Xilinx's (XLNX) CEO Moshe Gavrielov on Q3 2016 Results - Earnings Call Transcript

| About: Xilinx, Inc. (XLNX)

Xilinx, Inc. (NASDAQ:XLNX)

Q3 2016 Results Earnings Conference Call

January 20, 2015, 05:00 PM ET

Executives

Rick Muscha - Sr. Director, IR

Jon Olson - EVP & CFO

Moshe Gavrielov - President & CEO

Analysts

William Stein - SunTrust

Ross Seymore - Deutsche Bank

Chris Danely - Citigroup

Srini Pajjuri - CLSA Securities

Harlan Sur - JP Morgan

Chris Rolland - FBR

David Wong - Wells Fargo

Romit Shah - Nomura

Ian Ing - MKM Partners

Hans Mosesmann - Raymond James

Vivek Arya - Banc of America

Blaine Curtis - Barclays

John Pitzer - Credit Suisse

Operator

Good afternoon my name is Victoria and I will be your conference Operator. I'd like to welcome ever to the Xilinx Second Quarter Fiscal Year 2016 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] Please limit your questions to one to insure that management has adequate time to speak to everyone.

I would now like to turn the call over to Rick Muscha. Thank you. Mr. Muscha, you may begin your conference.

Rick Muscha

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 December 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 currently available and 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. This conference call is open to all and is being webcast live and can be accessed from our Xilinx's Investor Relations website.

Let me now turn the call over to Jon.

Jon Olson

Thank you, Rick. Xilinx sales were $566 million, up 7% sequentially and at the high end of our guidance. We experienced exceptional new product growth during the quarter driven by our 28-nanometer 7 series products and 20-nanometer UltraScale products.

End market strength was broad based with Communications and Industrial and Aerospace and Defense recovering as anticipated. The Broadcast, Consumer, and Automotive category was down slightly driven primarily by Automotive which was impacted by the timing of customer purchases. We expect Automotive to post strong growth in the March quarter and to increase by 30% in the full fiscal year 2016.

Gross margin was 68.5% for the quarter. In addition to the expected impact of customer mix shift to our larger customers, gross margin was impacted by higher than anticipated production ramp cost associated with the aggressive introduction of our new products. Our March quarter guidance incorporates a small impact from these costs.

Operating expenses including $2 million of amortization expense or $228 million slightly lower than expected as a result of disciplined spending. Other income was a net expense of $5 million, better than anticipated due primarily to higher investment income.

The tax rate for the quarter was 15.6%. There were two discrete tax items impacting the rate. There was a $0.03 per share benefit from the retroactive reinstatement of the R&D tax credit and a $0.05 per share negative impact due to a change in the amount of foreign earnings for which U.S. tax is provided.

Net income for the quarter was $131 million or $0.49 per diluted share. Operating cash flow for the December quarter was $290 million before $6 million in CapEx. Strong cash flow for the quarter was positively impacted by net improvement in working capital driven by a reduction in receivables and inventories.

Diluted shares for the quarter were 270 million. There was a 10.6 million share dilutive effect from our convertible notes. For questions related to dilution Russia associated with our convertible debt, please visit our Investor Relations website at www.investor.xilinx.com. We repurchased 2.1 million shares for $100 million during the quarter and paid $80 million in dividends.

Let me now comment on the balance sheet. Cash and investments were $3.6 billion. We have $600 million in convertible debt and a $1 billion in fixed rate debt resulting in a net cash position of approximately $2 billion.

Inventory dollars at Xilinx decreased by $17 million sequentially. We expect inventories to be down again in the March quarter.

Let me now turn to a discussion of guidance for the March quarter of fiscal year 2016. Our backlog heading into the March quarter is up slightly. We are forecasting continued growth in 28-nanometer and 20-nanometer products.

We expect Communications to be flat with increases in wireless offsetting decreases in wired. Industrial and Aerospace and Defense is forecasted to be down slightly with decreases in ISM and Test, offsetting increases in Defense.

Lastly, we're expecting Consumer, Auto and Broadcast to be up driven by Automotive which is forecasted to have a record quarter. As a result, we're expecting total sales to be approximately flat sequentially.

The mid-point of this guidance is predicated on a returns rate of approximately 48%. Gross margin is expected to be between 68% and 69%. Operating expenses for the March quarter are expected to be approximately $220 million including $1 million of amortization of acquisition related intangibles.

Other income and expense for the March quarter will be a net expense of $6 million. The share count is expected to be approximately 267 million shares. The tax rate for the March quarter is expected to be between 13% and 14%. The increase in the tax break forecast is a result of the previously stated changes.

Let me now turn the call over to Moshe.

Moshe Gavrielov

Thank you, Jon and good afternoon to you all. I'm very pleased we delivered a significant growth quarter with revenue hitting the high end of our guidance. Overall, six of our eight end markets grew demonstrating the strength of our highly diversified multi-market portfolio.

Particular, I'm gratified that this growth was driven by an exceptionally strong surge from our new products category, primarily our latest 20-nanometer and 28-nanometer production node which delivered an 18% sequential quarterly increase.

December quarter 28-nanometer sales grew significantly staying a new record revenue level. 28-nanometer revenue growth benefited from broad-based sales contributions from Industrial, Broadcast, Defense, Test and Measurement and Consumer markets, in conjunction with a significant forecasted recovery in the Communications market.

The current March quarter driven again by a majority of our end markets, we expect to repeat this trend and set a new quarterly 28-nanometer revenue record.

Similarly, 20-nanometer revenue in the December quarter is significantly exceeded the $20 million target we had set last quarter. No 20-nanometer competition, the Virtex UltraScale high end family continues to represent the largest percentage of our20-nanometer sales.

Additionally our Kintex UltraScale family demonstrated significant sales momentum with revenue doubling in the quarter. Looking forward to the March quarter, driven by many of our end markets and led by Test and Measurement, Defense and Consumer, we expect 20-nanometer sales to exceed our new $25 million quarterly target.

These business successes both the 20 and 28 nodes are being bolstered by the significant milestones we have achieved with our 60-nanometer UltraScale+ family extending our clear industry into leadership.

Since the September quarter, we've already shared the industry's first 60-nanometer all programmable MPSoC to tens of customers. This broad customer shipment milestone was achieved a quarter ahead of schedule enabled by the excellent functionality of our first 60-nanometer silicon.

More recently, we received silicon of our 60-nanometer Virtex silicon which is exhibiting similarly pristine functionality. Consequently, we plan to ship it to customers by the end of January significantly ahead of our original schedule.

In addition, we take out additional 60-nanometer devises last quarter and we fully expect to continue this accelerated ramp of new product tape outs throughout fiscal year 2017 to build up upon and expand our time to market advantage.

The silicon leadership position is being complimented on the software front by our enabling broad public access to design tool support for the 60-nanometer UltraScale+ family.

The breakthrough capabilities of the 60-nanometer UltraScale+ product family coupled with our very significant first mover advantage make it uniquely suited for high growth applications ranging from mixed generation front driver assistant, industrial internet-of-things to 5G wireless.

Lastly, following the October announcement of our strategic partnership with Qualcomm for compute acceleration in ARM-based servers, Xilinx and IBM announced a similar collaboration to enable compute acceleration in servers based on the power architecture. This collaboration is expected to enable high performance and energy efficient FPGA-enabled work load acceleration of rapidly growing applications.

Notwithstanding the recent turbulence in the global market continued focus and deliver upon the elements we can control, namely our total technology execution, our ability to expand the serviceable market, utilizing our leadership portfolio and our emphasis on maximizing shareholder value.

Now, I'll turn the call back to the operator for Q&A.

Question-and-Answer Session

Operator

The floor is now open for questions. [Operator Instructions]

Your first question comes from William Stein with SunTrust.

William Stein

Great, thanks for taking my question and congrats on the good quarter. Moshe, I want to address a comment that I believe you made on the last quarter call about Xilinx having passed through the bottom and that the company sees growth in the coming quarters and I think one of the specific comments was more upside risk than downside risk.

Guidance for the next quarter is I think seasonal or maybe slightly below that and I'm wondering if you can give us an update on sort of where you anticipate we are in the cycle, ignoring perhaps what you read in the papers and see in the markets, but based more on backlog and customer discussion. Thank you.

Moshe Gavrielov

Okay, Will, as you look over the past couple of years, clearly we had a challenge in terms of our revenue and what we identified was there were two elements -- significant elements that were challenges for us. We're a multi-market company, so we're very diversified and I think that's generally good, but the two challenges we had were on the A&D front and on the wireless front and wireless depending on the point in time is typically north of 20% and A&D can be in the mid-teens, depending on the cycle and those two markets hit low points.

The low point for wireless we believe was in the June quarter and the low point for A&D was in the September quarter and so those two markets which were a bit of a drag now we believe are in recovery mode and what we're seeing is generally speaking on most or all of our markets we're seeing growth.

It isn't linear so it sort of goes up and goes down a little, but generally speaking, we think the worst is behind us and we expect to see over the next two quarters better results than we have seen in the past.

And it's driven by a very strong technology cycle, so it's driven by the 28-nanometer and the 20-nanometer now hitting record revenue -- as they hit records in the December quarter, we expect them to hit higher records in the March quarter.

This sort of impacts of the 14 weeks versus 13 weeks, we could sort of -- we've generally modeled that as between 2% to 3% in terms of benefiting from that this past -- during that obviously won't -- we won't have that in the current March quarter. So, we do think that what you're seeing is regardless of that you're actually seeing some growth on an apples-to-apples comparison.

Beyond March, we're low to give predictions and we're probably going to give predictions on a quarter-by-quarter basis going forward because of the choppiness in the market. So, that's sort of the Readers' Digest version. I could spend a whole hour. Hopefully that helps.

William Stein

It's helpful. If I can have one follow-up please? I know that it's very early days, but with your primary competitor being acquired by Intel, I imagine that over time, there may be differences in competitive dynamics on the one hand in the data center opportunity and on the other hand in sort of the long tail applications. And I'm wondering if you're seeing early signs of that or maybe you can perhaps preview what you anticipate from a competitive dynamic perspective in the next few quarters? Thank you.

Moshe Gavrielov

Well, with regards to data center in particular, you know it's an emerging market, its emerging market for everyone. It would be very correct to say that Intel is by far the market leader due to their very strong position on high performance servers and that helps them and undoubtedly, they will leverage that to help them keep as much as they can of that market.

Our expectation is that notwithstanding that element, there is an expectation of coming solutions coming to market be they compete in architectures, the two that are obvious are the ARM and the POWER ones even on the x86 front, we believe that we can provide a lot of the big players in the market a differentiated solution.

So, no, I believe that that market; there's growth opportunity for us. I would say it's definitely the market where Intel has the full position. It would be foolhardy to state anything other than that with that with regards to that market in the x86 world. In the non-x86 world, it's sort of ours by and large.

With regards to the other markets, I think it's fundamentally driven by the customers looking for who has the best technology solution which at this point as you look at the 28-nanometer and 20 and our position on 16, we clearly have tremendous leadership and our market share is growing there.

We have leadership on the software front and we clearly have the service demeanor which is important to this customer -- to customer in these markets. So, I think that it's a growth opportunity for us. We don't take anything for granted, we need to continue to deliver leadership and the best support and our intention is to continue doing that. So that's another long answer.

William Stein

Thank you.

Moshe Gavrielov

Sure. Thank you.

Operator

Your next question comes from the line of Ross Seymore with Deutsche Bank.

Ross Seymore

Hi guys. Just wanted to follow-up on the Industrial and Aerospace segment. Jon a clarification of the moving parts within that. I think you talked about that being down as an entire segment but the A&D side of it being up. Can you talk a little bit about what you're seeing on the industrial side, OEM versus demand and especially given in all of the uncertainty macro wise industrial data points are very helpful to us? Thanks.

Jon Olson

Sure. In this past quarter both the Industrial, Aerospace and Defense and Test and Measurement were all up sequentially and then the forecast, the guide was to have industrial down Test and Measurement down and Aerospace and Defense up so I was just wasn't 100% sure of which quarter you were referring to when you made those comments so I want to be clear on that.

So aerospace and defense as Moshe pointed out earlier did bottom out in the September quarter and we're starting to see strength in that business particularly in many of the defense areas and I know the movement and the change in some of the things going on in the budgetary process is starting to, we're starting to see some general goodness in terms of programs and emerging things going on there.

But most of our business comes from -- current business comes from existing programs and we're just seeing a very good continued very good penetration of products as are quite frankly our 65-nanometer products are growing in that categories and there's a big latency issue relative to the revenue ramp.

But we're also seeing really good 28-nanometer growth over and above what we've seen maybe historically for a new product category growing, so I think our strength there is continuing to fill and grow Aerospace and Defense. And that's a U.S. and European statement more than it is any other geography from the military perspective.

Then in industrial, it's pretty choppy. We're seeing overall growth in industrial from a full year to full year basis but by geography, it is kind of up and down. In this particular quarter, this past quarter we had stronger numbers out of Japan than anywhere else and everything else was kind of flattish to down -- flat to down kind of situation, so it continues to be challenging in China and Asia-Pacific as well as Europe where we have a significant strength set of customers so it's not like it's cratering and going down it's just kind of a very choppy environment for us in industrial.

Ross Seymore

Great, that's helpful. If I could sneak in one other more housekeeping, 8-K you put out along with your results tonight that had a change of control provision. To the extent it’s possible and I know it might be a little bit difficult but can you give any color as to the catalyst behind those agreements?

Moshe Gavrielov

So, let me take that and I actually lost the big bet because I have expected that to be the first question to be asked, but thank you for asking that.

Ross Seymore

Sorry, I was late.

Moshe Gavrielov

No, you're fine. So you know there is very clearly massive consolidation which is happening in the semiconductor world and the general expectation is that will continue. Having said that, we really don't comment on market speculation or rumors and there have been numerous ones.

What we are doing is basically aligning the change in control arrangements for the company’s executive management to be in line with those which are common for public companies both in our industry and actually across industries and it's just, it just happened now.

It was the result of some feedback we got or the Board got from an external consultant that they had engaged to look at these issues and that was put in place as a result of the recommendations from the external consultant, so that's sort of the entirety of it.

Ross Seymore

Perfect. Thank you.

Moshe Gavrielov

Thank you.

Operator

Your next question comes from the line of Chris Danely from Citigroup.

Chris Danely

Hey, thanks guys. I guess just a longer term question. I know you haven't commented on sort of the long term growth rate. Now that we're getting towards the end of the year here can you just talk about your kind of relative expectations for the growth in your end Markets and then any sort of operating margin or OpEx goals and then the plan to get those, thank you.

Jon Olson

So Chris, we aren't really giving prepared to give any real long term guidance or longer term guidance as Moshe mentioned a little earlier today but we clearly expect growth next year for us as the strength of our new products overall are going to drive us there. We seem to be in such a really strong position even at the latest generation of products of 60-nanometer products vis-à-vis competition.

We're getting very strong interest and demand interest from our customers for 20 and 60-nanometer products and as we mentioned in Moshe's remarks the uptake in terms of shipments of samples and early products has been extremely brisk to our customers which demonstrates a lot of interest and of course we are hopeful that it does turn into real significant revenue dollars downstream.

From a margin perspective we've been running kind of bouncing around a little bit between 68 to 70, but I'm still confident we're in the 68 to 70 range in any sort of near term plus or minus a few of the things that bumped us up to 70 and now down to 68.5 but I think we're solidly in the 68 to 70 range and we're going to provide more spending guidance at a later point.

We really haven't gone through our plan fully and gone through all of that entire exercise, so to summarize, I do believe in top line growth year on year for next year and stable margin.

Chris Danely

So, just a quickie. Will there be an Analyst Day or should we wait until the next quarterly announcement to get some fiscal 2017 guidance?

Jon Olson

Yeah, we'll give a little more guidance at the next earnings release and we are planning on doing, having an Analyst Day, but we haven't set a specific date for that yet.

Chris Danely

Okay. Thanks guys.

Moshe Gavrielov

Next question.

Operator

Your next question comes from the line of Srini Pajjuri from CLSA Securities.

Srini Pajjuri

Thank you. Moshe, you talked about wireless coming back a bit. I'm just curious how much visibility do you guys have into inventories at your customers and then what you saw last quarter and this quarter seems like more of an inventory normalization.

And if so how should we think about where we are in the inventory cycle? And then can you also talk about what you're seeing geographically in terms of any new rollouts or new developments in wireless?

Moshe Gavrielov

So the biggest rollout we're currently seeing is the SD rollout in China. We expect that to be significantly smaller than the TD rollout in terms of the length and the number of units but nonetheless we see that happening now and we believe that the improvement that we are seeing in our wireless business is driven by that.

We are waiting for continuing rollouts in India. We do believe that the level we had reached at the very bottom of our wireless cycle which happened in the June calendar 2014 is behind us and we're seeing growth beyond that but we don't see anything short-term which will enable us to reach the peak which I believe was in the March 2013 timeframe. I might have the year. It was, I'm sorry? 2014, the March 2014 timeframe.

So, we don't see anything which will bring us back to that anytime soon. We think that the 5G is the next big wave. We are being designed into all of the prototyping for demonstration of technology of 5G but that is not identical to being in the production vehicles which are likely to be very significant truthfully in the 2020 timeframe.

So, everything until 2020 is likely to be of a smaller scale and the next big surge will be driven by 5G. There will continue to be rollout of 4G on a worldwide basis but it's not going to be anything like the previous level so wireless is not going to reach that peak of March 2014 any time soon.

Srini Pajjuri

Okay. That's great. Thanks for that. And then Jon, again on the inventory front, I just asked about customer inventories but also if you can comment on your Balance Sheet inventories I think they came down and you also said they are going to come down again in March and given your optimism about growth for next year, I'm somewhat surprised that inventories are coming down if you could shed some light on that it will be helpful.

Jon Olson

Yeah, quite a few quarters ago we had built up our inventory intentionally for two reasons. One is we thought we saw some stronger demand and particularly in SD coming at us and we thought the foundry was pretty tight in terms of their ability to supply us and then we had six quarters of down revenue and so essentially what I'm saying is we built up too much inventory and we've been bleeding it off, so yes, we did go down quite a bit this quarter and we expect to go down again the next quarter, will be much closer to our desired model by the time we get to next quarter.

So, this is really getting us back to model which is more of the 90 to 100 day kind of range and that's the general target, of course that fluctuates depending on where we are on new product ramp capability, but this isn't, there shouldn't be viewed as some sort of a cautionary signal. This is really about getting inventory back into a historic model after we had built it up in about a year and a half ago.

Srini Pajjuri

Great. Thank you.

Operator

Your next question comes from the line of Harlan Sur with JP Morgan.

Harlan Sur

Good afternoon. Thanks for taking my question. Europe was down about 6% sequentially versus growth in all of your other geographies. Can you just help us understand what end markets in Europe were weak and how do you see Europe trending in the March quarter?

Jon Olson

So, generally, Europe I talked about automotive being down as being a customer timing issue, Automotive was certainly a driver that's where some of our largest Automotive customers are but I think in general, we've been looking at Wireless was down there in Europe as well as Industrial as part of that Industrial conversation I had previously, so I think we do expect Europe to bounce back some next quarter particularly with a much stronger Automotive revenue expected.

Harlan Sur

Great, thanks for that and then the team has done obviously a solid job on driving 20-nanometer and 20-nanometer new products. On the competitive front since your competitor has been in the midst of being acquired we've not really heard much in the way of their 14-nanometer program or product family.

You guys are obviously out there with your 16-nanometer products and getting good early traction. Is the Xilinx team seeing the 14-nanometer product set from your competitor and any competitive engagements?

Moshe Gavrielov

Harlan, we haven't seen them and we haven't seen any announcement from them. This sort of goes and contradicts the commitments that it's being made to share a long time ago so we think that this indicates the fact that we take out in June of last year, got silicon back in September, the silicon is very, very functional that we have a tremendous lead and we already have on the Virtex side which we expect to tape out

Sorry we expect to sample customers we've seen the silicon and again it is in great shape and what we're going to do is we're starting to turn the crank and it will be a large number of tape outs at 60-nanometer devises because we do believe we have at least a significant time to market leadership at this node.

Jon Olson

Typically, what would happen, Moshe talked about tens of customers shipping the 16-nanometer product to UltraScale+, and typically what happens is there might be a bake off between us and our competitor, et cetera.

And at this point, we don't have any customer telling us there's a bake off going on, so that leads us to believe there are no parts out there but of course, we're not the center of all knowledge there but we haven't seen any as much.

Harlan Sur

Great. Thanks for the insights.

Moshe Gavrielov

Thank you. Next question?

Operator

The next question comes from the line of Chris Rolland with FBR.

Chris Rolland

Hi guys thanks for the question. You guys mentioned a potential down tic in wired Coms next quarter. Perhaps you can elaborate on what you guys are seeing there and how you kind of view this market longer term?

Jon Olson

Yeah, we had quite a bit of growth this quarter in the wired communications area. It was both in I would say core wired communications as well as data center and particular both data acceleration but in a big way also some of the solid state storage and so that sometimes those customers buy a lot and then absorb and buy a lot and absorb and really the down is more related to the customer absorption and some of those cases than it is to any other trend.

What we are seeing is a very strong uptake of new products in wired communication so if you stripped out older products and just looked at the ramp of new products in 28-nanometer and newer you would see a very nice ramp in wired communications and growth next quarter in new products as well, so this is a kind of a timing issue more than it is a trend.

Chris Rolland

Okay. Great, thank you. And then not too much discussion on auto in the quarter, maybe that paused I don't know and then as we look at the ADAS market more specifically did you guys pick up any new guys there, Tier 1s, OEMs, I would love some color there.

And just for your ARM products more generally, auto and everything, what percentage of revenue would you say are actually associated with or have an ARM core in them?

Jon Olson

So, there's quite a few questions in there.

Chris Rolland

Sorry.

Jon Olson

So, our overall automotive business continues to be very strong. Year-to-year full year growth in FY 2016 over 2015 at 30% that growth is coming primarily from ADAS applications. Our traditional business is around infotainment and its stable, still doing well.

Relative to the growth of new applications, I don't know that we have any new public something I can say publicly relative to new platforms but there were new design wins in the quarter in automotive that I'm just not at liberty to provide the name of the ultimate manufacturer at this point in time.

We are seeing designs we have one ramped very strongly and those again, the ADAS application being the biggest driver of growth there is a growing percentage of that ADAS that has an ARM core in it and in some cases we end up having in more simple applications just straight FPGAs in there but the ARM core is growing very dramatically.

So, if you'd say we talked last quarter about 50% of our revenue from automotive was ADAS related I would say at least half of that is associated with some level of ARM core and that will be growing over time.

Chris Rolland

Great. Thank you.

Moshe Gavrielov

Thank you. Next question.

Operator

[Operator Instructions]

Your next question comes from the line of David Wong with Wells Fargo.

David Wong

Thanks very much. In which applications are you seeing the most initial interest currently for 60-nanometer product?

Jon Olson

Hi, David. Well there's quite a lot of them because it's a broad product offering, so there's the MPSoC which is basically the ARM based product and then there's the Kintex and the Virtex derivatives, so if you look at the ones which I think are the most significant ones at this point, it's the Next Generation ADAS, so this goes beyond the Zynq.

It's the industrial control and we do expect this to be used very broadly for 5G wireless at least for the prototyping versions whereas in the 20-20 time frame it's more likely to go into full-fledged production with 7-nanometer so those are three target markets which are driving the design wins in the 60-nanometer but reality is it's a very broad node so I'm probably doing a dissevers towards the others and I'm just sort of mentioning them.

David Wong

Great. Thanks.

Jon Olson

Thank you.

Operator

Your next question comes from the line of Romit Shah from Nomura.

Romit Shah

Yes, thank you. Moshe, you mentioned earlier partnerships with IBM on open power servers using their CPUs and as well, with Qualcomm using their server CPUs and I'm curious, how much interest are you guys seeing from web and cloud Service Providers to deploy these chips?

Moshe Gavrielov

We're seeing tremendous interest because as I said, this is an emerging market. This is a market where performance per Watt is one of the, is the most important parameter and our all programmable solutions can actually put a huge dent in improving that for a broad range of applications.

Now these tend to be at this point very large players who are very autonomous and control their software environment, so it's not a PC type environment where control is in the hands of the Microsoft, right? It's actually if you look at the big players, the Amazons, Googles, the Chinese equivalents, they absolutely control their environment and they are driven by the efficacy of their power footprint of their data center. That's why this is due to such an interesting and compelling opportunity going forward.

Now, there's a lot of excitement about this now, this is a market which is starting to evolve and it has several years to grow, so we've expected it to be significant five years from now and I just want to make sure that everyone understands that at least from our perspective. That's where it will start having the biggest impact. That doesn't mean there won't be deployments before that but in terms of being a significant portion of our revenue, then its five years away.

Romit Shah

And is the partnership at Qualcomm exclusive or do you have the ability to partner with other ARM server suppliers?

Moshe Gavrielov

Well, we have a very close relationship with Qualcomm but it's not an exclusive one on our behalf and fundamentally, we can connect with whoever is developing a solution whether it's x86, whether it's POWER-based or ARM based and we can help accelerate all of those and can rest assured that we're in the midst of working with all of them but the ones we have announced we have now a very deep relationship with and we're working towards enabling their products when they have the equivalent CPUs and Board systems for those environments but it's more than just the two that we have announced.

Romit Shah

Okay. And then Jon, can I just ask quickly my impression is that revenue growths in June and September have traditionally been weaker than December and March and is that your impression as well and is there a seasonal component there?

Jon Olson

Yeah if you look back at our pattern, it has changed from time to time and last year I think that was we had down every quarter so it's hard to pick that pattern out of that but we aren't prepared to talk about the June quarter right now, we will have to wait until the next earnings release.

Romit Shah

Okay. Thank you.

Moshe Gavrielov

Thank you. Next question.

Operator

Your next question comes from the line of Ian Ing with MKM Partners.

Ian Ing

Yes, thanks. Could you talk about scenarios to get gross margins back to the high end of the range, 70% is it the production ramp costs going away after March or does mix really need to turn more favorable here?

Jon Olson

Well, again our goal is to operate in 68-70 and we're comfortable with that so we don't have programs that are specific to have that target because we're obviously focused on adding the most value to the company and total on the operating margin dollar line but from a mix perspective, one of the bigger impacts that we had forecasted for this quarter was the fact that we knew we were going to be returning to a richer, large customer mix that tends to buy volume and therefore has better pricing as a result of that.

There's also some end market characteristics where we were at a low point for aerospace and defense and as that builds that will counteract some of the large customer impacts, so I guess if you're looking for a scenario that drives margin up, it is large customers except for aerospace and defense customers but again, we are trying to add total dollars to the bottom line. That's the goal.

Ian Ing

Okay. Thanks that's all I had.

Moshe Gavrielov

Thank Ian. Next question.

Operator

Your next question comes from the line of Hans Mosesmann with Raymond James.

Hans Mosesmann

Thank you. Hey, Moshe, just to go back on the aggressive ramp of new products this year. Is that a result of just faster than expected yield improvements at your foundry or are you being opportunistic to kind of take advantage of an opportunity versus the competition what exactly or is it just customer demand?

Moshe Gavrielov

Well, it's basically driven by new technology and the maturity of the new technology and typically what happens when we start with the new process node then we tape out one version and then we go through an extensive debug cycle and once we have the debug done, then we can start turning the crank.

What has happened is the level of functionality was so high on the initial silicon that we actually could sample its customers and we could almost immediately start taping out the other versions.

And so the answer to your question is we're basically exploiting the high quality of the engineering execution and it behooves us to capitalize on that because as we tape out all of the other versions we expect to extend our market leadership in terms of breadth of product and in terms of having first mover advantage so it's that element which we're capitalizing on and it will manifest itself with tape outs, more tape outs having, happening faster than we had expected which is good news because there's more products out.

Hans Mosesmann

Great. Does that change, a follow-up does that change the timing of the tape out of 7-nanometer?

Moshe Gavrielov

No, it probably means that we will tape out more versions on 16 to exploit the maturity of it but it doesn't mean we'll do 7-nanometer earlier because in our industry the customers can only absorb the technology to a certain rate and we believe that on average every two and a half years to have a new node is the optimal time for their capacity to use the new technology and it also helps us contain our costs otherwise, we will just be burning money on tape outs ahead of when the customers can use it so we're still planning on 7-nanometer tape out in the 2017 calendar 2017 time frame generally speaking.

Hans Mosesmann

Okay. Thank you.

Moshe Gavrielov

Thank you.

Operator

Your next question comes from the line of [indiscernible] with Baird.

Unidentified Analyst

Hi, good afternoon. You had said in past that 28-nanometer will be a larger node from a revenue standpoint than 20. Do you see expected that based on the response that you're seeing from customers and most of assuming that based on your 5G commentary 16 no matter revenues are expected to be lot where then the peak you expect at 28?

Jon Olson

Okay. So we absolutely expect 28-nanometer due to the richness of the product offering and the cost point that it's at and the customer needs to be a long lasting node and likely to be the largest node at least up to this point in the industry and we don't expect 16 or 20 to approach that.

We do expect the 16 and 20 together to be generally in that sort of size but the two together are not any one of them virtually and the 28-nanometer as I said had a record revenue this quarter. We expect it to have record revenue that was December.

We expect it to have another record revenue in the March quarter and we actually I wouldn't be surprised if it becomes our all-time highest record product in terms of quarterly revenue shipments sometime over the next 12 months and overtakes everything else in terms of that and what we're seeing is that we expect it to continue to grow albeit at a smaller rate over the next few years and it has several years until it actually hits its peak. So, that's the story on 28-nanometer for us. 16, we expect to be a very strong node too, but not as strong as 28.

Jon Olson

Not to confuse anything Moshe just said, but we are living in a multi-technology product family situation now. We just -- in the last couple of quarters, we've announced a Spartan 7 product line which is 28-nanometer technology and so we're extending -- using all of our technology to extend the low end and improve upon the low end of the FPGA market where 20 and 16-nanometer aren't as economical for us to go.

So, when you start looking at the growth of the company and the long-term situation is going to be a multi-node kind of product family rollout as we keep going in order to cover all of the different price points in the spaces we're going to be in.

Unidentified Analyst

Very useful. Thank you.

Jon Olson

Yes, thank you. Next question.

Operator

The next question comes from the line of Vivek Arya with Banc of America.

Vivek Arya

Thank you for taking my question and congratulations on the good results and execution. My question, Moshe, is on the long term growth for the PLD industry. If I look over the last three, five or even 10 years, the topline growth for the industry has sort of been flattish despite a lot of penetration and new markets.

I understand the volatility in the Communications and the Aerospace market, but that's not going away any time soon and that's over half of the sales in this industry. So just the very basic fundamental question is what's going to be different over the next three, four year to create growth in this industry? Thank you.

Moshe Gavrielov

Okay. Well, -- I mean that's a profound question and I agree with your comments on it, we have been disappointed vis-à-vis growth over the past few years. I think -- and as a result there was a point in time where the general expectation was that you could deliver sustained double-digit growth and we're -- we believe that that is unlikely that it could happen, but it's unlikely to be the compound annual growth rate, so we're talking about single-digit growth even though we still need to deliver and as Jon indicated we do expect fiscal year 2017 to be a growth year.

On the general question which we'll try to answer probably a little better at our Analyst Day, the point I'd like to make is that except for high volume -- very high volume markets, ASICs and ASSPs and this is no longer a wet dream, right. This is documented known and happening and has happened over the past few years of becoming less and less viable.

And that opens a serviceable market and it requires the right silicon and it requires the right software and as we move forward and we continue to move forward with -- and being at the leading edge, there's less and less to compete with and if we have the right silicon and we have the right level of integration and we can enable a broader set of customers to use our technology, we should be able to benefit from that. That's sort of the very high level answer.

I'd like to give you a more profound answer but you know that isn't something we can do now. We will try to address it a little better during our Analyst Day and explain what we're doing in order to exploit the opportunities and among other things just a snip it is if you look at the ARM product line that enables us to service a market, which up to when it was available, we couldn't even touch, right and that the ASSP market and we've gone from to it already being approaching 20% of our revenue on the newest node, right. And that just sort of shows you that it's an expansion play. We'll try and give more example on explaining that in the future.

Vivek Arya

Very quickly, could you help, Moshe, help us quantify how large is your Data Center and your Automotive business today? Thank you.

Moshe Gavrielov

I'll let Jon give you the official answer.

Vivek Arya

Okay.

Moshe Gavrielov

Or not give you.

Jon Olson

I actually don't have the Data Center information, so I don't -- we don't track that as a different sub on a routine basis and our Automotive business has been running in the 7% range, I'd say on -- if you look at it over a broad spectrum of quarters.

Vivek Arya

Got it. Thank you very much.

Moshe Gavrielov

Yeah. And that's double where it was a few years ago, so it has grown.

Vivek Arya

All right.

Moshe Gavrielov

Okay. Thank you.

Operator

Your next question comes from the line of Blaine Curtis with Barclays.

Blaine Curtis

Hey guys, thanks for taking my question. You talk about turning the crank on 16 and are you adding anymore products or is it just a pull-in in terms of the timing? And I know you aren't giving fiscal year 2017 guidance, but how does that impact to shape OpEx?

Moshe Gavrielov

We don't have the numbers, but obviously it's the right thing to do, right because we have leadership and there is market demand, it would be foolhardy not to exploit that and we will give you those numbers when we get giving the fiscal year 2017 number.

At this point, what we want to make is sure is that we exploit the breadth of the opportunity there and we're just accelerating the existing roadmap to provide it at an earlier point than we had expected before. There might be an option to actually also provide better coverage, but at this point, it's the former as opposed to the latter.

Blaine Curtis

Thanks. And then I just wanted to go back to a prior question on the Wireless segment. Is there a way to distinguish whether it's a recovery in inventory or are you actually seeing end market pick up? And then you talked about an average of 20% of revenue and not being able to get back to a prior peak, but average of 20, is that a good goal that this business could get back to as 20% of revenue?

Jon Olson

Well, I mean, I think that's a pretty reasonable play -- number, just plus or minus a reasonable error bar there. I think what Moshe was trying to communicate was that the very large build up in the overall 4G global network, we have passed that stage of the life cycle of 4G even though we continue to get a lot of long-tail business even from geographies that are [Indiscernible] deployed like North America for example, because of capacitation of the network adding on et cetera, and the situation and best as we can see it in China is they are building FD base stations, we've been told they are deployed, but as you know the last time we learned, we were told those kinds of thing that turns up they weren't all fully deployed and there were a lot of buildup in warehouses.

As best as we can tell it is moving through the manufacturing line and out of the warehouses and being deployed and it is going to be a couple of quarters of good business and yes there was some replenishment of inventory going on this quarter, but we also see growth next quarter in the Wireless business and some of that is related to the China market as well.

Blaine Curtis

Great. Thanks.

Moshe Gavrielov

Thanks Blaine. I think we have time for one last question.

Operator

Your last question comes from the line of John Pitzer with Credit Suisse.

John Pitzer

Moshe, Jon, thanks for sneaking me in. Two quick ones first is housekeeping. Jon now that the quarter is over, can you just level set us on what do you think the extra week added to both revenue and OpEx in the December quarter?

And then Moshe, I think this question might have been partially answered with Blaine's question, but when you think about getting Wireless back to prior peak, it sounds like that's more commentary on the overall CapEx cycle and inventory cycle and not the PLD opportunity set within base stations and I wonder if you could just comment a little bit on kind of what you think the content on PLD was supposed to be and how that's playing out through the 4G cycle?

Jon Olson

So relative to your first question on the impact, we had estimated a couple of a percent, 2% or 3% kind of in the last call and that's exactly where it turned out the last two weeks of the quarter were for us were 13, week 14 were quite muted on an individual basis and when you add those two together, it ends up being around a 2% or 3% kind of positive impact as a result of having that extra week. Of course, we get the spending -- and we have all of the extra spending as well in that quarter.

And then your second question was around the peak, Moshe, do you want to answer?

Moshe Gavrielov

Yes, so what we see is a continuing opportunity and actually a growing opportunity for FPGA content in Wireless, we're seeing number of players who can effectively design ASICS, which is the other option because there really isn't a viable ASSP solution at this point in time and we don't see that happening any time soon, so it's ASICs versus FPGAs.

We're seeing less and less players with the capacity to do that and so the role of FPGAs grows and with each generation generally speaking, the average ASP per system is a little higher. It doesn't reflect the much larger role of the FPGA has in the system, so it's an integration play. We replace a lot of other components and so we have more major parts, but the ASP does not go out at the same level to reflect the value the FPGA provides.

But generally speaking, it's one of those markets where the role of the FPGA continues to grow and major competition is the very, very, very few and actually diminished number of players who can design ASIC alternatives and that number continues with each generation of product to go lower and lower.

John Pitzer

Perfect. Thank you.

Moshe Gavrielov

Hey. Thank you, John.

Rick Muscha

Thanks for joining us today. We have a playback of this call beginning at 5 P.M. Pacific Time, 8:00 P.M. Eastern Time today. For a copy of our earnings release, please visit our IR website. This quarter we will be presenting at the Goldman Sachs Technology and Internet conference in San Francisco on February 9th. This completes our call. Thank you very much for your participation.

Operator

This concludes today's conference call. You may now disconnect.

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