. Our tax rate was 10% for the quarter. Our non-GAAP rate was 6%. The primary difference between these rates consist of discrete items related to tax reform. Our GAAP net income was $216 million, equating to $0.84 a share of earnings. Non-GAAP net income was $221 million or $0.87 of earnings per share. This is a record level of earnings for Xilinx. Diluted shares for the quarter were flat at 256 million shares. There are a few key points on the balance sheet and cash flow I would like to highlight. We ended the quarter with 3.4 billion in gross cash, down slightly quarter-on-quarter and 1.7 billion in net debt. We generated operating cash flow of $313 million, due in part to reducing accounts receivable to $372 million, approximately 45 days. On capital allocation, we returned 114 million to shareholders with $91 million in dividends and $23 million in share repurchase at an average price of $66.08 a share. As Victor discussed, we completed the acquisition of DeePhi in the quarter. This acquisition, intended to accelerate our strategy, the dividend and our buyback, reflects the application of our capital allocation strategy as discussed at our Analyst Day. On to Q3 and our updated FY19 guidance. We expect revenue to continue to grow with Q3 between $760 million and $780 million. We are forecasting growth in communications, data center and TME and industrial and aerospace and defense. Particular strength is expected in aerospace and defense, wireless and TME. Automotive broadcast and consumer looks to come in approximately flat. Channel revenue is expected to be between $10 million and $20 million. In Q3, our gross margin is expected to be approximately 69% and GAAP operating expense in the range of $295 million. We expect non-GAAP operating expense to be approximately $290 million. The increase quarter-to-quarter in operating expense is related to increases in employee compensation, including profit sharing and sales incentive and the full integration of the DeePhi acquisition. Other income will be approximately $5 million and our tax rate is expected to be between 10% and 12%. For the full year FY19 forecast, we are now expecting our revenue to be between $2.950 billion and $3 billion. At the midpoint, this would be 20% year-over-year revenue growth. Gross margin for the year is expected to be between 69% and 70%. GAAP operating expense for the year is expected to be approximately $1.155 billion and non-GAAP operating expense is expected to be approximately $1.140 million. GAAP other income for the year will be approximately $15 million of income and non-GAAP other income will be approximately $5 million of income. Our GAAP tax rate for the year is expected to be between 10% and 12% and the non-GAAP rate between 9% and 11%. Share count is expected to be flat to very slightly up for the rest of the year. In summary, we expect the year to show exceptional growth in revenue and profits. We are at the initial stages of realizing the benefits of our strategy and execution and we are excited to see our opportunities developing ahead of our expectations. Let me now turn the call back to the operator for Q&A.

[Operator Instructions] Your first question comes from [indiscernible] from Bank of America.

This is [indiscernible]. Thanks for taking my question. My question relates to your commerce business. Just can you talk about any geographic concentration you have there, more specifically, can you quantify your exposure to the China market and talk about the growth, excluding China and should we expect this to be the new baseline for the communications business, how sustainable are these trends as you move into 2019? Thanks.

Well, China is an important market, but as I said in my comments that we saw growth actually with all the top customers in that segment worldwide. So I would say that we're seeing growth in a number of areas, although China is important. I think we have mentioned in – on the forums that in any event, one of the areas where there's maybe an acceleration of 5G deployments happening in Korea actually. So again while China is important, we're seeing growth actually in multiple geographies. We have consistently, in the past, said that we expected the really large ramp to happen 2020. It does appear that it’s happening -- it's starting a bit earlier. We still believe that it will continue to build and carry over indeed of course past 2020, but it does appear that it's happening a bit earlier. So I think from that perspective, that's a new recent trend I suppose.

Your next question comes from Joe Moore with Morgan Stanley.

You talked about the growth in Zync. That was pretty impressive growth there. How do you see it? Are you expanding the TAM or these sockets that you might not have had, had you not had Zync integration and what's your visibility on continuing this very strong ramp that you've seen in Zync?

Yeah. Joe, I mean, I think Zync is -- it is very broad based, which is what's so exciting about it, right? As you know, it’s something that we pioneered quite some time ago and I would say that in the early days, it took a little bit longer and the thing that we gain from that was that there was more software work and things that took a while, but now what we're seeing is just we're just seeing very broad strength everywhere and certainly we do think that we are taking away from other types of solutions, right. Other ASSPs, other embedded controllers and certainly some -- we were on that board before with an FPGA perhaps, but now we’re capturing more of that and MPS will see the second generation and the RFSoC is based on that, added to it the really high performance integrated ADCs and DACs. So, we are expanding I would say the footprint of Zync as well as the fact that the investment we made back in 28-nanometers. Indeed, most of the revenue is still 28-nanometer Zync. We're seeing a tremendous uptake in terms of design-ins on the 16-nanometer, but most of the revenue for that is still in front us.

And I guess I’m out with several of your customers at your developers forum and we kind of heard about the use of Zync and about, specifically we heard the comment that if Xilinx had more libraries, then we’d be able to use I think some more applications. How do you think about that from an investment standpoint? How do you balance? It seems like there is a fairly direct tie to developing sort of more of the Xilinx generated IP and revenue, but it obviously takes a lot. So how do you balance that in this growth environment? Should we expect R&D to maybe continue to move up, as you look at those opportunities?

It's a very good point and again we're really trying to work that balance of continuing to invest. We can keep on this very strong growth, but also return to the investors. And so you will see some growth and on a percentage basis, we're increasing our headcount in software and IP and things above the silicon level if you will much more. Having said that, we're also putting a big focus, that's why you hear me in the highlights and I think hopefully you took away from our developer’s forum that we're really trying driving ecosystem. So it’s not just the Xilinx R&D budget, but it's the collective budget of the ecosystem as well as partners like AND, like Samsung and others. So it’s an and of all those things, we're going to try and do all those things. But, it is part of our balance on how we deliver returns as well as continue to invest, so that we can get higher leverage and more leverage in the model.

Your next question comes from C.J. Muse with Evercore. C.J. Muse: I guess first question, as it relates to wireless and early 5G deployment, can you speak to, I guess, whether this is just prototyping today or other and then importantly, what you've learned now on a content basis and how that translates into sustained growth into 2020 and beyond?

Yes. So the first part of it, it's, what we're now seeing is not prototyping. I mean, I think we've been saying for some quarters that we're inversely on the early proof of concepts and prototyping. So now, what you're sort of seeing is some of that going into production and I would say and then you heard me make the comment of radio and baseband. So, we do have more content than we have had traditionally. RFSoC is another element and that is actually still emerging and in terms of what we’ll see there and that is absolutely production. It is most cost effective, power efficient and size weight form factor based solution out there. No one really has the product like RFSoC. So, yeah, it's pretty strong. Sorry, second part of the question regarding. C.J. Muse: What you’re looking from the early deployments today as to what the revenue contributions can look like, as we go into as deployment?

Yeah. I mean, we continue to see wireless for the year ending up very strong. And although we still expect that things will be [indiscernible] at times or overall, 5G will be the largest deployment I think the industry has seen. And so, we're extremely well positioned for that. I mean, again, I think particularly with RFSoC, I think on the radio, we have an extremely strong position. Yeah. So I do think that this will build, but again no doubt there'll still be some lumpiness, right, as we go through. C.J. Muse: Great. I guess as a follow-up here, at your Developer’s Forum, and you launched Versal. I think one of the key questions was software to follow up on Joe's question, so curious how we should be thinking about key milestones there in terms of developer’s training instances, what should we be focused on?

Yeah. We're trying to share each of those elements, right. I mean, as you just said, expansion of FAS, but also non-FAS. It’s certainly not all about that. Indeed, there tends to be a little bit of focus of us just in data center compute, but the Samsung SSD product, I mean, we accelerate in storage. We also have positions in smart mix and converse mix. I think there is a very strong trend in the networking side of the business. There's the ecosystem and then our board business, right, which I think we gave a little bit of the foreshadowing, all the way back to our Analyst Day and we would execute that. So I think watch to see how many people are developing and offering that board and as those board – that board business more meaningfully contributes to revenue in next fiscal year, that will be another sign of things. On investment level, if we can keep up this great growth, we're going to return some to shareholders and we're going to reinvest to keep this firewall spinning.

Your next question comes from John Pitzer from Credit Suisse.

Victor, I was wondering if you could elaborate a little bit more, in your prepared comments, you said that you have your eye on the macro and if I look at the businesses that are probably most macro influence for you, it’s industrial and A&D. And yet despite kind of a macro backdrop that we’re all worried about, you’re guiding pretty strong growth for the December quarter. Curious if you could kind of square that circle for me and as you answer the question, maybe talk about what might be share gains that you're picking up in those end markets?

Yeah well. A&D actually was down already in the current quarter, but that was off a very strong quarter and we actually believe that going forward, that’s going to strengthen up again. So we actually don't see any signs in the A&D area for sensitive to that. I'll give you one where we do as a sub-segment of our overall basket. As you know, our baskets are pretty big, right, so test measure and emulation and prototyping. Within that, there are semiconductor tests and we are seeing weakening as you might expect within that. On the other hand, emulation and prototyping, we're seeing great strength. So given all of those puts and takes, we’re still seeing TME is on track for an excellent year. So, and also within test, there's also a very special, just as including like 5G test equipment and we’re seeing good strength there for obvious reasons. So, I think this is -- part of this is the strength of the diversity that we have and also the high value and innovation that we have that we're less sensitive than to other products that are – perhaps, there are more options available for people just to switch in and out or it’s just not as high value or not in the core to system, right. So I think that's one aspect of it. And again, we walked into this quarter with very strong backlog. I mean, we feel good about the guidance and then of course FY20, we give that in the Analyst Day and we certainly will earn a lot between now and then, but again, we’ve looked at it and certainly, we're very keenly aware of the environment, we're just seeing good signals for our business.

That's helpful. The other follow-up, just relative to. Go ahead, Lorenzo.

No. I think if you were -- I wasn't sure John whether you’re referring to the overall growth that we're expecting quarter-on-quarter or just an industrial and A&D. One of the pieces we didn't talk about is continuing strength in communications, particularly in wireless. We think that aligns with both the 4G, LTE continued fill out and the growth in 5G. So that's the last piece of the overall growth story. And then, I'm sorry, go ahead.

And then I guess, Victor, as a follow-up, I was intrigued by your comments about growth in datacenter in FY20. Your confidence level seems pretty high. Seems like you’ve got a good line of sight. I know, there is probably a lot you can't talk about, but I wanted to give you the opportunity to elaborate on that comment and what gives you that confidence, is this new customers, is this silicon to board. Maybe if you can help us just kind of parse that out.

Yeah. Well, it's actually a blend, as I said. We actually did get some revenue at the very end of Q2 for Alveo boards and by the way, we only have one board, well actually, we have two boards, the U200 and U250. But we are going to launch more boards through the course of the next short number of quarters. And, I said that they don't grow at a good rate, but it's starting from a very small number. So it's not meaningful, but FY20 will be meaningful. So if you step back, I mean, we didn't have a board’s revenue stream at all, right. So that certainly is contributing to that. The other thing is there's a lot of games that I can't really speak to right now, but I did get -- I am able to say, so I mentioned Samsung’s smart SSD, they launched that. I can tell you that we have a design win to do a smart memory DIM with a very major memory supplier, but I cannot say who. So, and then, as you know, a lot of the customers, for competitive reasons, I think it’s close to the chest, but we do feel that next fiscal year, we will start seeing much more meaningful revenue. We've been saying that we’re seeing good percentage growth of a relatively smaller number and datacenter as a segment, but in next fiscal year, particularly in the back half, we really see that it's going to start coming together.

Your next question comes from Ambrish Srivastava with BMO.

I just wanted to make sure I understood the confidence for the full year. Victor, is it and Lorenzo, is it dependent on comps, 5G, 4G as well as LVO beginning to kick in and what about the other segments, so I'm talking beyond the quarter that you're guiding for?

Let me give a briefing and I’ll let Lorenzo add colors to this as well. I mean, I think, one of the reasons and I mentioned also while we're very dialed in to watching the macro situation, we still feel that the appropriate guide is because of the breath of the strength that we saw in Q2, which is carrying over into this quarter and also from what we can see for the fourth. So, and clearly as the first half came in stronger than our initial expectations for the year, so I would say, it's the breadth, yes, so that means generalizing your statement, you just pointed out communication and then data center boards, but it goes beyond that, because we're seeing strength in all the other markets, even though within some of those markets, there are weaknesses. As I said, TME, there are weaknesses in some of the segments within that bucket, but the overall larger end market that we report out looks really good for the year.

I don't have much to add. I mean just it’s kind of obvious, given the relative size of the end markets and the dynamic that we talked about, with the growth in communications, that continues -- that is a large dollar contributor, but it is much more broad than that in the portfolio of end markets we support.

And then within communications, if I remember the number correctly, you said it was up 35% year-over-year, but if we go back, could you give us a sense for -- it has to be well below the peak level we saw a few years ago. So how far below are we from that level and now you have more content, so we should expect as we get into the broader 5G rollout, six or eight quarters from now, that number should be higher than what you did in the last build? Thank you.

Give me just one second to make sure I'm not misaligning things. It is still, from both of the end markets in communications, it is still meaningfully below the highs we've seen, for both wired and wireless in the past, three and five years ago. But I think also, the other thing to think about it, given the growth of our other end markets, it's a smaller percentage of our overall business. Our overall exposure to that is smaller, but we do expect that we have headroom, as we’ve discussed in both wired and wireless to get past the historic levels at some point in the future.

Your next question comes from Toshiya Hari with Goldman Sachs.

Victor, obviously, there is quite a bit of concern around end markets, like industrials, automotive, semi test, as you sort of addressed them. Can you give us an idea, what’s sort of embedded in your back half guide for some of these end markets where we do have concerns?

Well, I think I talked a bit about the TME, right. Yes, there are some weakness in some areas, but then some areas are up. So again, from what we can see, we think that for the year, TME will be up quite nicely overall and certainly in the first half, everything is strong, right, including semi – semiconductor test. On automotive, we're seeing growth and we do still expect it to continue, but just to put that in context, I think we sort of talked about how automotive is sort of in the around – about 7% of our business. So, I mean, even if there's some fluctuation on that, just to put that in context, right, so I would say again, yes, we watch it very carefully in some segments that will feel it, but because just not to be repetitive, but since we have such broad strength in some of these areas we know the dynamics are such that they won't be affected like, since the operators decided they want to pull in 5G, they are not going to back off. Now, they may modulate, right, the ramp, but since we have always said that we really were planning more of a ramp in the later timeframe to some extent, just the fact that accelerated has been upside, right and then RFSoC, which we've never had before, that continues. We would have liked three more wars just this last quarter, because this is still the product like that. And so, we will have more value in the radio side and there is more radio that’s going to be deployed. So, yes, there are some areas that are weaker, but again because of the broad strength and some of the leadership product that we have, I don't think we're going to be as affected, but of course we’re going to watch this very carefully.

Yeah. We're in a good position obviously in areas like wireless and even in auto, where the platforms that we've been designed into with our products, our high value products are tending to be in the ramp phase. So while macro factors may impact it, they're still in some ways gaining share versus alternatives in multiple end markets, but it puts us in a pretty good position.

Great. And then as a quick follow up, Victor, obviously, you've been on the road quite a bit hosting a lot of sessions and I'm sure you've had a conversation with customers, but for Alveo specifically, what's been the feedback so far. You talked about the ramp into December and more so into calendar ’19, how should we think about the magnitude of that ramp again for Alveo specifically?

Yes. For FY19, again, it’s starting from effectively zero, right, just at the very end of last quarter. So, it will grow on a percentage basis, but we're not saying that to be very material. But through the course of FY20, as I said in my comments, it will be meaningful revenue. I think the interest is high. I do think that how much more upside versus it maybe being a little bit moderate, there is certainly a degree of around some of the things that the early questions around application development, in fact also just education and so forth and that's why we did the Developer’s Forum and hopefully you saw some of the momentum that we are getting in strong interest there, right. So it's early days, but we do feel like the signals are, there's a lot of interest and revenue being meaningful in FY20 timeframe, not FY1.

Your next question comes from Tristan Gerra from Robert Baird.

You’re now starting to go after semiconductor content that traditionally has been discrete chips, adjacent to FPGA such as DACs and ADCs universal RF series. What are the other content adjacency opportunities that you are seeing and can you talk about the candidate, if any, in addition to that could be play as part of the FPGA integration going forward.

Yeah. So one is, if you look at Versal, to a degree, the reason why that’s -- we keep trying to make sure people appreciate that it's not an FPGA is exactly because of the richness of the multiple different types of compute engines and all the infrastructure we've built into that. It's got multi-core SOCs, it's got a network on a chip, it's got the next generation programmable adaptive hardware, the fabric and distributed memory and it's got this new, in some of the products, some of the sub families before them, series like for instance the AI core series will have this new architecture, call it, the AI engine. And so if you look at just the integration level and part of that of course is still going to have all the multi-MACs, high speeds series, some will talk to integrated HVM on a silicon interposer. It's a really, really complete and powerful platform. So that is exactly the direction that we're going in and so because of that, we can expand and we will expand our SAM and we're increasing more and more the competition isn't just other FPGAs. It’s indeed well beyond that. And then to get the leverage and there's been a lot of good questions around this area that that's why we're so focused on so in delivering a whole software stack and then driving an ecosystem around that. So yes, we’re integrating a tremendous amount of capability into our Versal products.

And then just going back on the, while the opportunity, even if we assume that the ASPs are half the less price that you’ve mentioned, trying to reconcile this with your targeted, incremental revenue coming from data center suggest that you’re probably making very conservative market share or adoption rate assumptions, any color you could give us in terms of assumption of market share or any type of adoption rate that you see for that new revenue stream to get to your guidance.

Well, what I would say is that, we -- I wouldn’t say that we're being very conservative, but we're certainly trying to be measured, because it is new for us. But as I said, we are seeing strong interest. It’s just pretty early days. I think we also -- we have to build out, which we are. We're actively building out the whole go to market channels. All of that is being produced, so I would say again that we are going to be priced competitively, but we deliver an awful lot of value and then we will see both share. I mean, the whole acceleration segment is relatively new right, but we do feel like this is a whole new product revenue stream as well as a way to accelerate people getting to market with applications, right, because we don't -- people have to start with a chip, so that's why again, we're pricing the value and we think we’re going to capture that value, but it’s an emerging area.

Your next question comes from [indiscernible] from KeyBanc Capital.

I just wanted to follow-up on kind of the data center question that was asked earlier. It seems like you've got very good proof points right now with several of your customers like Huawei, WS, and Baba adapting FAS, but it seems like there's a much more meaningful opportunity, if you can convince one of your customers to move forward with an internal acceleration architecture, similar to what we've seen at Catapult. We think it will take for one of your customers or potential customers to move forward with that use case and is that something that we can think about happening potentially next year, that's potentially baked into your expectations for more meaningful growth in data center?

Well, look, I mean I agree to that. The world is not just that fast and indeed, like I said, earlier, for us, it’s unlike many other suppliers, it's not even just about data center compute, right, like in storage, just heard, we're working on memory and we're in smart and conversion mix. But now back to your point, I agree and I'm sure you heard in my opening comments that the Twitch group, right, and they did acceleration on video, right. So just goes to show again, we do do that and we are working with others. Again, it's just always a bit challenging in terms of when things can be shared, and but yes, we have many engagements for internal acceleration, some which involve machine learning, some which do not. I think Alveo is going to also help that, because again it lowers the barrier significantly for people to develop applications and also to bring that on-prem. So, it’s not everything that’s around in public cloud, right. So I agree with you and I hope that I can share more of that going forward.

And then my follow-up is on 5G. It seems like your customers are approaching 5G with a combination of using RFSoC and MPSoC and some other FPGAs, can you just talk about your expectations for 5G. Do you expect the majority of your 5G customers to move to RFSoC and because of the integration and performance in the BOM cost savings, does that give you more staying power late in the cycle as your customers consider kind of ASIC reversion as an opportunity?

Absolutely. I think I couldn’t have made the same statement better than you just articulate. I mean, look, the RFSoC really is like, it’s not hype. I mean, there's nobody that has a product like that and by the way, it's not just 5G, right. I mean, it's any kind of massive MIMO or antennary application. We see it in cable, we see it in other kinds of like radar applications. And people are changing their architecture, the radio architecture, based on this. And so, in that sense, it’s certainly pretty sticky. I don't really see what in that particular instance, people being able to disrupt that and it's just getting started, right. We just recently went into production and people are deploying. So I think RFSoC will certainly be very, very strong. And, but you're right, it was not just RFSoC. We’re seeing usage of other MPSoCs as well as just our FPGAs, at the 16-nanometer node. Some of that over the course of time could go to that, but right now, things are so dynamic and things are moving so quickly. That isn't happening and I think that's going to actually – 5G is so ambitious and there's so many things happening that that will probably happen for a bit longer, but I'm not necessarily suggesting that our position in baseband will be as durable as our position in radio, for instance, right. I mean, I think, radio is -- and we already have a roadmap, right. So it's not just the first generation RFSoC. We already have the product, the next generation as well as in 7-nanometer.

Your next question comes from Ross Seymore with Deutsche Bank.

Hi. This is Jay for Ross Seymore. Thanks for letting me ask a question. You touched on this previously, but how do you view Xilinx’s benefit from the 5G transition as compared to the 4G transition, perhaps from a magnitude and duration perspective.

Yeah. I mean to expand on it, I think 5G is going to clearly overtime significantly past what 4G was as the industry and that's for us, it's a bigger opportunity as well and it's both because of the 5G from a technology perspective is so much more disruptive. It's much broader and it really is not just a communication standard, but it's really being used as a term for a basket of technology, including things like massive MIMO, which isn’t inherently necessarily 5G. There is IoT being associated, also automotive. So, it's very broad, very ambitious. And then it's not just because of the segment is bigger, it's also like we're innovative, we added value that we're adding more value like again, in RFSoC for instance. For that matter, MPSoC, but back in the 4G, we didn't have integrated multi-core RFSoCs and we didn't have really high performance ADCs and DACs monolithically integrated. So yes, I think, the general market will be bigger and broader and I think our opportunity over time will be significantly larger.

As a follow up on the OpEx side, how far along are Xilinx’s software investments in support of the data center efforts, do you expect those investments to slow or do they need to persist on a structural or customer by customer engagement basis?

Well, I think, in broad strokes, it's certainly not going to slow. I mean we need to, in fact, within what’s reasonable and affordable, so that we could return values to shareholders and still continue to invest. As I said, we’ll probably invest from a headcount perspective fortunately more in software and things about silicon than we would at the silicon level. Having said that, we are investing in the ecosystem and also doing partnerships. So we're really trying to expand the footprint. So it's not just us. Now, the other part that you alluded to is also true, right, some of the really, really big customers. There's a lot of customization. There's things that we work very closely with to make sure that we deliver to their needs and we are investing and doing that as well for obviously the select top customers. So yeah for both of those reasons, just the broad horizontal investment as well as some key major customers, we are and we will be investing more on software and IT and related things.

And your next question comes from Blayne Curtis with Barclays.

Just curious into the September quarter, you mentioned ZTE was back, just curious how much that was and maybe versus what you were planning when you guided? And then just longer term, just curious, you talked about earlier 5G. If you can just relate it to the ramp of 4G. That’s all two sharp quarters in the beginning of ’14 and then kind of fell. It sounds like 5G may be a little longer lived, just kind of curious, as you look out over the next few quarters or even years, the trajectory of 5G versus 4G.

Okay. So the first part ZTE, so as we said when the first de novo order happened and we just want to remind everybody, we don't have any 10% customers or anyone that’s even near 10% to be honest. Having said that, ZTE is an important customer and so it was a component certainly of our growth, but again, I want to emphasize that that wasn't -- it wasn't just about ZTE. There is early deployments and we’re seeing strength from other major customers are client to wireless. I would say because, like that occurred just at the very start of fiscal ’19, I would say that it's not as though we see ZTE being above our original plan. I mean obviously, they had one last quarter to ship in, but it's not over our original plan. But we did have to take them out at the start of the fiscal year, but then once we knew that was back in, we adjusted appropriately. Okay. So then in terms of 5G kind of ramp, definitely, as I said before, I think it will be larger. I think it will last longer, because it’s so ambitious and there’s so many – there is so many -- so much innovation even at the business model level of what's going to happen with 5G. But calling exactly the shape, I mean, heck, you know, I mean, the last quarter, we weren't saying that we were going to see it. Now, we're saying we're maintaining that 2020 mainly, but now, lo and behold, it appears that people are wanting to do -- start that deployment next year. So I don't feel totally comfortable. I’m telling you exactly how that rolls out. I do think it will still somewhat be there, and that's why I want to caution people on that, but integrate over time, it's nothing to be a big opportunity for us and it will be a long opportunity because data bandwidth is going crazy and people want low latency and high bandwidth. So that build out is going to be very substantial. Not only wires by the way, I mean, that's wire too, the entire network has to go and get upgraded.

Your last question comes from Chris Danely from Citigroup.

Thanks guys. I guess I'll try and ask that 5G question in another way. I’ve been doing this for way too long. How far ahead of plan is your 5G, I know you’re not going to give us the revenue, but if you look at the revenue you have right now, are we one, two, three quarters ahead of where you thought that would be and then I know you're not going to talk about like the curve, but if you go back and look at previous upgrades in air interface standards, how long was it from sort of the original or excuse me, the initial ramp until peak and then do you think that this one, the 5G could be a longer ramp from the initial until the peak?

Okay. So, the first part of your question is how far ahead and you said one, two, or three. I guess what I would say, in order of magnitude, you’re probably right, probably more than two, three kind of ish, I would say. And then in terms of, again, that’s tougher. I really and look, I'm not going to claim that the vision to be quite candid. But I do talk a lot of customers right and technologist people. So having said that, what I would say is that, this is definitely going to be broader. It is very, very ambitious and by the way and to add another big macro trend into this, everybody is looking at artificial intelligence, machine learning in the network. Right. That's going to bring a whole another level of things. So just given how ambitious and how changing this is going to be, not just the traditional markets. I do think it will be just broader. That would be my qualitative. I certainly don't think I’m smart enough to call the delta to the peak. But, you know what, when we get a whole lot closer to it, the future is hard to predict. The predictions are hard, especially about the future.

And there are no further questions at this time.

Great. Well, thanks for joining us today, everyone and we’ll have a playback of this call, beginning at 5 PM Pacific, 8 PM Eastern today. For a copy of our earnings release, please visit our Investor Relations website. Our next earnings release date for the third quarter of fiscal year 2019 will be on Wednesday January 23 after the market closed. As far as conference participation this quarter, we will be attending the Credit Suisse Technology Conference on November 27. This completes our call and thank you very much for your participation.

Thank you. This does conclude today's conference call. You may now disconnect.