Xilinx: Revenue on Target, Profit Above

Xilinx announced their quarterly results a couple of days ago. Technically it is their Q2 2015. Sales were $604M and profitability was significantly higher than expected at $0.62/share. But that is not the most interesting thing about these calls. There is the Xilinx vs Altera story. And then there are tealeaves to be read about TSMC (Xilinx exclusively manufactures at TSMC).

To me, one of the most amazing numbers, having myself worked within a semiconductor company for years, is that gross margins were 71.9%. A record for the company. As a comparison point, that is way above Intel, never mind other semiconductor companies. That means that for a part that Xilinx sells for $10 they give less than $3 to TSMC. Of course they have other costs but out of $604M of sales they had operating income of $200M.

Jon Olson the CFO summarized the business:28-nanometer sales were flat and 40-nanometer sales declined as anticipated, reflecting an overall decline in our new products category. Our base category, which is comprised of our oldest products, increased significantly during the quarter, driven primarily by the timing of programs in the aerospace and defense end-market that we discussed with you last quarter. On a year-on-year basis, new products were up 21%, mainstream down 8%, and base products down 14%.

It is clear that the results could have been even better since there are limitations on the rollout of LTE in China due to supply chain issues (i.e. shortage of components that are not Xilinx FPGAs). Since China has about 500,000 base stations this has the potential to be a big deal. In the Q&A Jon said that 3G was a steep ramp, then flat, and a fast falloff. LTE is more patchy due to these issues, plus the Chinese economy is not as strong as it was in the 3G rollout period. In the Q&A:We’ve had large wireless OEM customers say we would be taking more FPGAs if we had more power amplifiers…We don’t produce those, so therefore I can’t give you a good reading on when that is going to be alleviated.

Then it was Moshe Gavrielov, the CEO’s turn:28-nanometer product generation is without doubt the most successful node in our history, will serve as the growth driver for the company for several years going forward. Our 28-nanometer sales target in fiscal year 2015 is $600 million, an increase of approximately 60% from the previous fiscal year.

It is clear from Xilinx and everyone else that 28nm is going to be a very long-lived node. It seems to hit some sort of sweet spot on ease of design (although that is less important with an FPGA), cost of manufacture and available capacity. And in the Q&A they were very explicit:our product offering in 20 is very broad. It has the midrange and it has a high-end and super-high-end component to it. So we’re very bullish on what it will provide. But clearly it won’t be as good as 28, which for a variety of reasons actually is broader and will have a longer life due to some cost-related elements.

Moshe commented on the Xilinx vs Altera story too. Although, of course, he never said the word Altera:At the 20-nanometer node, independent customer feedback indicates that we have approximately a one-year lead over the competition, both in terms of our ultra-scale silicon maturity and quality of results. This significant technology leadership is delivered in the broadest and most compelling midrange product family, complemented by the industry’s only high-end family. This is manifested in the largest FPGA in the industry which delivers over 4x the capacity of competitive devices.

A one year lead over your competition is huge, of course. But the big transition is coming up at 14/16nm with the added interest of Altera switching to Intel as a foundry. I don’t believe I’ve seen any official statement about when Xilinx might start shipping 16nm, but word on the street is in Q2 of next year. After all, foundries like to use FPGAs as a process driver so they are always early in the cycle. Altera said they would tape out in Intel 14nm in Q1 of next year (this was over a year ago so things might have changed a bit). With fab cycle times and device qualification times it is hard to imagine Altera will start shipping 14nm parts until Q4 or even 2016. That would put Xilinx still being 6 months to a year ahead of Altera.

But Moshe is even more bullish. As he said in the Q&A:We expect the sum of 20nm and 16nm to approach what 28nm will be. And it’s difficult for us to make the division between the two. Fundamentally, 20nm for us will be two years ahead of 16nm and two years ahead of any competing product in an advanced node.

And a final read of the TSMC tea-leaves:With regards to defect density and maturity of the products, it’s [20nm] ahead of where we were at the same point in time at 28-nanometer. And 28-nanometer was very smooth introduction for us. But 20-nanometer, and this is the second-generation we have done with TSMC, has been extremely smooth.

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