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Xilinx, Inc. (NASDAQ:XLNX)

F2Q08 (Qtr End 09/30/07) EarningsCall

October 18, 2007 5:00 PM ET

Executives

Maria Quillard - IR

Jon Olson - CFO, SVP of Finance

Wim Roelandts - CEO

Analyst

Jim Snyder - Goldman Sachs

Kate Fehrenbacher - LehmanBrothers

Tristan Gerra - Robert W. Baird

Peter - Citigroup

Danny Kuo - Bear Stearns

Arnab Chanda - Deutsche BankSecurities

John - Prudential Securities

Parag - UBS

Operator

Good afternoon. My name is Kara,and I will be your conference facilitator today. I would like to welcomeeveryone to the Xilinx [Second] Quarter FY '08 Earnings Release ConferenceCall. All lines have been placed on mute to prevent any background noise. Afterthe speaker's remarks, there will be a question-and-answer period. (OperatorInstructions).

Please limit your questions toone, and refrain from multi-part questions to ensure that management hasadequate time to speak to everyone. After each participant has asked theirquestion, their line will be muted and they will be placed back into theconference. If time permits, additional questions will be taken.

I would now like to turn the callover to Maria Quillard. Thank you Ms. Quillard, you may begin your conference.

Maria Quillard

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

As published in our pressrelease, our business update for the third quarter of fiscal year 2008 willtake place in the form of a press release, after the market closes onWednesday, December 5th. After we update our guidance, we will be in a quietperiod until we report the following month.

Let me remind everyone, thatduring our conference call today, we may make projections or otherforward-looking statements regarding future events or the future financialperformance of the company. We wish to caution you that such statements arepredictions, based on information that is currently available and that actualresults may differ materially.

We refer you to the documents thecompany files with the SEC, including our 10-Ks, 10-Qs, and 8-Ks. Thesedocuments contain and identify important factors that could cause the actualresults to differ materially from those contained in our projections orforward-looking statements. This conference call is open to all and is beingwebcasted live. It can be accessed from our Investor Relations website,www.xilinx.com.

Now let me turn the call over toJon Olson.

Jon Olson

Thank you, Maria. Revenues infiscal Q2 were $455 million flat sequentially from the prior quarter. Grossmargin at 61.8% was slightly below our guidance and included two one-time itemsrelated to our warranty obligation and an impairment charge both whichaccounted for approximately 1.5 point of gross margin.

Additionally, unforecasted strengthfrom a high volume consumer customer for our CPLD products impacted margins byapproximately 20 basis points. Operating income was $94.4 million, or 21.2%above what we expected, as lower gross margin was offset by better thanexpected expense control.

Operating expenses were roughlyflat, sequentially better than our guidance of 2% growth. This was a result ofcontinued overall expense control as well as lower than anticipated stock-basedcompensation expenses.

We remain focused on achieving anoperating margin of 24% by fiscal year-end, and to that extent we are pleasedwith our continued progress and controlling expenses. Net income increased 6%sequentially to $89.7 million resulting in a profit margin of 20.2% up from18.9% last quarter, and the highest we've reported in six quarters.

Other income including interestexpense was $19 million. This was $3 million more than we had guided due to ahigher than expected interest income and foreign currency hedging gainsrealized during the quarter. Free cash flow during the quarter was a $134million after $30 million in CapEx, and we paid a dividend of $0.12 per shareduring the quarter.

We repurchased 6 million sharesfor $150 million and paid $36 million in dividends. The tax rate for thequarter was 21%, in line with the guidance we provided.

Let me now comment on the balancesheet. Cash balance decreased $23 million during the quarter to $1.9 billion.Factoring in the $1 billion convertible, our net cash position is nowapproximately $900 million.

Day sales outstanding increasedfive days to 48 days. This is slightly higher than our corporate target of 45days, primarily due to an increased shipment profile in the month of September.We expect this figure to decrease in the December quarter.

Combined inventory at Xilinx anddistribution decreased by nine days to 92 days, with 69 days of Xilinx and 23days at distribution. This is the lowest we had anticipated. In fact, this is lowerthan we had anticipated entering the quarter, and our combined inventories daysare now the lowest in nearly four years.

Several factors contributed tothe decrease, including improved forecasting accuracy, stable through-put timefrom the supply-chain and pure mix issues. We are establishing a new targetgoing forward of 90 to 100 days of combined inventory.

In December, we expect to remainwithin this 90 to 100-day range. I will now turn the call over to Wim tocomment on our business and products.

Wim Roelandts

Thank you, Jon and let me firstcomment on the September quarter. The September quarter was a typical seasonalsummer quarter with sales from North America and Europe declining slightly, whileJapanand Asia-Pacific revenues grew sequentially.

Total bookings for the quartertotaled 59%. July started out positive. August orders were slightly better thanexpected, but September term's orders were a little short of expectations. Onthe other hand, during the month of September, we built a strong beginningbacklog. Our beginning backlog provision has not been this healthy since thesame period two years ago.

Our large OEM customers again didvery well this past quarter. Our top 10 customers' total revenue across eachgeography were up from the prior quarter. This was not the case last quarter orall of last fiscal year. These large OEM customers are not just communications-drivencompanies, but they are well-diversified across all our various end markets.

On the new product front. Our newproduct category grew 6% sequentially, and now that represents 30% of totalrevenues, up from 22% in the prior year quarter. Group revenue growth for thequarter came from Virtex-5, Spartan-3 and CoolRunner-II. Virtex-4 was virtuallyflat after growing over 20% in the June-ending quarter.

Mainstream products declined 1%,while base products declined 10%, which is more of a typical pattern that wewould expect to see going forward. Total Virtex revenues were flat at 64% of totalrevenues. Spartan revenues increased 1% to 26% of total revenues, and the CPLDsgrew the most, climbing 8% to reach 10% of total revenues.

From a geographic perspective, AsiaPacific was again the strongest region growing 3% quarter-to-quarter, andreaching a record 30% of total sales. This quarter we saw strength coming frommultinational companies employing contract manufacturing in Asia, as well as organicgrowth within Asia.

In terms of end markets,communications was up 1% sequentially, due to unforecasted strength in Wired lines,especially in North America, where bothenterprise networking and Wired telecom grew. Wireless, as expected, was downsequentially; although wireless revenues in Japan grew double-digits for thefirst time in nearly two years.

The consumer and automotive endmarket was standard, growing 8% quarter-to-quarter, to a record 17% of sales.Our digital consumer and audio, video broadcast, and video and broadcastsegments, both showed good strength across geographies. Industrial and othercategory declined 5% which surprised us. A rebound in industrial, scientificand medical wasn't enough to offset softness in tested measurement and defense inthis quarter. The decline in our defense business was attributable to a coupleof large customers that had robust orders in the June ended quarter.

These customers are expected toresume ordering again this December quarter, and have already placed a backlogon us. Like the past two December periods, we are expecting good growth fromdefense.

Lastly, the data processingsector was flattish as we had forecasted.

Now I would like to change thetopic to address the issue of market share for a moment. Our cumulative salesof 65 and 90 nanometer accounted for nearly 70% of overall industry revenues ofBODs.

The products manufactured onthese [notes] are our newest product families. We are also seeing record levelsof design win activities for these 90 nanometer and 65 nanometer products. Itis a clear result of our ongoing effort to further drive down the cost of ourdevices through advanced process technologies. Our clear sales in design andleadership indicates with these products bode us well for the future marketshare gains.

Our internal design win metricsshow that Virtex-5 products are winning the vast majority of the high-endsocket designs to-date, while our nearest competitor has only one devicecurrently shipping on 65-nanometer at the high-end. We estimate that Virtex-5has more than a year lead over any competing 65-nanometer products. Let's notforget the high-end [Virtex-5] devices, which represent about two-thirds of thetotal FPGA market.

Let me now turn to the guidancefor the quarter. The December quarter revenues guidance is for sales to be up2% to 6% sequentially. We are expecting all geographies to be up sequentiallywith the possible exception of Asia Pacific, which is forecasted to beflattish. From an end-market perspective, we are expecting consumer andautomotive to increase, given some specific Digital TV design wins that we willbe ramping into volume production, starting in the December quarter.

Industrial other is expected tobe up, driven by defense. Communications is the most challenging end-market toforecast. We believe it will be flattish and are most cautious about thewireless infrastructure piece. Data processing is also expected to be flattish.

From a product point of view, weare expecting Virtex-4 to experience solid growth in the December quarter,Virtex-5 to approximately double, and the Spartan-3 family of products to havea very good quarter, given the production ramp of a few key programs. The newproduct category should be very healthy for this quarter and next.

So, let me now turn it back toJon for some final remarks.

Jon Olson

Thank you, Wim. Gross margin isexpected to be approximately 62% to 63%. Combined operating expenses areexpected to be flat. Amortization expense will be approximately $2 million.Other income, including the impact of interest expense is expected to be $12million. This level of other income and expense is a more typical run rate, asit reflects both lower investment market rates and a modest impact from foreignexchange rate contract. Share count is expected to be approximately 297 millionshares. And the tax rate is expected to be 21%. Let me now open the line forquestions. Operator, back to you.

Maria Quillard

Operator?

Question-and-Answer Session

Operator

Yes Ma'am. I do apologize. Justone moment. The floor is now open for questions. (Operator Instructions). Yourfirst question comes from Seogju Lee.

Jim Snyder - Goldman Sachs

Hi, thanks. This is [Jim Snyder]for Seogju Lee. Thanks for taking the question. If you guys look into the restof the fiscal year, what's your expectation about the magnitude of R&D andSG&A reductions we will be able to get, exiting fiscal year, andspecifically do you see any upside to your target coming out of the fiscalyear?

Jon Olson

So Jim we haven't made any futureforecast into next fiscal year yet. I don't think we are really prepared tomake a statement on that. I mean, we are committed to sustain our business, adda minimum in the 24% to 26% operating margin region. So obviously, we have tospend some time looking at what we think the forward growth rates are for usnext year. And then pay a little attention to what we can do in terms of whatthat means for spending. So, at this point in time, I don't think I am ready tomake a comment on that.

Jim Snyder

Okay. I was just wondering ifthere is any upside for this fiscal year, exiting?

Jon Olson

So, exiting this fiscal year orwithin this fiscal year?

Jim Snyder

Within this fiscal year.

Jon Olson

Well, I mean, I think a lot ofthat is determined by how much growth we are going to get here in the last twoquarters of the fiscal year. Our 2% to 6% guidance, we feel pretty good aboutbased on our backlog. Things would continue to stay strong throughout thequarter than that might yield, certainly more upside and therefore morestrength.

We have also been focusing ongross margins, cost of sales items quite a bit and so we are hopeful that wecan continue to deliver solid results and see if there is anything we can doabout making that a little bit stronger, as we go throughout the year but a lotof it is dependent on the overall business environment and I would play thatout.

Jim Snyder

Perfect, thanks very much.

Wim Roelandts

Next question please.

Operator

Your next question comes from TimLuke.

Kate Fehrenbacher - Lehman Brothers

Hi this is Kate for Tim. I justhad two quick questions first on the data processing segment, I was justwondering what kind of opportunities do you see there going forward it's beenkind of down and flattish for a while now?

Wim Roelandts

Yes, well, indeed the dataprocess even -- this is more than flattish it has being declining over the lastperiod and it really consists of two components one is the storage component,which is more and more based on ASICs or ASSP designs across the industry. So,there is, that used to be a very big segment for us, but I think that wholesegment has been moved away from program for logic. The other part of course iscomputing and there, we see some potential going forward so our devices aremore and more used in especially in the high-end servers and probably slideback. So, overall with the whole storage share area being smaller and smaller,I think, we will see some growth that is more commensurate with the rest of thecompany growth, and we don't expect much further decline anymore. Your secondquestion?

Kate Fehrenbacher - Lehman Brothers

Yeah, I had one more quickfollow-up on the comp business in general, I know, you said that wireless, youare the most cautious on the wireless side of things, I was wondering, if youcould give anymore color on maybe in the data process -- the enterprisenetworking versus the kind of Wired line business versus wireless is there anydifference?

Wim Roelandts

Well, like we saw, this quarterwas that indeed the Wired line business grew, which was a little bit surprisingon one side, because we had not planned for it. But on the other side, there isclearly reinvestment starting in the whole infrastructure space with thetransmission of video and voice over the Internet, where clearly we arereaching the capacity of limits that the current infrastructure will provide.So, there is a lot of activities going on in building new types of routers, newtypes of servers, that can handle these increased traffic. And I think we arejust at the beginning. So, my expectation is that we'll see reasonable growthin the Wired line business going forward, although, there could be somelumpiness, which is always the case when you start up things.

On the wireless side, there wehad a couple of negative quarters now. And it really has to do with theinvestment of deployment of 3G base stations throughout the world. And ourexpectation is that we probably see not one may be two more quarters ofnegative growth, but the feedback we really seek from our customers are quitebullish for next year. So, obviously with all the terms on economic conditionsand other factors that can influence that, but our expectation is that thewireless less business, will start growing in one or two more quarters. Nextquestion please.

Operator

Your next question comes fromUche Orji.

Parag - UBS

Hi, this is Parag for Uche. Justwanted to get a clarification on your comments, you said that your mainstreamin this business declined quarter-over-quarter is going to remain in the samerange as this quarter. So, I was just wondering, if your new product revenuecontinues to grow at the same rate, and given that your mainstream decline ismoderating. Should we expect to see revenue expectation going forward into '08?

Wim Roelandts

Yeah, absolutely, you are talkingabout the measurement business?

Maria Quillard

The mainstream?

Wim Roelandts

Mainstream, I am sorry.

Jon Olson

They got sort of new products forthe mainstream.

Wim Roelandts

Well, you're really talking abouttwo different aspects, the three segments that we identified for is newbusiness stream and base business and business of the older products.Typically, they will continue to decline over the years, these are productsthat are typically five -- at least five or six years old, plus they're peak inproduction.

The mainstream business really,is very dependant on the economic conditions. So, I think if these are theproducts that are in production for our customers, and so, our customers buythese products when they see their business growing or not. So, it's reallyvery little we can do on that, but the new products, however, that is somethingthat we can impact by having good new products and be ahead of our competition.

And so, although this quarter wasa little bit on the weak side, but mainly because of V-4, which is kind of inthe limit now for between new and mainstream. But my expectation is that fornext quarter, the new business will do very well, mainly based on the strengththat we see on both V-4, V-5 especially, and then also on Spartan-3.

The mainstream business willdepend on the, like I said, on the overall economic conditions. We expect it togrow slightly for the coming quarter, mainly because we expect the business tobe growing for the next quarter.

Parag - UBS

Okay. And then I have a follow-upon your backlog. And could you provide, you said that your backlog is thestrongest in the last few years. Could you provide some more color as to wherethat strength is from coming from, I mean which kind of market?

Wim Roelandts

Yes. Our backlog is up in thehigh-single digits compared with last quarter.

Jon Olson

So, I think from an end-marketperspective, as we've talked about where we see the strength in the nextquarter, we do think our aspects in defense will be stronger on a sequentialbasis and the consumer piece. Those are the two places that I think are the twolarge opportunities, anything in the industrial area, which is where aerospaceand defense is in the consumer space.

Parag - UBS

Thank you.

Wim Roelandts

Next question please.

Operator

Your next question comes fromTristan Gerra.

Tristan Gerra - Robert W. Baird

Hi guys. In Virtex-5, wheneveryou seem to be at an inflection point, is that the beginning of a migrationfrom product tightening to volume, and is that significant increasequarter-on-quarter sustainable beyond the December quarter or in line with whatwe have seen with previous Virtex ramps?

Wim Roelandts

Yes, well, Virtex-5 is clearly ina stage where we see a lot of activities, some of the first design wins arestarting doing the production, but this is still relatively a small number.

Most of this revenue comes fromnew designs from engineering prototyping and for, from the emulation market,which are the emulation companies are buying very large Virtex devices. So allof the numbers, in units, it not may be very high, but the dollar revenue is ofcourse much higher.

And so, it really is still mainlydesign win activities that we see happening. And, of course this quarter isextremely strong, part of it because a lot of shipments were already made tothe distribution channel that we expect to enter into customers, during thisquarter. But also because it is a very strong, very well received product lineand fundamentally, there is really no competition for some of the devices,mainly because of the features we have in there. So that's why we see a lot ofdesign activity in that space. Next question, please.

Operator

Your next question comes fromGlen Yeung.

Peter - Citigroup

Hi, this is a Peter for Glenn. Iactually want to do a touch on, you talked about strength across your top 10customers, which are large OEMs and it looks like you also worked down channelinventory quite a bit, which I usually think is associated with small mediumcustomers. Should we think that more broadly, is this any indication that morebroadly, there is just a bit of strength coming back or did you really workdown the inventory earlier in the quarter, and then it was the large OEMs who lookedbetter towards the end? Any color would be helpful. Thanks.

Wim Roelandts

Yeah. Well, the, what was kind ofinteresting this quarter, is that in all geographies our top 10 customersincreased, which is a sign that things are may be picking up, although I amvery careful because one quarter doesn't make a trend yet. So, you have tocareful of, about that, but indeed, overall there seems to be a little moreoptimism. Again, it depends very much on the overall economic conditions goingforward, and that could dampen this trend in the future.

But overall, yes, the bigcompanies have been kind of sluggish for the last several quarters. So thatpick-up is really very encouraging to us, and we see also good design activityin all of our other channels.

Jon Olson

I can add something. I think youwere also kind of talking, asking a question around the volume going todistribution. Quite or few of our large customers still are served via ourdistribution network and are not direct shipped from Xilinx. So even though, wehad a lot of, lower days in distribution. That doesn't necessarily indicatethat's it's all small customers.

Peter - Citigroup

And could I actually ask afollow-up?

Jon Olson

Sure.

Wim Roelandts

Sure.

Peter - Citigroup

Earlier in the year I think youhad a just a better ramp up, that matured yields a little bit more quicklythan, maybe was anticipated. I was wondering, if it's too early to starttalking about on how next sets of products. Well, how yields are continuing toimprove and if you think there is any potential for margin upside out of thator out of the next, I guess, [40]-nanometer?

Wim Roelandts

Well, the 45 nanometer, ofcourse, it's too early to say, there is no products yet introduced in that, andit typically takes several quarters to really see what the trends are inyields, but as far as 65 nanometer is concerned, and I mention that, I think acouple of quarters ago, indeed the yields have been better than we anticipated,and also better not where you have seen over the previous generation oftechnology. One of the factors we have measured very carefully is what iscalled the learning curve, so it really is the improvement in yields or indefect rates versus time versus unit shipped. And clearly 65-nanometer learninggrowth was better than what we have seen for instance a 90-nanometer or130-nanometer. I think it is due to the fact that there is a lot new technologybeing used for design for manufacturability, in line inspection. Anothertechnology they really allow you to improve the yield faster.

Also 65-nanometer was arelatively -- technology was relatively new little innovation and as far asequipment or processes were concerned through this pretty much of showing from90-nanometer. 45-nanometer would be a lot more difficult, because there inorder to build 45-nanometer products you will need new steppers -- theimmersion steppers, which of course is a brand new technology. And there couldbe some hiccups when another new technology is deployed in production. So, I expectthat 45-nanometer is potentially a little bit more difficult than 65, but 65 indetail very smooth and continues to be moving forward at a faster pace and itwill be achieved with the previous generation of technology.

Peter - Citigroup

That's helpful, thank you.

Wim Roelandts

Next question please.

Operator

Your next question comes fromChris Danley.

Unidentified Analyst

Hi, good afternoon. This is(inaudible) for Chris Danley. You've already talked about recent problems withsome of the biggest customers especially in the wireless base station market,do you think that this is the odd term problem? Or are you expecting increasein sales from them going forward?

Wim Roelandts

Yes, like I said a little bitearlier in our description with our wireless customers. Our forecast is prettypositive going forward, and you were referring to the announcement by Ericsson,but if you listen to their announcement and that is being I can confirm thattheir weakness came mainly from software and services and not from theequipment side, which continues to do well. And that of course where we areinvolved in the forecast from Ericsson continue to be quite positive for thelonger-term future. Next question please.

Operator

Your next question comes fromArnab Chanda.

Arnab Chanda - Deutsche Bank Securities

Thank you, question for Wim, isthere, do you see, if you look at some of the high volume markets, and you aretalking about Digital TV, historically they don't tend to use FPGA as that muchof several prototyping, are you seeing a difference in to the CPLD businesswhere it seems like grow is actually picking up? Are you seeing that going todifferent markets and does that change your growth rates at all? Do havefollow-up. Thanks.

Wim Roelandts

Yes, absolutely in the -- alwaysFPGAs were only used for prototyping or for very low volumes in the high volumemarket, which still is 100,000 of units. But now, we really see, thanks to thecost improvements driven by 90-nanometer and further cost reductions in the90-nanometer product lines and its Spartan-3 product line. We see more and moreacceptance of FPGAs even in the relatively high volume productions, millions ofunits type of volume production.

So, clearly it is a space wherestandards are changing where a lot of the panels are changing. So, there is aplace where programmers can play a very important role in supporting the newesttechnology in the newest panels. And because of the cost of program did notreach a level that there can be price comparative with other solutions in thatmarket. So, there a couple of years ago we saw then we had a million unitsorder, in this period we see several million unit orders, and even much higherthan that coming in for the life span of that product. Next question please.

Operator

You next question comes from MarkLipacis.

John - Prudential Securities

Hi. This is John on for Mark. Heyguys, I have a question, for actually inventory levels. It just seems very lowcompared to historically. It sounds like, and if you dissect that a little bitmore, your channel inventories are up pretty much back to normal after a bigpop last quarter, but your internal inventories are drastically bad. I’m justkind of wondering, how you really feel about that. And I know you were sayingthat your targets are around the 90 to 100 days. And in the past year yourtarget has been a little bit higher as well. I'm wondering what you're thinkingabout your inventory levels at this point?

Jon Olson

So, this is one of the focusareas John that we've had in the company over the last six quarters, is to,really to manage things on the balance sheet a little differently than in thepast, and be more focused about that. And inventory is one of our shinierexamples of success story of how we've driven it down. Well, it really isn't acorrelation between having piles and piles of inventory and meeting customercommitments.

We actually have increasing OFDor first commit to our customers and increasing percentage over the last coupleof quarters, and as you know, the last six quarters, well at the same time weare taking inventory down. So, we think we can effectively manage the supplyline and meet upside along the way.

So we are not leaving things outat the expense of not being able to [test] by upside, then we carefully planthat upside capability on high running products every quarter as we go --excuse me, every month as we go through our wafer allocation process. So, thisis just blocking and tackling and good strong, a fiscal on operational control.

John - Prudential Securities

Okay, I understand. Thank youvery much.

Wim Roelandts

Next question please.

Operator

Your next question comes from[Danny Kuo].

Danny Kuo - Bear Stearns

Yeah, guys. Can you just give usthe absolute dollar for your aerospace and defense business in the currentquarter, and maybe for this fiscal year '08, should we expect a similar type ofgrowth in that business as compared to last fiscal year?

Wim Roelandts

I am sorry Danny, but we don'tgive specific numbers for subsets of the businesses. We only give numbers forthe four segments that we report on. But we have communicated in the past therough percentages and aerospace, defense is in the 10% to 12% of our totalcompany's revenue.

Danny Kuo - Bear Stearns

And maybe, another question forJon. I guess, within your gross margin guidance let me assume a comparablerevenue mix in the December quarter. Should we expect that gross margin to comeback up to, I guess 63%, which is a high end to your guidance range, withouttheir one-time charges?

Jon Olson

Well, certainly, the one-timecharges impacted us this time, and we would have landed more comfortably in the52 to 63 range without them. Again, we have done some significant thingsrelative to improving our cost forecast, and actually, our cost to actuals, andit's really a matter of how the mix comes in. So, it is possible for the mix tocome in a way that gets us to 63%. It's not a stretch to the imagination. Onthe other hand, it could also be in the low 52% as well, so, a lot ofdependencies here to be able to land it within that tide of a range.

Danny Kuo - Bear Stearns

Thanks.

Wim Roelandts

Next question please.

Operator

Your next question comes fromArnab Chanda.

Arnab Chanda - Deutsche Bank Securities

Hi, Jon, just a follow-up on thetax rate, your tax rate seems to have come down, you've talked about havingoverseas, the things that you are doing in Singapore, et cetera. Is thissomething that we expect to kind of continuously go down towards maybe yourmajor competitor, which is quite a bit lower still? Or do you think that thisis a good number to work on for the foreseeable future? Thank you.

Jon Olson

Our first goal is to be able tomanage our actual cash that we paid to various U.S. and foreign governments and inother words to optimize that for the company. So it's really, first a cashthing and then the rates, that's the secondary issue.

We have been certainly doing somethings in reviewing our overall structures to see if there are other ways forus to lower the rate. We are not prepared to provide a forecast for next year.

It's certainly on our plate toreview and see if there are opportunities for us to go lower. I think you also,if you look at, you compare our rates to most of the other semi-rates, you willfind that we are in the mid-range to lower already. So our competitor may be atlow out layer, but I am not going to comment on their particular tax structure.But I think, we are already at least competitive or better among the semis.Even though, we will always look for an opportunity to lower it.

Arnab Chanda - Deutsche Bank Securities

Thanks Jon.

Jon Olson

Next question, please.

Operator

You have a follow-up questionfrom the line of Mark Lipacis.

John - Prudential Securities

Hi, this is John again. So, interms of target levels, are the target, I am sorry, the trench target for thisquarter, it was 59% last quarter, correct? So what is it for this quarter?

Wim Roelandts

We expect it to be roughly in thesame range, maybe a little lower because we know we have stronger backlog. So,in the high 50s.

John - Prudential Securities

Okay thanks.

Operator

We have another follow-upquestion from the line of Uche Orji.

Parag - UBS

The question has been answered.Thank you.

Wim Roelandts

Next question?

Operator

You have no further questions.

Maria Quillard

Okay. Well, thank you all forparticipating today. We have a playback of this call beginning at 5.00 pmPacific Time, 8.00 pm Eastern. For a copy of our earnings release, please visitour Xilinx IR website. To reiterate, our guidance update for the Decemberquarter will be posted after the market on December 5th. Our next earningsrelease date for the third quarter of FY08 will be Thursday, January 17th,after the market close. This quarter, we will be participating in the LehmanGlobal Tech Conference in San Francisco on December 6. This completes our call.Thank you very much for your participation.

Operator

This concludes today's conferencecall. You may now disconnect.

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