Xilinx F2Q07 (Qtr End 9/30/06) Earnings Call Transcript

Oct.19.06 | About: Xilinx, Inc. (XLNX)

Xilinx, Inc. (NASDAQ:XLNX)

F2Q07 Earnings Call

October 19, 2006 5:00 pm ET

Executives

Wim Roelandts - Chairman, President, CEO

Jon Olson – CFO

Maria Quillard - VP IR

Analysts

Thomas[ph] - Credit Suisse First Boston

Glen Yeung – Citigroup

Adam Parker - Sanford C Bernstein

Jim Schneider - Goldman Sachs

Chris Stanley – JP Morgan

Tim Luke - Lehman Brothers

David Wong - A.G. Edwards

Tim Kellis - Stanford Group

Chris Stanley – JP Morgan

Danny Kuo - Bear Stearns

Mark Edelstone - Morgan Stanley

Operator

Good afternoon. My name is Marvin and I will be your conference operator today. At this time I would like to welcome everyone to the Xilinx Q2 Fiscal Year 2007 Earnings Release Conference Call. [Operator Instructions].

I would now just turn the call over to Maria Quillard, thank you. Ms. Quillard you may begin your conference.

Maria Quillard - Vice President Investor Relations

Thank you and good afternoon. With me are Wim Roelandts, CEO and John Olson, CFO. We will provide a financial and business review of the September quarter, and then we will open the call up for questions. I will then end the call with a few housekeeping items.

This quarter we changed our product category classifications. The last time we changed our classifications was exactly two years ago. We do this on a regular basis as we introduce new products to the market, making the product categories more meaningful for investors. A five quarter history of both the new and old methodology will be hosted on our investor relations website.

We have also changed the name of the storage and server category to data processing, to more accurately depict the type of applications found in this category. As published in our press release our business update for Q3 of fiscal year 2007 will take place in the form of a press release after the market closes on Thursday December 7th. After we update our guidance we will be in a quite period until we report the following month.

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-K, 10-Q and 8-K. These documents contain and identify important 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 Investor Relations website. Now, let me turn the call over to Jon Olson.

Jon Olson - Chief Financial Officer

Thank you Maria. Revenues in fiscal Q2 decreased 3% from last quarter to $467 million, slightly better than the guidance provided during our business update due to better than anticipated bookings in the month of September. Gross margin of 61.3% was within our guidance of 61% to 62% and an increase from 60.1% in the prior quarter.

Now let me turn to operating and net margin. Operating income was $93.2 million, essentially flat with last quarter. Net income of $93 million or $0.27 per diluted share was up 13% sequentially including stock based compensation expense of $22 million. Factors impacting the sequential improvement of net income include a higher than expected increase in interest and other income and a lower tax rate which I will discuss in a moment.

One additional item impacting both operating and net margin was the fact that stock based compensation expense was lower than our original guidance of $25 million due to refinement of forfeiture rate assumptions and the impact of the purchase price adjustment for employee stock purchase plan consistent with the terms of the plan. As a result we expect stock based compensation expense to be approximately $22 million for the next several quarters. Excluding stock based compensation operating income was $115 million or 25%, down 6% sequentially. Net income was $110 million or 24%, up 4% sequentially. Interest and other income of $26 million was better than the guidance of $20 million primarily due to the gain on the sale of UMC stock during the quarter.

We generated $105 million in free cash flow during the quarter and repurchased 5.9 million shares for $125 million. We also paid $30 million in dividends. The tax rate for the quarter was 22% lower than anticipated primarily due to the release of reserves associated with the expiration of the statute of limitations for fiscal year ‘03 federal return offset by the tax impact of the gain on the sale of UMC stock. Let me now comment on the balance sheet.

Cash balance increased $160 million to $1.8 billion due mostly to the sale of UMC shares I mentioned previously. Day sales outstanding increased 7 days to 36 days, a result of strong shipment profile at the end of this quarter. Combined inventory at Xilinx and distribution increased by nine days to 126 days. Internal inventory levels increased eight days while distributor inventory days increased by one day.

I will now turn the call over to Wim to comment on our business and products.

Wim Roelandts - Chairman, President, CEO

Thank you Jon, and first let me give my own comments on the September quarter. The September quarter is always very challenging to forecast due to the summer seasonality. While we expected turns in the month of September to pick up from the July and August levels, orders ended on a stronger note than we had and resulted in us achieving our original revenue guidance.

The September quarter revenues were down 2.9% sequentially in line with our prior 40 years average, which has been down about 2.5%. Summer seasonality was evidenced during the quarter which weakened on anticipated bookings through July and August. Bookings picked up again in the month of September and the turns bookings for the quarter were 53%.

Like Maria mentioned, we really find out a new found category removing V-II Pro and Spartan-IIE both of which were introduced over three years ago and incorporated them into the mainstream product category. We also moved the original Virtex and Spartan-XL to base products from the mainstream products. Consequently new products grew by 18% sequentially driven by double digit increase from Spartan-3, 3E, Virtex-4 and CoolRunner-II. CoolRunner-II shipped 1 million units to a single customer during the month of September, a major milestone for our CPLDs.

Our 90 nanometer products which include which includes Spartan-3, 3E, and Virtex-4 contributed to 20% of revenues this quarter. At 20% our 90-nanometer product shipments are out pacing all other PLD companies. Spartan-3,3E and Virtex-4 should continue to drive revenue growth for the next several quarters. Our latest 65-nanometer Virtex-5 product family generated its first revenues although immaterial to date.

Due to an over inventory situation at some of our large communication customers along with mergers in that space our mainstream product revenues were negatively impacted. Products like Virtex-II Pro and Virtex-II which have been shipping in volume production for several years are more prone to inventory accumulation. V-II Pro saw a number of cancellations and push outs from wireline and wireless customers in the September quarter. Next quarter we believe that revenues from our mainstream products will be flourished compared to down double digits this quarter. Our base products declined 2% sequentially and we accept base product revenues to routinely decline overtime as many of these products near end of life.

Total Spartan revenues grew 1% sequentially to 26% of overall revenues. CPLE’s were flat at 9% and total Virtex revenues declined 5% to 53% of total revenues. In total geographies, Europe was down sequentially and Japan up sequentially as forecasted. America was flattish, which was slightly better than we thought. Asia-Pacific was the one region which was weaker. As we highlighted in our mid quarter update, the Asia-Pacific softness was due to a handful of global communication customers that subcontract manufacturing in Asia. In addition Chinese infrastructure spending was weaker in the September quarter.

In terms of market data now, communications was done 9% to 45% of revenues, the lowest percentage that it has ever been. Wireline communications where weak in North America and Asia Pacific while wireless was soft in Europe and Japan.

Industry was a bright spots this quarter as defense applications drove the 5% sequential increase. Defense and other outer space sales now represents over 10% of revenues. Consumer and automotive grew 1% sequentially, consumer was at double digits but the growth was offset by audio, video and broadcast which declined quarter to quarter.

Let me now say a few words about our latest product family Virtex-5. This past Monday Xilinx announced that we are now shipping to first 65 nanometer FPGAs with hardened protocol blocks. Virtex-5 LXT is the first FPGA family to deliver fully compliant and characterized hard-coded PCI express and Ethernet Mac box. The Virtex-5 LXT platform also features the industry’s lowest power transceivers consuming less than 100mW per channel at 3.2 gigabytes per second. PCI Express and Gigabit Ethernets have emerged as the leading interface standards for FPGAs and are accepted to account for over 80% of all port shipments in a few years.

Today we are shipping seven Virtex-5 devices, four out of six LX devices and three out of six LXT devices. Also shipping is our 8.2i Integrated Software Environment tool suite, known as ISE, supporting the Virtex-5 family. The ISE either 2 designer environment enables 30% faster performance on previous generations of FPGAs. We are very pleased with how smooth our Virtex-5 execution has been so far. There are few new materials or equipment needed to produce 65 nanometer, in addition we are introducing improvements to our product introduction process including more rigorous correlation of our product process matching prior to producing wafers. We have also placed increased focus on early product functional acquisition with key customers prior to broad sampling. Both of these process improvements have allowed us to remain on scheduled for our 65 nanometer roll out, and significantly ahead of the competition.

Let me now turn to the guidance for the quarter. The December quarter is typically a relatively strong quarter for Xilinx as our customer’s infrastructure spending resumes. In terms of end markets we are expecting communications to be up sequentially, industrial increased due to another strong quarter in defense and in consumer automotive to be as well. Data processing of 10% of revenues expected to be flattish. We also have forecasting all geographies to be up sequentially although Asia Pacific is the biggest risk. The one caveat is that we will need returns in the high 50% range due to our reduced beginning backlog position. On the other hand with our four to six week lead times and our customers inventories in better balanced customers will tend to order for immediate delivery. Turns in the high 50% range is definitely no doubt unusual.

Taking all these into account we are forecasting revenues to increase 2% to 5% sequentially in December ending quarter. Now let me turn this call back to Jon for some remarks.

Jon Olson

Thank you Wim. Gross margins are expected to be flat at 61% to 62% including $2 million of stock based compensation. Combined inventory days are expected to be approximately flat at 126 days. R&D expense will be approximately $99 million including $10 million in stock based compensation. SG&A will be approximately $93 million including $10 million of stock based compensation. Amortization expense will be approximately $2 million. Other income is expected to be approximately $18 million. The share account is expected to be $340 million shares and lastly the tax rate is expected to be between 23% and 24%. Let me now open the lines for questions, back to you operator.

Question-and-Answer Session

Operator

[Operator Instructions]. Our first question comes from the line of Michael Masdea with Credit Suisse.

Unidentified Analyst

Yes, good afternoon this is Thomas Ross[ph] calling in for Michael Masdea, could you discuss a little, what you’re seeing in terms of customer mentality as you enter the December quarter and specifically could you comment on what you are seeing in terms of inventory levels in the supply chain.

Jon Olson

Sure, I would say that customers are quite optimistic, they are going forward. I believe that the decreases in raw material cost and energy prices have created more positive feeling amongst our customers. The inventory of course is something that they keep under very close control and because really when you look at inventory, its not really only in two points, its at the end customers for final integration in the form of stuff boards and it is of the companies like Xilinx who have the price suppliers and so it something that we want it very carefully, but obviously depends very much on the sell through from our customers obviously evolve over the next quarter. I think that people are quite optimistic and I think the inventories are in the -- well controlled. Next question please

Operator

Our next question comes from the line of Glen Yeung with Citigroup.

Glen Yeung - Citigroup

Thanks, can you just talk about what it is in the month of September that turned around may be one end market that show that kind of strength and then I will have one quick follow up after that.

Jon Olson

Well, you know it’s really was very broad based and both from the end market point of view with of course the caveats that we have indicated, I mean communications being done but even their communications improved, the wireless and wireline improved, the military started to rump up. So it was very broad based from an industry point of view than little bit based from the geographic point of view. So there was really no specific indications that there was a one element that -- here. It was a broad based recovery after very weak July and August.

Glen Yeung - Citigroup

So when we look into the Q4, a lot of other companies are talking about weakness in communications, particularly in base station business and I wonder particularly as regarding for it to grow, you think you’re seeing something different or is it just a different mix for you or what might it being.

Jon Olson

Well, I think that in general trend we see down cycles faster than most other companies and vice versa. I think the week that we saw in June, July and August, I think other people are now maybe seeing that. Then also don’t forget there are communications are at an all time low, so you know we don’t believe that we were down somewhere as, I don’t think that I said that we will grow a lot.

Glen Yeung - Citigroup

Okay, that’s all -- thanks.

Jon Olson

Next question please.

Operator

Our next question comes from the line of Adam Parker with Sanford Bernstein.

Adam Parker - Sanford C Bernstein

Hi, what do you expect to happen to your and in the distribution inventory level during the December quarter, do you plan building through seasonally strong March, would that be normal or how should I look at that?

Wim Roelandts

No Adam, the you know we keep very tight control over distribution inventory and in fact that’s why we bought it together with our own because we have really managed -- our December there is -- quite closely and our growth is typically around 30 days so this quarter was on the low end side and it really depends on how the sale true is the end of the quarter. You know, I think a strong September created a lower inventory levels of our distribution, but in general we keep it very well controlled and I don’t expect any big changes in that matter.

Adam Parker - Sanford C Bernstein

Sure you are not worried about you know, what's happened a few times in the past, the few years you know, which is you know this inventory level building and then impeding your progress at some point in calendar ‘07.

Wim Roelandts

It certainly could happen, but you know times have changed a lot, you know I mean if you look at 5 years ago distribution was really not you know 60 to 90 days of inventory and the same was for Xilinx to do. Xilinx runs up around 90 days. I mean this quarter was little bit higher because our openings were lower than anticipated, and that the distribution in running up 30 days or less. So it is really and they are liking it because one of their measures is there bit number of returns that their inventory does so its something that is quite different from what it used to be several years ago. So I don’t expect any big changes because you know they are really carried out when you look at the inventory, if you look at historically.

Adam Parker - Sanford C Bernstein

Okay thanks.

Wim Roelandts

Next question, please.

Operator

Our next question comes from the line of Seogju Lee with Goldman Sachs.

Jim Schneider - Goldman Sachs

Hi this is actually Jim Schneider for Seogju Lee. Thank you for taking my question. First of all, could address perhaps the inventory mix that you are seeing in your internal inventories?

Wim Roelandts

Well yes, obviously the on a number of various point of view, our newest products have the highest number of days because we really anticipating growth in this areas and so we have to build inventory for higher growth next quarter. Jon said that the more mainstream mature products inventory is going to be much lower because they are stable, there easy to forecast. So if you look at the -- those are the inventory it’s always skewed towards US products, probably a kind of a distribution in time, we try to keep as much of our inventory especially in (inaudible) bank and that is still the case today. So I don’t have the exact number, percentage here in mind, in front of me, but 100% of our inventories sitting in (inaudible) bank and then we’ve a very fast back end process where we can package and test these and send to our customers typically in less than two weeks and so that is one of the reasons why distribution is running with less inventory because we keep it special so we can really customize it depending on the speed rate and pack it the way the customer want and therefore minimize our inventory. Next question please.

Operator

Our next question comes from the line of Chris Stanley with JP Morgan.

Chris Stanley – JP Morgan

Okay thanks guys. I realize that the bookings had pick up recently, but I’m checking through my notes and you haven’t done high 50s turns in over a year and I guess you know given the disappointment in the last quarter I’m just wondering why guides for that?

Wim Roelandts

Yeah, well you know if you look at the statistics you know we have highest close to 50 over 60 during -- not in last three quarters, but in the pervious four quarters we were -- on the previous three quarters we were in the high 50s almost 60. So out of the last six quarters three were of 60%, three were of 55% so I think that the -- typically when there is a risk for shortages, people puts more ahead of time and I don’t have to remind that beginning of this year there were shortages in industry even though the values we managed are extremely well even early times by a couple of weeks as compared with normal. I think all of these is not behind us and I think that’s why our customers were confident that if they need we’ll be there. So I think it’s very natural if you look back over the last years why we had lower turns in the beginning of the year. There were shortages in the industry and now the shortage is pretty much gone. Next question please.

Operator

Our next question comes from the line of Tim Luke with Lehman Brothers.

Tim Luke - Lehman Brothers

Thanks Jon Olson I wonder if you can give some color on some of the factors playing into the gross margin and I also wondering separately in seeing the improvement income to that suggest maybe the dislocation associated with some of the big mergers in the wireless infrastructure area whether it was Nokia, Siemens, or Alcatel Lucent, is largely been observed. Is that one of the factors that played into the wireless weakness? Thanks.

Jon Olson

On the gross margin Tim, things are really kind of valiant so I would say we -- as long as we can keep our mix in a reasonable shape. We are pretty confident about hitting our 61% to 63% model. New products are stronger and that’s you know, our margins are typically weaker in the beginning of the prior lifecycle and then they get up to proper model after awhile. So there was a little bit of downward pressure from that and the fact our mainstream products were weaker than we thought. But again in total, if we can keep our cost reasonably well controlled and we keep the mix about right, we are okay in this model. If the trend from the last quarter continues and new products grow dramatically faster than everything else then we could have a bit downward pressure but we don’t anticipate that happening. Our relative year communications improvement question of what’s really going on with some of the merges and acquisitions. You know, it’s a hard thing for us to tell quite frankly when you sit in the summer months because some of the MI activity is out of the combination of North America and Europe. And they are typically slow in the summer, anyway. So you know, we look at that and we particularly let’s say Lucent and Alcatel and we have done a lot of studying on both sides of it and while there are some overlap for us there isn’t a great deal over the last in there. So I suspect there is a -- still a little bit flood coming for us from that merger that we haven’t seen yet. But again we don’t see in that particular situation a big change in our business. Thank you, next question.

Operator

Our next question comes from the line of David Wong with A.G. Edwards.

David Wong - A.G. Edwards

Thanks very much. You mentioned Virtex-5 which is just beginning to start them now. Can you remind us of things that make the budget five special, what are the differentiating factors in your view for Virtex-5, it could be -- you talk a little bit about your thoughts on family and what attributes you are going to build on or actually for that family to help differentiate that family?

Wim Roelandts

Sure, well Virtex-5 first of all, it’s our first family in 65-nanometer technology so what it really means is that average dia size approximately 50% smaller than the equivalent sized Virtex-4 products. Secondly, we really implemented a new program logic architecture with (inaudible) and a new routing system which we call (inaudible) which is almost three-dimensional routing system. Both of these together create integrated with our software allows to have performance up to 30% faster than the previous generation product. You know that with the advancing technology, technology doesn’t give you that much of a performance boosts anymore or if you want it, it cost you dearly in power consumption. So here in fact the Virtex-5 has lowered power consumption on Virtex-4 and up to 30% faster power. So it’s a major advantage from that point of view. As far as the Virtex-5 LXD family which we just announced Monday. It is the first family with a low power transceiver, less than 100mW per channel and two hard cores of PCI Express hard core and an Ethernet hard core. People use these transceivers for all kind of things, but according to some forecaster up to 80% of transceivers will be used a future for these two applications, and so having these cores it has logic it means that we can -- people can implement it much easier. It’s a pre-tested core and they also don’t -- you don’t have consumer program or logic to implement these cores. So it’s a tremendous advantage for our customers. So these two families, the LX family and XP family are the first two families, there is two more families coming called SXT and FXD and they will be coming later in the year or early next year with different characteristics, but these are the main differences of this family. On Spartan-3 they are, of course, Spartan-3 is mainly designed to address the more higher volume markets, consumer electronics and the motives and so on though they are also widely use by our communication, traditional customers, because they are general purpose FPGAs, but with a lower cost structure. The lower cost structure is achieved by having lower cost packages, taking out some of the functionality over vertex in order to reduce buy size and in general by targeting low performance, performance is expensive from a buy size point of view, because your drivers have to be bigger and so on. So the key elements in this packing family are a very low-cost both on a cost per IO basis and also on cost per (inaudible) basis and I guess it is specially targeted for consumer tech markets, next question please.

Operator

Our next question comes from the line of Tim Kellis with Stanford Group.

Tim Kellis - Stanford Group

Yes, I just want to see maybe give us a little more color on the lead times, you mention there were four to six weeks quarter maybe was the end of the quarter and how you're still playing out in the December quarter, thank you.

Wim Roelandts

Yes, the lead times I mentioned four to six weeks that is currently done so its end of the quarter beginning of this quarter they are typically where we like to be, we like to be in the four to eight weeks. So typically you got the number correctly about 80% of our products are less than four weeks or less and the rest is in the four to eight weeks so this -- as far as I know no product that are beyond that. And the same by the way is true for our new vertex size family, we can deliver pretty much -- deliver customers are all the rate because of very, very good deals in the 65-nanometer process. We explain that to remain like this for the rest of the quarter, unless of course -- you know we see dramatic growth. But you know we have ample buy back inventory to satisfy our customers assuming that this -- we meet our forecast, even behind our forecast we should be able to meet that without an increase in our lead times. Next question please.

Operator

Our next question comes from the line of Mark Edelstone with Morgan Stanley.

Unidentified Analyst

Hi, this is actually John I’m calling in for Mark Edelstone. I have a question for you. In regards to the turns target you gave this earlier about being in the high 50s. If I recall correctly at the beginning of last quarter you are in the mid-50s as the target I mean of course the quarter turns out to be very back end loaded. Kind of wondering if you are looking at the same type of a situation for this quarter?

Wim Roelandts

Yes, John, this quarter fortunately it’s maybe little bit more on the opposite you know in another words we expect a very strong October and November and then of course the vacation starts you know the Thanksgiving vacation and then the Christmas vacation. So typically this is quite the opposite of last quarter although you know last year even December was very stronger with vacation and everything. So but our expectation is that we are very, very stronger October, November follow that maybe a little bit weaker. December certainly if you compare December with the month of September which is very strong in the last quarter. So that’s basically how we see the season of the evolving.

Unidentified Analyst

Thank you.

Wim Roelandts

Next question please.

Operator

Our next question comes from the line of Chris Stanley with JP Morgan.

Chris Stanley – JP Morgan

Hi, thanks guys, I hope you will take a question and we follow up. You gave some guidance on gross margins and OpEx for this quarter, John, can you just talk about how we should expect that the trend going forward, and then I have a follow up?

Jon Olson – CFO

Sure Chris. Well, we are not going to give specific forecast going forward, our posture is tried -- try to control the growth of our Opex as much as possible so I am not going to forecast it, will be totally flat out in time but we are trying to demodulate it with one you know fairly significant difference and that’s because we are launching Virtex-5 product families through out the next 12 month periods of completing out the current families as well as adding new families downstream and those drive incremental cost relative to market rollouts and those kind of things.

So you know we undoubtedly we’ll have some upward pressure because of those but other than that you know we would like to try keep things as clamp down as possible for a while and then also anything relative variable to higher revenue where we have higher incentives, commissions and bonus accruals etc those will tend to push this up as well so, that’s our profile. We are trying to keep ourselves in an appetite that is a little more in the area of control of items and then growth at this point in time. Well, anyway I guess we have follow up after that, go ahead.

Chris Stanley – JP Morgan

Okay, that’s SG&A should trend up less than sales and then at some point R&D will have a bump, it will be a one time occurrence?

Jon Olson

No, I don’t know it will be a one time, we have a couple of quarters where it will be up a little bit because of those but they won’t, you know I don’t think its just like a one quarter giant pop at this point.

Chris Stanley – JP Morgan

Okay, thanks and then the follow up is on uses of cash, its growing a lot any thoughts to you know raising the dividend or increasing the buyback?

Jon Olson

Our cash is actually been held flat over the last several quarters with the exception of the cash that came in from the UMC sale and so yes, now the balance is up. We go through essentially an annual review with the board around our cash policy strategy. We’ve raised our dividend in the spring time in the last couple of years, so from a calendarization perspective you know, it is about -- the winter time is about the time when we go through and discuss those kinds of things. I am not going to make any statements about exactly what or how and when we are going to do something but we do believe that we should be returning cash to the shareholders in the form of dividends and buybacks and the factor that our cash balance is gone up because of this three events you know, we will take that into account.

Chris Stanley – JP Morgan

Okay, thanks guys.

Wim Roelandts

Next question please.

Operator

Our next question comes from the line of Danny Kuo with Bear Stearns.

Danny Kuo - Bear Stearns

Hey, guys good afternoon. It seems to me that this quarter you just had about $10 million up sight with an industrial -- an event, can you just talk about you know, the strength you’re seeing their and whether it is 10% of revenues or aerospace and defense is (inaudible) ‘07.

Wim Roelandts

Yes Danny, we like last year you know, we typically expect an up thing during the December quarter for the defense industry because these people want to use up their budgets like they say and if like the same is true for some of other customers also and so but unfortunately it’s a one time event so they fill in their budgets and the next quarter we have to make up the short falls because its only a one quarter event. So our expectation is that things we had similar to whatever last year. We closed about at -- I think for $7 to $10 million impact for one-time defense program spending, I would call it.

Danny Kuo - Bear Stearns

I’m sorry, just a follow up on that. So we should kind of expect in the March quarter that would --?

Wim Roelandts

Yes, well the March quarters are typically our strongest quarter for the fiscal year. So you know but over the last couple of years with our strength in our defense business it has the season now because December is stronger and therefore it creates a little of very -- you know onetime sort of purchase so it increase a little bit of a slowdown in March, which tradition is a very strong quarter. So we expect to roll up unless there is an economic slowdown we expect to grow in the March quarter compared with December, the numbers much as we have seen historically because of the stronger taking defense. It all depends on how strong it is, you know, because obviously depends from one to another and we cannot predict how much it would will this quarter and how it will impact the March quarter.

Danny Kuo - Bear Stearns

Thanks.

Wim Roelandts

Next question please.

Operator

Our next question comes from the line of Mark Edelstone with Morgan Stanley.

Mark Edelstone - Morgan Stanley

Hi Wim, just wanted to see if you could give a little additional color around your statement about Asia been the weakest point or the greatest risk for the coming quarter?

Wim Roelandts

Yes well Asia, of course, consist of two parts you know, that is the subcontract manufacturing business and in other words we shipped parts to Asia, first we do design in North America or another place in the world and that is going to be very dependent on how these businesses do, how these different industries especially North America will do. And secondly, there is the Asia spending itself, products design in Asia and produce in Asia and that -- the uncertainty really comes from the second part that is how will the Chinese government policies work with slowing down their -- spending on infrastructure. So this are kind of a do and certainties for Asia and that’s why we are a little bit -- obviously we cannot predict what -- these or one of these two is doing well especially not the Chinese government. So that’s why we are a little bit cautious as far as Asia is concern. On the other side, you know, is of course, continuously very strong of the year from an economic activity point of view and businesses generation point of view. So my expectations these are our search from the local generated business continue to grow.

Mark Edelstone - Morgan Stanley

Okay, thank you.

Wim Roelandts

Next question please.

Operator

There seems to be no further at this time.

Wim Roelandts

Very good.

Maria Quillard

Okay, well thank you all for joining us today. We have a playback of this call beginning at 5:00 pm Pacific Time, 8:00 pm Eastern. For copy of our earnings release please visit our Investor Relations website. To reiterate our guidance update for the December quarter will be posted after markets on December 7. Our next earnings release date for Q3 FY07 will be Thursday January 18 after market close. This quarters earnings will be appearing at the Credit Suisse technology conference in November. This concludes our call, thanks for your participation.

Operator

This concludes today's Xilinx Q2 2007 conference call you may now disconnect.

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