Xilinx Management Discusses Q2 2013 Results - Earnings Call Transcript

Oct.17.12 | About: Xilinx, Inc. (XLNX)

Xilinx (NASDAQ:XLNX)

Q2 2013 Earnings Call

October 17, 2012 5:00 pm ET

Executives

Rick Muscha

Jon A. Olson - Chief Financial Officer, Principal Accounting Officer and Senior Vice President of Finance

Moshe N. Gavrielov - Chief Executive Officer, President and Director

Analysts

Romit J. Shah - Nomura Securities Co. Ltd., Research Division

Ambrish Srivastava - BMO Capital Markets U.S.

Vivek Arya - BofA Merrill Lynch, Research Division

James Schneider - Goldman Sachs Group Inc., Research Division

Glen Yeung - Citigroup Inc, Research Division

Steven Eliscu - UBS Investment Bank, Research Division

Ross Seymore - Deutsche Bank AG, Research Division

Shawn R. Webster - Macquarie Research

Anil K. Doradla - William Blair & Company L.L.C., Research Division

Srini Pajjuri - Credit Agricole Securities (NYSE:USA) Inc., Research Division

Christopher B. Danely - JP Morgan Chase & Co, Research Division

Joseph Moore - Morgan Stanley, Research Division

Operator

Good afternoon. My name is Jamaria, and I will be your conference operator today. At this time, I would like to welcome everyone to the Xilinx Second Quarter Fiscal Year 2013 Earnings Release Conference Call. [Operator Instructions] I would now like to turn the call over to Rick Muscha. Thank you. Mr. Muscha, you may begin your conference.

Rick Muscha

Thank you, and good afternoon. With me are Moshe Gavrielov, CEO; and Jon Olson, CFO. We'll provide a financial and business review of the September quarter and then we'll open the call for questions.

Let me remind everyone that during our conference call today, we may make projections or other forward-looking statements regarding future events or the future financial performance of the company. We wish to caution you that such statements are predictions based on information that is currently available and that actual results may differ materially.

We refer you to documents the company files with the SEC, including our 10-Ks, 10-Qs and 8-Ks. 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 Xilinx Investor Relations website.

Let me now turn the call over to Jon Olson.

Jon A. Olson

Thank you, Rick. Xilinx sales were $544 million in the September quarter, down 7% sequentially but within our guidance towards the lower end of our guidance. Weaker-than-anticipated sales from industrial and A&D, as well as computer and data processing, more than offset better-than-expected sales from wireless communications.

With the exception of Japan, which was flat, sales to all geographies were down sequentially. Turns were 57% for the quarter and relatively linear on a monthly basis. We continue to get the capacity we need from our foundry partners, and our lead times, with a few exceptions, are within normal ranges.

Gross margin was 65.5%. This level is a testament to our focus on margin improvement projects across our product portfolio, with particular emphasis on new product margins, which offset significant impact from customer and product mix during the quarter.

Operating expenses of $208 million were lower than expected as a result of the shift in tape-out activity, lower litigation expense and reduced discretionary spending. New product sales were up 7% sequentially, with strong growth from our 28-nanometer families while 40-nanometer sales were essentially flat.

During the quarter, revenue from our 28-nanometer products achieved our goal, surpassing $20 million. Mainstream products increased 3% during the quarter, with strength from the Virtex-5 products, driven primarily by LTE deployment activity. Base products declined over 20% sequentially, with most of the decreases coming from industrial, defense and communications.

Let me now turn to a discussion of end markets. Sales from communications in data center increased 3% sequentially, with strong wireless sales offsetting expected declines in wireline. Industrial and aerospace and defense sales declined 13% sequentially, with declines coming from all 3 subcategories: defense, industrial, scientific, medical and test measurement. Broadcast, consumer and automotive sales declined 15% sequentially, with sales from all categories flat to down sequentially. The other category declined 24% sequentially, impacted by declines in computer and data processing, as well as storage.

Net income for the quarter was $123 million or $0.46 per diluted share. Other income and expense was a net expense of $10 million, higher than anticipated due primarily to an unfavorable hedging impact. Operating cash flow for the June quarter was $197 million before $8 million in capital expenditures. We paid $57 million in cash dividends during the quarter and repurchased 2.5 million shares for $79 million.

The tax rate during the quarter declined due to a shift in our geographic mix of profits. Our new effective tax rate is 15%. In addition to the lower tax rate estimate for the year, in Q2, we had a favorable impact to tax expense of $4 million associated with the release of reserves related to a recent tax court case. The impact of these 2 factors represent a positive contribution to EPS of approximately $0.03 per share.

Diluted shares for the quarter were 270 million. There was a 5.5 million share dilutive effect from our convertible notes. For questions related to the dilution associated with our convertibles, please visit our Investor Relations website at www.investor.xilinx.com.

Let me now comment on the balance sheet. Cash and investments increased $61 million to approximately $3.2 billion. We have approximately $1.3 billion in convertible debt, and our net cash position is approximately $1.9 billion. Days sales outstanding decreased 3 days in the September quarter to 37 days.

Inventory dollars at Xilinx increased as expected by $11 million sequentially during the quarter. Combined inventory days at Xilinx and distribution were 109, up from 99 days in the prior quarter. We expect inventory days to slightly increase in the December quarter.

Let me now turn to a discussion of guidance for the December quarter of fiscal year '13. Our backlog heading into the quarter is down sequentially. Additionally, we believe continued macroeconomic uncertainty may result in unpredictable customer ordering patterns. We expect continued growth in our new products but will most likely experience declines from our base and mainstream products.

From an end market perspective, we expect communications to be down sequentially. Within communications, wireless is expected to decline more than wired. Within industrial and aerospace and defense, we expect increases in both industrial occupations and defense. Automotive, consumer and broadcast is expected to be approximately flat. As a result, we are expecting total sales to be down 1% to down 5% sequentially, with sales from North America up, Japan flat, Asia Pacific and Europe down sequentially.

The midpoint of our sales guidance is predicated on a turns rate of approximately 59%. Gross margin is expected to be approximately 66%, up slightly from the September quarter, due primarily to improving customer mix. Operating expenses in the December quarter are expected to be approximately $224 million, including $3 million of amortization of acquisition-related intangibles. Almost all the growth from Q2 is related to an increase in map and wafer expense.

Q4 operating expense will decline substantially, resulting in combined R&D and SG&A expense of approximately $860 million for the fiscal year 2013, and it's at the low end of the range we provided at our analyst meeting last year. Given the uncertain business environment, we are slowing headcount growth and lowering discretionary spending.

Other income and expense is expected to be a net expense of approximately $7 million. The share count is expected to be approximately 269 million shares, and the tax rate is expected to be approximately 15%.

Let me now turn the call over to Moshe.

Moshe N. Gavrielov

Thank you, Jon, and good afternoon to you all. Macroeconomic environment continues to be a challenge for near-term semiconductor industry revenue growth, including Xilinx. This clearly affected sales for the September quarter and has also resulted in lower-than-seasonal guidance for the December quarter. With the uncertain near-term business environment that Jon mentioned, we're practically taking steps to slow headcount growth, reduce discretionary spending.

That said, we continue to be very confident about our mid- and long-term outlook, driven by continued design win momentum in our 28-nanometer offerings and new product revenue growth. In the September quarter, new product sales increased 7%, more than 80% year-over-year. Growth in new products was driven by the tremendous adoption of our 28-nanometer product families, allowing us to exceed $20 million to achieve our 28-nanometer revenue goal.

September sales growth was driven by significant growth in revenue from all members of our 28-nanometer product family in all of our key end markets. We have now clearly demonstrated to our customers that we're a generation ahead of our competition and offering those customers an extra generation of system value.

In our 28-nanometer FPGAs, we're delivering effectively the equivalent of an external performance, power and integration with an average of 100 -- of 1.5x advantage in every technical category. I think all programmable SoC delivers additional value by integrating multiple chips into one, including CPUs, DSPs and analog mixed signal components. Our 3D ICs are now integrating complex and have the smartest systems function such as packet processing, traffic management while adding 30s bandwidth in a single device that's unmatched by any competition.

With our Vivado Design Suite, we are both enabling our new generation of devices and delivering unmatched time to integration and implementation. Vivado is the first and the only ASIC and SoC strength design suite in the programmable industry. We've built Vivado from the ground up over a 4-year period, with an investment of over 1,000 engineering man years to enable the next decade of All-Programmable Devices that's creating a huge and sustainable advantage for both 28-nanometer and beyond.

I believe that with the breadth, value advantages and competitive differentiation of our 28-nanometer portfolio, we're undoubtedly a generation ahead of any competition. To clearly define our roadmap to stay a generation ahead, we plan to provide a high level 20-nanometer portfolio announcement in mid-November.

Being a generation ahead is accomplished through technology leadership with ever more advanced FPGAs, our second-generation SoCs and 3D ICs and even more significant leverage of our Vivado next-generation design suite. We continue to be pleased with the 28-nanometer rollout. We achieved our September revenue goal, reaching more than $20 million in overall sales. We're expecting to exceed this number in the December quarter as well and then expect very significant growth in the March quarter as more customers will be accelerating their production ramps.

Despite some uncertainty in the macroeconomic environment, game-changing product strategy of the 28-nanometer node has put us in a tremendously positive competitive position and will drive continued share gains, both against ASICs and ASSPs and traditional PLD competition.

Now I'll turn the call back to the operator to open it up for the Q&A session.

Rick Muscha

Operator, I think we're ready for some questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Your first question will come from the line of Romit Shah with Nomura.

Romit J. Shah - Nomura Securities Co. Ltd., Research Division

You mentioned that wireless this quarter would be down more than wired. I was hoping you could drill down into 4G specifically and talk about some of the activity you're seeing today in North America and China.

Jon A. Olson

Sure, Romit. This is Jon. So from a wireless perspective, the strength that we continue to have is around LTE deployments in North America or in the U.S., in Korea and as well as Japan. And while that -- those rollouts are continuing into the next quarter, we do think that there's, as there always typically is, there's some bumpiness along the way. But we still are shipping, I would say, the biggest portion of our Virtex family FPGAs that go in the wireless base station segment into the LTE piece. There are some additional GSM and TD-SCDMA activity going on for China, but it is -- the capital spend is actually relatively low. And as they prepare for -- in 2013 a bigger rollout, there are some systems going into that early part of that deployment. But relative to the lion's share of what we see, not only for this past quarter we just announced, as well as this next quarter, it is primarily LTE and it's primarily North America, Korea and South Korea and Japan.

Romit J. Shah - Nomura Securities Co. Ltd., Research Division

Jon, you were saying that it's a little bumpy. Were you referring to China specifically?

Jon A. Olson

Yes, China is really much -- is really the bumpy part. The North America part seems to be still pretty steady as best as we can tell. And as you know, we ship to people who then ship to a variety of locations. We don't all know exactly where every unit is going in every base station, but based on our communications with our customers, that's really where the strength was. We noted that we had stronger-than-anticipated performance this quarter in wireless, and it's backing off just a little bit but it isn't -- it's still quite good and again, it's LTE-based.

Romit J. Shah - Nomura Securities Co. Ltd., Research Division

Okay. And then as a follow-up, Moshe, you mentioned that your 28-nanometer revenue doubled in the quarter to about, I think, $20-plus million. Altera has been saying that the majority is tied to SSI and therefore, won't go into production. Could you give us a split how much is SSI?

Moshe N. Gavrielov

Well, the revenue came from all 5 families, and the truth is 2 of the 5 families, there is no competition. One of them is SSI. And SSI goes into numerous applications. One is ASIC prototyping. And there, as long as it's the largest FPGA out there, then you keep getting additional wins in that category. So there is a scaling factor, it's not that it's a one-hit wonder in the first 3 months of the product line. It actually continues until there's a larger product line available from any other source. So it actually will continue, and we'll continue to see growth on that. In addition, there's a lot of design wins that go into the high end of the wired communications and the A&D applications, and those do go into production. So you can think of it as having this dual personality, both of which scale. And again, it's only part of the revenue, but even that part goes into some applications, which do go into production and others which just repeat themselves due to a whole host of other reasons.

Jon A. Olson

I mean, we stood at -- to add to that, we did ship to all those -- to the customers that are using them for all those reasons that Moshe talked about within this last quarter. So we did ship SSIT very broadly across the application set that it goes to. We tend not to want to parse out our $20 million about which product -- individual products and product families because it does get -- it's actually hard for us to keep all that tracking up because it's not that important to us necessarily to track one versus the other. But we did ship in a prototype and we also shipped into the comms and to A&D, wired comms and A&D, this quarter. And we're very attuned to the fact -- there's a lot of noise around the fact that SSIT only means prototyping, and that's really far from the truth, Romit.

Operator

The next question will come from the line of Ambrish Srivastava with BMO Capital Markets.

Ambrish Srivastava - BMO Capital Markets U.S.

Question on just on the end markets. There seems to be a little more noise and actually, you had a press release this morning on TD-LTE. What are you guys seeing? Are you seeing any early indications in that market or it's still too early to call? And then my follow-up is really trying to understand the non-communications part of the business, Moshe or Jon. And I'm looking at industrial and the other segments, and if you are taking share from the non-PLDs, shouldn't they be acting a little bit better than what we are seeing from the more generic analog kind of companies? And I'm talking about in terms of Q-over-Q decline.

Moshe N. Gavrielov

Okay. Well, there's actually quite a few questions there. So TD-LTE is -- it's still early days. It has -- as Jon indicated, the majority of the rollout has been in North America. There's still a tremendous amount of rollout that is required in North America, and there's some imbalance between the carriers in North America in terms of the level of penetration, one is well ahead of the others. The others need to catch up. Otherwise, they will have a tremendous competitive disadvantage, in particular as the smartphones become more and more prevalent and suck more and more bandwidth. So there's no doubt that there's a need for tremendous upgrades throughout North America, which will happen undoubtedly. The question is not if it will happen, it's only a question of when it will happen. It has to -- the consumer requirements are such that it's about the only solution that can handle that. So that's North America. Elsewhere, as Jon highlighted, it's been -- the rollouts have started in Japan and Korea, but there's room for significant upgrades there. And then the rest of the world, in particular, China and Europe, have not started anything equivalent to that, and so there's significant room for deployment there. So the consumer demands in the smartphones are making this a nondiscretionary decision. It's just book rate [ph] and how quickly and when it will start in other areas of the world. So we're hearing that consistently from the companies we work with who are the equipment suppliers.

Jon A. Olson

Yes. And just one more comment on the first question, and I'll try to answer the second question for you, Ambrish. I tried to find out exactly if we could figure out how many base stations were being sold into China that were advanced technology because they keep saying, "Well, they're doing some demos and prototypes, whatever." And as best as we can find out, there's a few thousand that are going to get built or deployed in this quarter, which is certainly not anywhere near what it would take for a rollout. And again, the best information we have is mid-2013 on the TD-LTE business. So it's yet to come, but we're not really experiencing it much there.

Ambrish Srivastava - BMO Capital Markets U.S.

But Jon, there is a few thousand so that's good to know that this is not paper-based stations.

Jon A. Olson

Yes, yes, that's right. And again, as best -- as good as information as we can get about it, that's what I was able to get to try to figure out really when we might see a better ramp because of China CapEx spending. On your second question, there's kind of 2 ways to look at this. One is our industrial has been relatively weak the last couple of quarters. And in fact, even looking through this coming quarter in right now, the industrial business in Europe is starting off very weak, and the backlog is very weak and distribution information seems to be very weak in Europe in this particular category. So even though we are forecasting a little bit of growth, it's really kind of off of a, I would say, relatively low base. And I'd be surprised to see if anybody else has very bullish numbers on it, industrial. As other companies roll out, we'll obviously be watching that. And with your question around, shouldn't you see maybe a better uptake because of displacing ASSPs, the real winner for us in that area is going to be our Zynq product. And the design-in times, we've had a good uptake. It is still a new category, and we are developing it, and we're getting lots of successes and we're getting design wins. But quite frankly, we aren't on the acceleration knee of the revenue curve yet. And that's going to take a few more quarters before we get there. And that's really the part that's going to, I think, show up in a big way against ASSPs in the industrial category.

Operator

Your next question will come from the line of Vivek Arya with Bank of America.

Vivek Arya - BofA Merrill Lynch, Research Division

Actually, I had a clarification and then a question. On the clarification, Jon, if I heard you correctly, I think you said you're expecting 59% turns to hit the midpoint of the December quarter. How do I square that high turns requirement with the lower visibility? Is that a bit aggressive or I'm missing anything here?

Jon A. Olson

Yes. So Vivek, that's -- obviously, we look at these numbers pretty hard, and when I saw the percentage number, I scratched my head a little bit and said, "Yes, that seems like a high percentage number." But when you peel back the information, we're starting out with a lower backlog. We're aware of certain customers and certain of our end markets that normally would be booked now that aren't booked that we still have high confidence that they will come through. That's one point. The second point is if you look at the absolute dollar amount that it takes, again, remembering we have -- we're starting up with a lower backlog and we're trying to get to a lower revenue than this past quarter, the absolute dollar turns per week is at or slightly below what we've achieved the last couple of quarters. So it's a little bit of this percentage is the tyranny of creating a percentage out of both the numerator and denominator changing at the same time. From a dollar level, I think if we can sustain this current level of business that we have, we'll hit our numbers.

Vivek Arya - BofA Merrill Lynch, Research Division

Got it, very helpful. And then a question for Moshe. As I look at your 28-nanometer ramp, and I think your competitor has also disclosed some revenue numbers. It seems like if I ignore which particular application, it seems that you're both on a similar run rate, right, that they also expect a $20 million-plus this quarter and they did $17 million cumulative at the end of last quarter. And I think your numbers are probably in that $35-ish million to $40-ish million range. So is it fair to assume that your share is sort of 50-50 at this note? Or do you think that you can actually gain share, that there are certain design wins you have that you can actually start gaining share from this point onward, and if that's right, which are those areas that you think you are doing better than them in terms of design wins?

Moshe N. Gavrielov

Okay. So we have -- last quarter, we delivered over $10 million, which was higher than what the competition delivered. And it is definitely still early days, so these are the early returns from them. But as we look at the breadth of our product offering and we look at the technical advantages that we have, we have no doubt that we have huge advantage. It manifests itself. There are 2 areas where we don't have any competition yet, and it's likely to be long period of time until there is competition, which is anywhere close to catch up. So that's one major differentiator, and that's on the 3D ICs and on the same product line, which has the embedded ARM core. In addition, if you look at the core product offering, then typically, what we find is at the high end, we have much lower power footprint than the competition, and we're hearing this from our customers and from our competitor's customers too, right, who are surprised at how significant the advantage is there at the high end. The 30s are operating much better in a competitive situation, that has significant impact. In the mid-range, Kintex basically, because of the choices we made, we achieve a certain level of performance, which enables us to sweep the wireless business. And so we're very convinced that there'll be huge shift in terms of shipments into wireless customers. And that, we actually believe that their -- our original -- our preliminary data shows that we have even 80% market share in terms of wireless. And then -- and so between the -- at the core business, between the better service performance, lower power at the high end, higher performance in the mid-range, that gives us confidence that we'll have the lion's share even in the core market then when you add to that these additional markets with the 3D ICs and Zynq that gives us confidence and our target is 70% and we're hell-bent on achieving it.

Vivek Arya - BofA Merrill Lynch, Research Division

Got it. And one last question, if I may. Just structurally as you look out to say the 20-nanometer node, and I believe you mentioned that you will have some product announcements soon. Just structurally, do you think that it will be a more profitable node than what you saw at 28, because I understand that a lot of the end markets are maturing a bit, but your cost and complexity of going to these more advanced nodes keeps on going up. So 40-nanometer node was profitable, 28 less so. How should we think about the transition to the 20-nanometer node? Do you think that there is a chance that the profitability will be any better than what you have seen in the prior transition?

Moshe N. Gavrielov

So I strongly contest the profitability of 28-nanometer not being there. It has the potential of being the largest node for sure in the FPGA space by a significant margin. And we're seeing it come out of the shoot faster than everything we've seen before. It's just that the nature of the business is that it takes some point in time. But our -- the early data we have and the fact that we can displace ASICs and ASSPs quite affectively, not across-the-board but in lots of markets with our 28-nanometer product, gives us confidence that it's going to be a very large node. The extent of design wins is much, much higher than we've seen in every previous node. And we're hearing from customers that less and less of them can afford to design ASICs to compete with what 28-nanometer can provide. So I'm not sure I agree or I strongly disagree with 28-nanometer being less profitable than 40-nanometer. It will be a much larger node, it has the potential of being the largest node ever. On 20 nanometers, it is clear that due to the number of layers and the complexity of the layers, that the manufacturing costs are going to be higher. There's been a lot of discussion on that, and our way to address that is to make sure that we design the parts and we tape-out a number of parts which cover a broader market. So in terms of our investment at 20, it will likely be similar to what we invested at 28. And the markets we're going to address will probably be similar. It is getting more difficult at these advanced nodes as the designs are more complex and the mask costs are complex, and it requires us to invest a lot of time either in optimizing the design or making sure that we don't tape-out more parts than we need to. And we're up to that challenge, and that's the way we're approaching this node.

Operator

Your next question will come from the line of James Schneider with Goldman Sachs.

James Schneider - Goldman Sachs Group Inc., Research Division

Jon, I believe you talked last quarter about 2 of your major comms customers reducing inventory this quarter. Can you talk about whether they've, in fact, finished that inventory reduction? And how do you square that with the comms being a little bit better than you expected in the quarter? Is it that those decreases are just more than offset by increases of other customers and how should we think about that dynamic?

Jon A. Olson

Yes, the second part of your question -- because it was there hanging. It is -- that is true. What happened is that there was certainly an offset with other customers and some significant strength in another place, in the wireless segment in particular that helped to offset that. I think the answer to your first part of your question is, yes, I believe that both those customers are through that buildup, and we're back to a more normal level with them. And I think one of those 2 in particular ended up being pretty decent this quarter and really wasn't that much of a drop as it turned out. So I think we're on the other side. The reason I'm being -- I'm saying -- I'm cautioning that is, we don't always know what the order pattern is of some of our customers, and all of a sudden, they say, "Oh, no, I need more, I need less" at the last minute. But the current forecast would suggest that we are behind that, and that's behind us.

James Schneider - Goldman Sachs Group Inc., Research Division

Appreciate that. And then as a follow-up, can you maybe talk about what your customers in the defense and aerospace segment are talking about in terms of their behavior around fiscal cliff? Are they ordering more in advance of that? Or are they being more cautious and waiting and reducing their orders? How should we think about that effect on your business in the next 2 quarters?

Jon A. Olson

Yes. So I've been studying this quite a bit because our A&D has not been growing at the rate that we, I would say, had typically would have expected it. We've had a pretty steady 10-plus percent growth year-on-year for quite a few years. And that growth rate has definitely slowed this year. And I'm trying to figure out, I'm trying to sort out how much of that is potential caution or individual programs. And our best information right now is that it's been more impacted by individual programs than people worrying about the cliff. Now I have a hard time correlating what our people are telling me relative to what I read from the defense contractors in the newspaper, but I can't tell how much of that is political posturing and what is real. But the best information we have is that people are not slowing down because of that. They're just kind of waiting it out, and we'll see what happens. And that most of why we aren't growing quite as strongly as maybe we have historically is just because of a couple of individual programs that are just in a space where they're not ordering right now and they'll order a little later.

James Schneider - Goldman Sachs Group Inc., Research Division

And maybe just a quick housekeeping question. You talked about the OpEx level reducing substantially into the March quarter. Is that kind of the right run rate as we -- expecting into the beginning of the next fiscal year or would you expect change either way?

Jon A. Olson

Yes, I'm not going to forecast next year, but I think since I pointed the way to the tape-outs and wafers and masks being the biggest driver up and then the biggest driver down, we don't have a large number of tape-outs early in the year because it's kind of the very end of 28 and the very beginning of 20. So I don't think you're going to see a big spike up or down from the Q4 exit, but I don't really want to pin a number on it.

Operator

Your next question will come from the line of Glen Yeung with Citi.

Glen Yeung - Citigroup Inc, Research Division

[Technical Difficulty]

Operator

Your next question will come from the line of Steven Eliscu with UBS.

Steven Eliscu - UBS Investment Bank, Research Division

We've heard a lot about SSIT and Virtex at 28-nanometer, yet Kintex was talked about as key element of your share gains at that node. Can you give us a sense of how much Kintex is currently driving your LTE revenue? And then within that revenues, within 28-nanometer currently, is Virtex or Kintex overall bigger? And then I have a follow-up.

Jon A. Olson

So Kintex has clearly been a early leader in design win level. Virtex has now caught up with it, relative to the dollar amount of design wins overall. But we led with Kintex part, it is specifically designed for wireless base stations, and as Moshe said, we've been winning a tremendous number of design wins. We did ship into production -- into the wireless space with Kintex in this quarter, so it is -- there are designs that are ramping, but it's been like early prototyping from our customers and early units. Prototype their early units not our prototype parts, but their initial base stations. I would say that the wireless segment in our 28-nanometer is probably about the same percentage as it normally is for the overall company during the quarter, which is in the neighborhood of 25-ish percent, and this is kind of just an estimate.

Steven Eliscu - UBS Investment Bank, Research Division

Great. I have a question on Zynq. Discussed about it earlier being potentially an important driver for your industrial business. To help us calibrate it, can you give us a sense as to when it will make up, let's just say, 5% of revenue? And besides industrial, what end markets are you seeing the biggest opportunities? And what have you learned given your leadership position? What have you learned that you'll be improving on your next generation?

Jon A. Olson

Yes. So this is a Zynq question, right? You're talking about Zynq?

Steven Eliscu - UBS Investment Bank, Research Division

Zynq.

Jon A. Olson

Yes, so the lead end markets are automotive, industrial and communications. And within communications, it's heavily around wireless. In fact, the small cell category is a category that's a great opportunity for Kintex, and we have been doing pretty well there of late in terms of reducing the number of devices required by our customer -- in our customer's units because we have that processing capability, as well as the ability to do digital front end and other kinds of capabilities that are -- you find in a wireless base station, radio card in particular. So I would say early on, it was automotive followed by industrial and now communications is coming on very, very strong in this particular application. Industrial is very, very broad: automation, motor control, those kinds of activities. And then automobiles is usually our sweet spot, which is driver assist for this particular part. Those are kind of the highest level categories. And with respect to any forecast about when it might be 5%, I would guess that is several quarters away before that ramps to that size because the lead design wins are all, I would say, relatively a compilation of relatively medium-sized to small-sized design win dollar values initially, and then ramping very strongly, particularly when you think about automobile capabilities starting out at the high end and waterfalling down, which is exactly what our customer is going to use this capability for. It takes a while to get into those units in terms of get the unit build up enough because it has to go to different models of automobiles, et cetera. The wireless business is more -- will take off much more rapidly, but most of these deployments are most likely to come in the second half of '13.

Steven Eliscu - UBS Investment Bank, Research Division

Second half of calendar '13, correct?

Jon A. Olson

Yes. But I really haven't -- anyway -- again, 5%, I haven't studied it in great detail, but it's going to be a while before it's 5% of our revenue.

Operator

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

Ross Seymore - Deutsche Bank AG, Research Division

Jon, one question for you backward-looking and then one forward-looking. In the September quarter, you mentioned how North America was the strongest area, especially in your comms business. But that geo was down the most, I think 11%. Can you just help reconcile what was going on between those 2 comments?

Jon A. Olson

Yes. So as you recall last quarter, we had this end-of-life shipments, and a lot of that went into aerospace and defense and industrial category.

Moshe N. Gavrielov

Automotive.

Jon A. Olson

Yes, automotive. And so if you look at geographically where the biggest impact, where that was is North America and Europe. So those were the 2, and North America in particular, the aerospace and defense portion is the lion's share of what we have in defense is in North America. So that was kind of a hard number to match and to make up from a comms number -- a comms perspective.

Ross Seymore - Deutsche Bank AG, Research Division

And then the forward-looking question, a little bit following up on an earlier question on OpEx. I know you're not going to talk specifically for next year. But you mentioned that the tape-outs for 20-nanometer aren't really going to start in the first half of next fiscal year. Can you remind us, is the normal cadence of that more back half of the year or is there going to be almost a full year gap between the tape-outs you're doing now looking into next year?

Jon A. Olson

Yes. So yes, I don't have a good sense for the rate of tape-outs into next year. We will do some tape-out activity in the first half of next year, but it just won't be the rapid fire progression because usually, the first 1 or 2 comes out a little more slowly as we get everything settled, and then as we're sure we got things right, then we accelerate those tape-outs. So I would expect the tape-outs will start accelerating in the back half of calendar '13 and then obviously throughout '14.

Operator

Your next question will come from the line of Shawn Webster with Macquarie.

Shawn R. Webster - Macquarie Research

Starting on OpEx, the lower OpEx for September and then the higher for December, you talked about tape-out push as being part of that. Was there any kind of program that changed on your roadmap or was it just a timing thing, end of the quarter kind of push or can you describe that a little bit?

Jon A. Olson

Yes, it really was timing, Shawn. It was some things that were supposed to happen in the last couple of weeks of the quarter that pushed out to the first couple of weeks. So we're talking about a 2- to 3-week kind of push in the way -- just the way the accounting works for the mask payments. I guess you could say I believe the forecast, I don't know on that. But it did just push out a few weeks, and there were no significant program slips, changes or issues really as a result of that. But we had an additional payment to an outside supplier for something, and it was fairly significant, and that pushed out because of delivery of the contract didn't happen on time. And so both those together kind of made it -- made it a bigger than life number. I mean, we certainly missed more than we typically would ever miss an R&D number.

Shawn R. Webster - Macquarie Research

Okay. And then on the inventory side, I think you mentioned that it would -- you expected days to come up in December. Can you talk about how channel inventories are looking? They still seem at 10 days-ish to look kind of on the lean side. Do you think inventories built or came down in the quarter? And what do you expect them to do in your channels in December?

Jon A. Olson

So I was talking earlier about -- particularly European distribution being weak, and the backlog being particularly weak from a Europe perspective in the medium-sized and small customers. And we've been doing a pretty good job with Avnet collectively to keep the inventory lean and keep it available for them and in Xilinx's inventory pot. And that's worked out pretty good because it gives them a lot more flexibility versus having to guess which of their customers might decide to order something in these kind of uncertain times. So that's worked out pretty good for us, and I don't think there's any particular supply chain issue that gets communicated with that. Overall, our inventory is moving up just because we were starting to build more 7 series or products. And since those tend to carry higher costs than the initial part of the ramp, as we build up to satisfy needs over the next couple of quarters, that dollar impact typically increases our dollars and also our days because days are just average, not specific to any individual product family. So there's not really a much of a story in inventory. I think we've got a pretty good handle on it at this point.

Shawn R. Webster - Macquarie Research

Okay. And then on the mix, I think you might have said or I might have heard you say that wireless was 25% of overall sales. Can you confirm that? And then within your industrial, defense, aero, how big is the aerospace defense portion of it?

Jon A. Olson

Yes. Well, wireless typically runs from the low 20s to mid-20s for us, and that's -- a little lower than 25%, but approximately the number. And our industrial typically runs in the mid-30s, and that dropped as a percent as you can see our industrial percentage has dropped on a quarter-on-quarter basis and comms went up on a percent basis so...

Shawn R. Webster - Macquarie Research

So how big was defense of the -- of your business or is that within that bucket?

Jon A. Olson

Sorry. Defense has typically been in the neighborhood of 15%, and it was a little lower than 15% in this last quarter.

Shawn R. Webster - Macquarie Research

Okay. And one, just final one, if I may. The OpEx for the full year of $860 million, does that include your amortization charges?

Jon A. Olson

Yes, it does. It doesn't? Wait a minute, hold on a second. No, it doesn't?

Moshe N. Gavrielov

It does.

Jon A. Olson

All right, good. Two different nodding heads here from people. $860 million does include.

Operator

Your next question will come from the line of Anil Doradla with William Blair.

Anil K. Doradla - William Blair & Company L.L.C., Research Division

Moshe, when you interact with your customers, the cautiousness on the macro front, is there something qualitatively different this time than previous times? Are they preparing for kind of a prolonged multi-quarter or more short term? And I have a follow-up.

Moshe N. Gavrielov

So I do spend a lot of time meeting with our customers. And I think generally, there's no sense of gloom and doom. There's just challenges on the macro side, which are pretty visible to all of us. But I don't see any huge expectation of a very severe slowdown. When you look at -- a lot of these elements are driven by a need for some political fortitude which takes time. Hopefully, it will get addressed in North America soon, and in Europe, they're starting to come together on that. And likewise, when the transition in China is going to happen, that will enable things to move forward. So the short answer is no, I don't get the sense of a huge downturn impending at this point.

Anil K. Doradla - William Blair & Company L.L.C., Research Division

Great. And when you look at the LTE activity in Europe, that's been kind of weak from our checks. Do you expect anything coming back in the next 6, 9 months on LTE front from Europe or do you think that's going to be pretty muted?

Moshe N. Gavrielov

I think it will come later than it has in the past, and the competitive position is such -- you can see it in North America, when one carrier decides to go ahead and start generating significant advantage, it generates pressure on the others to catch up. In Europe generally, that isn't happening yet. So I do think it's several months out at this point in terms of a big deployment in Europe.

Jon A. Olson

I think there was some press release by Vodafone somewhere in the last 3 months on this thing, but I don't think we've seen anything significant with respect to our revenue.

Moshe N. Gavrielov

Yes. So the 6 to 9 months is probably a good guess.

Operator

Your next question will come from the line of Srini Pajjuri with CLSA Securities.

Srini Pajjuri - Credit Agricole Securities (USA) Inc., Research Division

Jon, I just want to make sure the OpEx question, I got it right. So you're saying $860 million, that includes the amortization of roughly $10 million, right?

Jon A. Olson

Yes, Srini, it does include that. $860 million is all-in the full year of all of our OpEx.

Srini Pajjuri - Credit Agricole Securities (USA) Inc., Research Division

Okay, got it. And then Moshe, it looks like there are some concerns about the China TD-LTE as far as the base station content goes. We've been hearing that a majority of these base stations are software upgradeable. I guess the question is, is that true? If so, what does that mean for your FPGA content in each of these base stations?

Moshe N. Gavrielov

Well, we believe we have a phenomenally strong position there, and best we can tell, there's a lot of FPGA content in the product. So I don't believe that, that's going to pose an issue once the deployment starts in earnest in China. In the interim, what they're doing is, they're about to launch this next rollout of the previous generation, the 3G generation. But when 4G comes out, our product position is very strong there, and we're looking forward to that happening. And the faster it happens, the better from my perspective.

Srini Pajjuri - Credit Agricole Securities (USA) Inc., Research Division

Okay, great. And then one last question. On the wired business, Jon, you said it was down last quarter and looks like it's going to be down again this quarter. I'm just wondering what's going on. Is it still inventory correction or is it just demand being weak?

Jon A. Olson

Yes. There was -- it was down this past quarter more from an inventory correction basis than anything else. And it's basically weak demand. If you look at our -- all of our large customers, our top, say, 15 or so customers, which are really communications and aerospace and defense customers. The communications customers are just almost plain flat. It's over the last couple of quarters with the only exception being in the wireless base station area. Everything else just seems to be kind of chunking along and not getting a lot worse, but also not getting a lot better. And since a lot of our businesses, our revenue levels are defined by these large customers, there really isn't a tremendous amount of growth going on. So it's just -- it's weak demand, not growing demand.

Operator

Your next question will come from the line of Christopher Danely with JPMorgan.

Christopher B. Danely - JP Morgan Chase & Co, Research Division

Jon, just a follow-up on your last comment. So I'm looking at my model here, we're in the second half of fiscal '13. If I plug in some really good growth for Q4 and then double-digit growth for next year, we'll essentially have 4 straight years of kind of flattish revenue growth. So I mean, do you guys look at that? Are you reconsidering your long term growth rates for the PLD market for Xilinx? Has this come into discussion at all?

Jon A. Olson

So the answer to your very direct question is absolutely, we've had discussions around what is going on, where the drivers of our business really are going to come from and does our investment level and growth level still -- those 2 things match appropriately to what we've been saying. So there's no doubt this is a question. And this elusive metric that we, I call it elusive because I'm the CFO around design wins. The strength of which we are winning business gives us such confidence that the revenue growth is coming. But of course, macroeconomic issues can always play around with timing and when and how that happens. But we still have very strong belief here. That being said is, we are very mindful that we're outside of our business model from a percent basis, and we'll look very hard at that. We go through our planning cycle in early calendar year 2013, and I don't know what to say. I'm not going to say that we're going to cut our growth rates as we sit right now because our design win levels are really, really high on a relative basis to anything we've ever seen. Moshe wants to make a comment here.

Moshe N. Gavrielov

Chris, I mean, we are -- it's obvious to us that there are challenges there, and that's why we are curtailing discretionary spending, and we are careful on the hiring front. Having said that, the impact of the design wins in 28-nanometer is not yet visible, right? It's still a tiny portion of our business. And given our very strong and broad portfolio, as we exploit that and as that goes to market and moves into production, that's when you'll start seeing accelerated growth, right? And that can't happen soon enough from my perspective, but it takes time in our business.

Christopher B. Danely - JP Morgan Chase & Co, Research Division

Throw me in that bucket of can't happen soon enough as well. A follow-up question as it pertains to OpEx. It's jumping up this quarter as a percent, but you guys are shaving it down pretty good in fiscal Q4. I mean, are we to assume -- can we assume that if we're in this kind of sluggish environment going into next fiscal year that there are a few more levers you guys can pull on the OpEx side to keep it down?

Jon A. Olson

Yes, I think we certainly are going through -- we'll go through that process with plan depending on what we see the outlook for the top line is, and I think there are more levers that could be pulled if we get ourselves in a negative kind of growth situation again. But we're also not going to slow down technology too slow just to get back in the business model in the short term and then screw our opportunities for growth in the future. So it is a balance, and I do hear you. We're going to work through that.

Operator

And your final question for the day will be Joseph Moore with Morgan Stanley.

Joseph Moore - Morgan Stanley, Research Division

Just a follow-up on the earlier SSI question. Your competitor had talked about a fairly limited size for the prototype market. Can you -- understanding that you see more than just a prototyping opportunity here, can you help us size the overall opportunity for the Stacked Silicon Interconnect and how much of that is actually prototyping?

Moshe N. Gavrielov

Okay. So let me repeat and so try to quantify it. The equivalent of SSIT from the customer's perspective is like having a much larger FPGA available 2 or 3 years earlier than they could achieve any other way. And in addition, because we have a version which is heterogenous, in other words, has [indiscernible] integrated with the FPGAs, it also enables a significant growth in terms of bandwidth. And so if you look at that and you say, "Forget about how it's implemented, right, that it's 3D and all of that, what does that -- what is the size of those markets?" And those markets overall are several hundred million dollars per year markets, right? Now there's a subset of that which is used for prototyping, that's correct, and that prototyping is where it's used primarily by semiconductor companies or ASIC or for the few remaining ASIC designs to do early product assessment of their products. And there, as long as you have the biggest one available, which we do now, it enables -- it facilitates itself and it's repeatable. So even though those customers don't go into production, whenever they're doing a new design then they're designing new versions of these ASIC prototypes, so it's not a one-hit wonder, and it actually is quite broad and as such that's why we believe that it's several hundred million dollar market. It's the high end of the FPGA market, and it also enables us to break into what would be the midrange of the ASIC market or the sweet spot of the ASIC market, and that's a pretty big market in of itself. So trying to minimize that is probably erroneous. It's significant. And as long as there isn't an alternative, it continues until that alternative exists and typically it takes 2 or 3 years before the next generation of FPGA is there and can achieve that level of complexity. So you can assume that there's at least a 2- or 3-year edge there, which we intend to exploit very aggressively.

Joseph Moore - Morgan Stanley, Research Division

Okay. And just a quick follow up. Do you foresee people wanting to stack FPGAs with non-FPGA devices such as CPUs or ASICs in the same interconnect structure? Is that something customers want and something that you might provide?

Moshe N. Gavrielov

Well, generally speaking, we haven't -- we are the leaders, we're the only people who have it. We have our first generation of product you can get. We have wrung out all of the issues there. The first generation had 2 elements of integration and you can assume that in the next generation, there will be more things that can be integrated on using the 3D capabilities, and then it needs to be economically viable to do that. So some applications require things like memory, some applications require other elements. We're way ahead of anyone else in terms of identifying those and pursuing them.

Rick Muscha

Thanks for joining us today. We have a playback of this call beginning at 5 p.m. Pacific time, 8 p.m. Eastern time today. For a copy of our earnings release, please visit our IR website. Our next earnings release date for the third quarter of fiscal year '13 will be Thursday, January 17 after the market close. Please do save the date for our 2013 analyst meeting, which will be held on March 5 in New York City. More details to follow. This completes our call. Thank you very much for your participation.

Operator

At this time, ladies and gentlemen, you may now disconnect.

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