Xilinx Inc XLNX
Q1 2014 Earnings Call Transcript
Transcript Call Date 07/17/2013

Operator: Good afternoon. My name is Jay, and I will be your conference operator today. I would like to welcome everyone to the Xilinx Q1 Fiscal Year 2014 Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Please limit your questions to one to ensure that management has adequate time to speak to everyone.

I would now like to turn the call over to (Rick Mushe). Thank you. Mr. Mushe, you may begin.

Rick Mushe - IR: 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 June 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 that Company files with the SEC, including our 10-Ks, 10-Qs, and 8-Ks. These documents contain and identify important risk factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements. This conference call is open to all and is being webcast live. It can be accessed from our Xilinx's Investor Relations' website.

Let me now turn the call over to Jon Olson.

Jon Olson - SVP and CFO: Thank you, Rick. In the June quarter Xilinx sales were $579 million up 9% sequentially and better than forecasted. Most of the sales upside was related to better than expected growth in wired communications with aerospace and defense sales also stronger than expected.

Sales from all geographies were up sequentially.

Gross margin was higher than guided and a record 69% for the quarter roughly half of the gross margin upside is related to the results of margin expansion programs which are yielding benefits faster than previously anticipated.

The other half of the upside is product mix related. Operating expenses of $206 million included the amortization were in line with guidance. We were able to offset higher variable sales and profit related expense with overall spending reductions. Operating margin was 33% the highest since Q2 of fiscal year '11.

New product sales drove most of the incremental sales growth during the quarter increasing 24% sequentially. 28-nanometer sales exceeded $50 million again surpassing our forecast. Sales from this family were driven by all five family members with Kintex family remaining the largest contributor.

Our 40, 45-nanometer node also posted double-digit sales increase with strong growth from both Virtex-6 and Spartan-6. Mainstream product decreased during the quarter and base products increased as a result of strength in specific aerospace and defense programs, as well as accelerated sales associated with a previously discussed foundry line closure.

Let me now turn to a discussion of end markets. Sales from communication and data center increased 8% sequentially better than forecasted as a result of strong wired communication sales. Wireless sales were flat sequentially slightly stronger than we had anticipated due to a pickup in North America based LTE activity.

Industrial and aerospace and defense sales increased 10% sequentially with strengths from all three subcategories. Defense sales were stronger than anticipated due to shipments associated with a specific government program. Broadcast, consumer and automotive was up 4% sequentially. Finally, the other category, which represents only 3% of our total sales benefited from strong high performance computing business during the quarter.

Other income and expense was a net expense of $10 million slightly higher than forecasted. Net income for the quarter was $157 million or $0.56 per diluted share. Operating cash flow for this (December) quarter was $144 million before $11 million in CapEx. We paid $66 million in cash dividends during the quarter.

Diluted shares for the quarter were 280 million, 3 million higher than guided, primarily due to the impact of the higher stock price. There was an 11.1 million share dilutive effect from our convertible note due to the higher stock price. 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 $110 million to approximately $3.5 billion. We have approximately $1.3 billion in convertible debt and our net cash position is approximately $2.2 billion. Days sales outstanding increased three days in the June quarter to 42 days.

Inventory dollars at Xilinx declined by $14 million sequentially. Combined inventory days at Xilinx and distribution together were 105 days, down from 110 days in the prior quarter. We expect inventory dollars to be approximately flat in the September quarter.

Let me now turn to a discussion of guidance for the September quarter of fiscal year '14. Our backlog heading into the quarter is up sequentially. We are expecting continued solid growth from new products driven by 28-nanometer strength.

Base and mainstream products are expected to be flat to slightly down sequentially. From an end market perspective, we expect communications to be approximately flat with wireless increases offsetting wired decreases. While we have begun to see increased activity associated with the China Mobile and China Telecom LTE deployments, we continue to expect those LTE deployments to be a more material contributor to sales in the December quarter. We expect industrial and aerospace and defense to be up, as growth from defense and tests are offset by decreases from IFM. Lastly we expect broadcast consumer and automotive to be approximately flat with broadcast decreases offsetting increases from consumer and automotive.

As a result we are expecting total sales to be flat to up 3% sequentially with sales from North America and Asia Pacific increasing, sales from Japan flat and sales from Europe down.

The mid-point of our sales guidance is predicated on a turns rate of approximately 53% consistent with our four year average.

Gross margin is expected to be approximately 69% though we are not revising our long term gross margin target of 64% to 66% at this time. We believe gross margin will be approximately at the June levels for the next few quarters as a result of product mix and continued focus on margin improvement across our product families.

Operating expenses in the September quarter are expected to be approximately $225 million including $2 million of amortization of acquisition related intangibles.

We are revising our OpEx guidance for the fiscal year due to higher variable spending associated with higher than anticipated sales and profitability. The new fiscal year '14 operating guidance is approximately $495 million in R&D approximately $385 million in SG&A and $10 million of amortization for a total of approximately $890 million for the year.

Other income and expense is expected to be a net expense of approximately $9 million. The share count is expected to be approximately 284 million shares and the tax rate for the June quarter is expected to be approximately 14%.

Let me now turn the call over to Moshe.

Moshe Gavrielov - President and CEO: Thank Jon and good afternoon to you all. The 9% sequential growth in the June quarter was driven by increases in six of our secondary end markets. New product sales were exceptional during the quarter, increasing nearly 25% in the March quarter, 75% on a year-over-year basis. This growth was driven from both 28-nanometer and our 40, 45-nanometer product families demonstrating widespread customer adoption in all application segments.

28-nanometer sales comfortably exceeded $50 million, significantly higher than our expectations. Sales were driven by growth from all five product families led by our mid-range Kintex-7 and all components of our high performance Virtex-7 product family.

In September quarter, we expect 28-nanometers to continue its accelerated growth exceeding $60 million in sales. We remain confident that 28-nanometer's sales will surpass our fiscal year goals of 2014 of $250 million, a goal we had established at our Analyst Day in March.

Accelerated sales ramp and tremendous customer adoption clearly demonstrate that we have established a proven technology leadership formula with our 28-nanometer portfolio. With Vivado, it created the industry's first SoC strength tool suite, which enables unmatched time to integration and implementation and a very significant improvement in the quality of results over previous development environment.

Second, leveraging our world-class partnerships with both TSMC and ARM we've created the broadest portfolio of all programmable FPGAs, SoCs and 3D ICs offering an extra node of performance, lower power, superior connectivity and absolute breakout in programmable systems integration.

Lastly, we're enabling smart and next generation systems and an even better alternatives to both ASICs and ASSPs with the combination of SmartCORE IP, fee-based design tools and embedded software running on our industry-leading ARM-based solutions.

We recently announced the tape-out of the semiconductor industry's first 20-nanometer device and the PLD, industry's first 20-nanometer all programmable device. We also implemented the industry's first ASIC-class programmable architecture called UltraScale. UltraScale devices enable next-generation smarter networking equipment, smarter vision systems, high performance computing and intelligent surveillance and reconnaissance systems. These devices, when coupled with our (revitaled) design suite will enable Xilinx to deliver 1.5X to 2X system level performance and integration, value advantage well ahead of any competition.

In the June quarter, we also extended what has been a world-class partnership with TSMC by announcing that we are working on a program called FinFast to create the fastest time-to-market and highest performance FPGAs to be built on TSMC's 16-nanometer FinFET process. We expect to deliver test chips later this year with first product coming in 2014.

Having established proven leadership formula in 28-nanometer we are now expanding that formula with our next-generation architecture and product milestones. We are very well positioned to drive even more share gains against ASICs, ASSPs and traditional PLD competition.

Let me now turn the call back to the operator to open it up for the Q&A session.

Transcript Call Date 07/17/2013

Operator: Ambrish Srivastava, BMO Capital Markets.

Ambrish Srivastava - BMO Capital Markets: Jon my question, first on gross margin. You said half is structural and half is product mix so beyond the next few quarters that you have guided to, should be – what's the right way to think about it. 150 bp is variable but 150 from structural stays and then I have a follow-up as well please?

Jon Olson - SVP and CFO: So we have, we clearly have been focusing a lot on margin improvement programs across the company as I said in my remarks. Some of them are coming a little early than we anticipated and so what I was saying in the call about the gross margin forecast for the next few quarters. We do expect it to be in the neighborhood of 69% as the June quarter and it is driven by combination of continued structural improvements that I expect will continue to improve as we go throughout the year and then the impact from the product mix. It will be a little variable as you go quarter-to-quarter. But I would expect over the coming quarters that impact starts to decline a little bit and because you have one positive trend and one trend that’s moderating a little bit. We think we can keep the margins in the neighborhood of 69% flat for a while.

Ambrish Srivastava - BMO Capital Markets: So the key takeaways that we have from structural is not done yet. You are still working on that part?

Jon Olson - SVP and CFO: Absolutely and I see additional benefits out in time for us there.

Ambrish Srivastava - BMO Capital Markets: Then a follow-up for you Moshe. As we think through and especially in the context of what Vivado is helping you do. As we think through the next node 28 and beyond that, where is the mix for the business going to look like? Because right now, most of the time we spend on the comp side, but is Industrial and Auto and all the other segments finally getting to appoint that you see them becoming a bigger proportion for the – and then what would the mix be in 28-nanometer and beyond?

Moshe Gavrielov - President and CEO: So, 28-nanometer is the broadest and the deepest node we've ever had and it benefits all of our businesses, but they tend to benefit from it at a different pace. They all benefit from it, but the ones which clearly have a leading are communications at this point and of course some ASIC prototyping, which was the very early product offering and that continues now with sort of seeing other markets like test and measurement start to pick up and we expect wired communications to pick up soon. You are right, that if you sort of look at it from 30,000 feet across the model, then communications is the biggest benefactor at this point from 28-nanometer and the other markets will benefit over time, and the Zynq product offering in particular will have a very significant impact on industrial scientific and medical and then some of the others like military, aero just tend to take quite a bit longer as does medical to translate into revenue. As you move forward, the product offering tends to have a higher end component to it where communications will benefit more from that than some of the other markets. So I would say that the 28-nanometer you've yet to see the other markets emerge in force. It's just starting. It's less than 10% of our revenue at this point in time and it's growing rapidly. 20 will lead with communications and it will take a little longer for the other markets to manifest themselves.

Operator: Romit Shah, Nomura.

Sanjay Chaurasia - Nomura: This is Sanjay Chaurasia for Romit Shah. Moshe, one question I have for you if you could provide any color on the wireline side of the business? It seems like it was the driver. Any color around – if it was tied to any specific deployment to service provider versus enterprise or in technology 10g versus 40g would be great?

Jon Olson - SVP and CFO: Sanjay let me grab that one. So, first I would say that our wireline and data center business was very – the increases were broadly distributed around customers. So, if you look at the top 20 communications customers, of which there are quite a few wireline contributor in that, more than the wireless is pretty concentrated on a few names, but just the wireline, more than 75% of the customers in our top 20 showed an increase this quarter. So it wasn't just one technology or one application. We have made tremendous progress in 40 gig and 100 gigs since you brought those up and particularly with our OTN related IP is driving us to tremendous number of design wins in that category and some of those are starting to get into a pre-production kind of phase. But I have to say that if you look at the names of the tier 1s and even tier 2s, with communications customers in the wireline side, we saw quite a bit of growth very broadly distributed.

Operator: John Pitzer, Credit Suisse Securities.

Ryan Carver - Credit Suisse: This is (Ryan Carver) in for John. Just a question on the linearity of the quarter data seemed to imply that April was a pretty good quarter and May was a pretty good quarter. But maybe there was some fall-off in June can you talk a bit about your linearity in the quarter and just kind of if you saw any of that or something different to that?

Moshe Gavrielov - President and CEO: Ryan, June was actually pretty, I mean the quarter was pretty linear from a historic perspective and in fact at times we have seen June fall off towards the end as it goes into the summer particularly from an industrial perspective and in some respect some of the communication equipment. We didn’t really see any kind of fallout whatsoever. So June for us was I would say a very, very solid quarter because I mean we ended up being over the top of our guidance a few points, right. So it certainly showed strength throughout the month of June maybe more than we had modeled as we walked in the beginning of the quarter.

Ryan Carver - Credit Suisse: Just as my follow-up question. On the OpEx side I mean you took up I think the guide for the September quarter is a bit above expectations and you took up the full year numbers. Looks like around a lot of R&D but even as a percentage of revenue. It looks like it came up a little bit how should we think about sort of R&D specifically as a percentage of revenue I mean is this the new run rate that we should expect or is this sort of peaking time around 20-nannometer and should expect that fall from and I guess how should we think about sort of the OpEx levels kind of trending over the next couple of quarters.

Moshe Gavrielov - President and CEO: For the near term our OpEx – second half of the year by quarter will look pretty similar to our forecast for the September quarter. So we're forecasting 225 is going to be pretty flat maybe up just a tad in the second half on a quarterly basis. But relatively flat to that and what's happening underlying that is we start to get incrementally more mass expense in the second half of the year, than the first half of the year and the first half of the year ends up with more variable impact from profitable variable kinds of things, bonuses et cetera, because of this is directly tie to our op margin – employee bonus perspective. So, what's actually happening in the second half is the underlying R&D and that's a variable piece but the contribution from developing and launching products goes up somewhat and variable expenses moderate a little bit.

Operator: William Stein, SunTrust.

William Stein - SunTrust Robinson Humphrey: I'm hoping you can dig into the TD-LTE opportunity for us. It seems like, we didn't see the strength in that this quarter as anticipated and next quarter also not a big impact, but something bigger you said starting in December. Can you help us think about the potential upside there and as we've seen the bid for one of the big carriers investors have contemplated competitive moves by the others to drive a more robust growth opportunity in that end market. Can you comment as to whether you've seen any of that?

Jon Olson - SVP and CFO: Sure, I'd be happy to do that. The China TD-LTE business, we've been saying for some time that it was a second half of our fiscal year growth for us. So, the December quarter and March quarter for us is where the ramp would take place so beginning in the September, October time frame. At this point in time, we still have that same view it's been pretty consistent for us for the last six months, but that's been our view. Even though I know various other companies and other parts of Wall Street have tried to forecast acceleration that will be pulled into the summer et cetera, we've never really seen that. We've shipped in the March quarter and particularly a little bit in the June quarter we have shipped in some prototype in early production for some of the early city trials that they are doing, and we certainly acknowledge the fact that the bids have now gone out at least for one of the suppliers and so this process is moving along, I would say, pretty much that we had thought it would and we are not – I'm not trying to say we've got a great crystal ball and we know precisely what's going on, but it is relatively consistent with our view of the world. Now, relative to the speed of the ramp; now, we still believe its 200,000 base stations we are going to get deployed, and there's lot of conversation around, and some of them upgradable from the old generation to new generation, those are very difficult things to know, because it depends on which manufacturer OEM gets the business and whether the provider decides to pursue some sort of hybrid upgrade strategy, all these different articles and written about how it could be done and whatever, at this point it's not really clear how that's going to work out. We're very confident with our design win levels. All the manufacturers that we believe will be providing units and again we see the ramp beginning in the September, October timeframe for us.

Operator: Christopher Danely, JPMorgan.

Sameer Kalucha - JP Morgan: This is Sameer Kalucha calling in for Chris Danely. One question on the share count, it has been creeping up. So I'm wondering how much is that from the convert and how does it – or how do we expect it to trend forward are there going to be any buybacks to bring it back to the earlier levels?

Moshe Gavrielov - President and CEO: Well, clearly in the last several quarters the impact has been a great deal from disproportionately from the convert versus other sources that have been driving it up. Now we do have some dilutive protection in one of the two debt offerings that from an accounting perspective doesn’t end up showing in the diluted shares. But that being said it's really being driven more by the converts than anything else and as the stock price goes up more, then more of it gets into the (indiscernible) in terms of a bigger way. We are still committed as we've said consistently to a share repurchase and a dividend programs to return cash to shareholders. And we are still committed to buying back at least $150 million of stock for fiscal year and I'll just leave it at that.

Operator: Anil Doradla, William Blair.

Anil Doradla - William Blair: Couple of questions Moshe how would you address the concerns from some quarters saying that the industry can skip 20-nanometers and go from 28 to the 14, 16 FinFET and the follow-up question was, was there any end of life or last time buys during the quarter. Did you benefit from that? Thank you very much.

Moshe Gavrielov - President and CEO: If you look at our current plans we expect the next offering to be split over two nodes it will be our UltraScale 20 and our UltraScale 16 and we are basically making sure that for the product offering which benefits from the ultimate in terms of performance and its 16 node, but that will be a more expensive node and hence the more cost sensitive applications are better serviced by 20-nanometer and we're just splitting the family. Our next family across those two there'll be a very broad product offering at 20-nanometer and being first and we believe actually having a larger lead now than we had at 28-nanometer node. We expect to have a very strong position at 20-nanometer. We're continuing with our plans and committed to moving forward and we being in the lead other companies have different strategies, but generally I believe for FPGAs there's a huge benefit from going – from 28 to 20, and that will be available as we taped out now that will be available to our customers to start design and they are already starting designs and if they wait the node after that that delays them by quite significant period of time. So, I think it's a very viable node for FPGAs and other industries in particular ASSPs, I can see why for the very high performance maybe graphics they would want to skip straight to the 16-nanometer node and that would make sense for them, for us both nodes have their benefits and we're splitting the business across them.

Jon Olson - SVP and CFO: I'll handle the second part of the question. So, the situation we talked about some time ago is that one of our foundries is end-of-lifing a line. We were kind of the last man standing and we've gotten to the point now where we cannot start anymore wafers in that line and so we've accumulated a significant amount of inventory for our customers, but this isn't what I would call our typical end of life products. This is something that was accelerated by the fact the foundry has stopped producing product for us, so we've built a lot of inventory and are getting forecast and commitments from our customers and we'll be delivering those products over an extended amount of time. So I'm talking about many, many quarters out in time. So you are not going to see at least, certainly anywhere in the near-term some giant pop and then a reversal of fortunes downstream. A good way to look at this is to look at our base products family. And if you look at the base products, which is where – which is part of the base product family is this particular set of products. And you will see that the base products went up about $20 million quarter-on-quarter. Of that, about $10 million of that was related to an acceleration if you will over normal run rate, so certain customers decided to take parts ahead of price increases, but the other $10 million was driven by strength in aerospace and defense business and these specific A&D programs that continue to buy our legacy parts in order to ship into some of the larger programs that we've won historically, which will continue again for many years because these are very large programs that the government's going to continue. So the real short at the answer to the question, there was some impact to that to both revenue and gross margin, but we don't expect it to be some sort of a leading large pop that’s here and then goes away in the following quarter.

Operator: Sumit Dhanda, ISI Group.

Ian Eigenbrod - ISI Group: This is Ian in for Sumit. Did you guys say how much Q2 was helped by the specific government programs?

Jon Olson - SVP and CFO: We did not say that. I did just comment on the answer to the previous question that there was about $10 million in our base product family that was incremental, I'd say actually compared to what we thought at the beginning of the quarter about $10 million of business came in on a project that we weren’t expecting. But there was actually another project that was in the neighborhood of the same side. So we continue to see improvement in our defense business, which I think maybe is a sign that the sequestration concerns and fears that may have been making suppliers a little more reticent have loosened up a little up and we are forecasting defense to be up again in this September quarter as well. So we are seeing good contribution from the defense business.

Operator: James Schneider, Goldman Sachs.

Gabriela Borges - Goldman Sachs: This is Gabriela Borges on behalf of Jim. I was hoping to follow-up on your commentary on wireless CapEx. You mentioned your expectations for China but I was hoping you could also provide some color on trends in North America and perhaps more broadly in other geographies as well?

Moshe Gavrielov - President and CEO: From an overall LTE perspective. We've been doing really well with the whole North America rollout as well as South Korea and Japan and it's everybody kind of wants to say where is the big increase coming out of North America. We've had in our wireless business for quite a few quarters very strong contribution with the rollout of Verizon and LTE – excuse me, Verizon and AT&T, and then as Sprint start to kick-in, I think that will be some incremental. So we've got a really nice North American business that has a little bit lumpiness and we continue to see that strength go on for the next several quarters at least. So that's very good. We've seen off late some shrink out of in South Korea area and as I mentioned earlier we are yet to see anything significant out of the Chinese deployment. A couple of quarters ago, we did ship into some trials for Europe, but we've not seen any significant signs of any build from a European perspective at this point in time.

Operator: Glen Yeung, Citigroup.

Glen Yeung - Citigroup: It's Glen Yeung calling in Glen Yeung. Question for you on your visibility looking at your market share potential in the China business; now, given the design wins that you've seen today and the progress you've made with Kintex, what's your confidence that in this next deployment whatever the size, whatever the timing that your share position will be better than the last time?

Moshe Gavrielov - President and CEO: Glen, the question is related to China or generally speaking?

Glen Yeung - Citigroup: I'm sorry, the China LTE build out.

Moshe Gavrielov - President and CEO: So, we are very confident that it's going to be a lot better than it was in the previous node. The Kintex product is the winning product in terms of its cost and performance and power and it was designed specifically to address the wireless market. Actually it's also beneficial for others, but it's definitely actually (indiscernible). With regards to wireless in particular, we're expecting a very high percentage of the wireless LTE business in China to use Kintex. If you compare it to the 40-namomenter, I would say, several times in terms of the percentage of what we got, I think at most had 20%-ish before.

Jon Olson - SVP and CFO: It was in the early part of the 3G rollout in China it was higher and then it declined as designs moved to 40-nanometer. It started out in 65-nanometer and then they moved to 40-nanometer in China and that's where we were disadvantaged with that product family. And the way that the LTEs are going to rollout is that in the beginning there will be some – in certain supply OEMs there will be some 40-nanometer products. Again we were disadvantaged, but all will be transitioning to 28-nanometer relatively rapidly over the initial few quarters and we're very confident of our share positions with the 28-nanometer wins.

Operator: Ruben Roy, Mizuho Securities.

Ruben Roy - Mizuho Securities: Jon, I just wanted to clarify one thing around the $10 million of base business that you talked about being incremental. Are you expecting any of that or is any of that continuing into your fiscal Q2 that's implicit in your guidance or no?

Jon Olson - SVP and CFO: So what I was characterizing for the aerospace and defense business is that part of that increase in base, $20 million, the $10 million of the $20 million was due to some specific aerospace and defense projects and then we do expect a strong up defense business and some of it will be in base, some of it will be in mainstream. So we do expect a strong healthy defense business. The $10 million that I was characterizing was more along the broad base foundry EOL. We do expect that to continue into the next quarter but again we are forecasting base to be overall kind of flat to down-ish. So we aren’t expecting any sort of big pop from this particular EOL that'll go on for a quite a long time.

Operator: Ian Ing, Lazard Capital Markets.

Ian Ing - Lazard Capital Markets: So, revenue estimates likely going up nicely this year. It seems most of the upside 40 and 45 nanometer design wins. It seems 40 and 45 is up 20% this quarter and looks like this year you are still on track for 250 million net 28 is that the right frame work we should think of?

Moshe Gavrielov - President and CEO: Your later statement was correct, but no the growth that we've experienced overall is very strong 28-nanometer. We happen to have a slightly stronger contribution from 40, 45 that I would expect over the fiscal year revenue growth horizon that 28 becomes much more rapid growth vector for us.

Ian Ing - Lazard Capital Markets: So north of 50 this quarter and still on track for 250 for the full year?

Moshe Gavrielov - President and CEO: We were explicit that we were well north of 50 and we set a target of 60 and we've beaten all of our targets to-date. Our target for the year is 250 and we are very confident about beating that target.

Ian Ing - Lazard Capital Markets: Then Moshe with the efforts at 16-nanometers and 20-nanometers at the same time, maybe you could articulate the benefits that the FinFETs give you. You said these are more pretty expensive high-end parts. So is it sort of logic shrink or lower power solutions, more integration?

Moshe Gavrielov - President and CEO: Well, as you move from technology to technology, the benefits you get typically lower power and higher performance and achieving lower costs is more difficult than actually requires re-architecting your system and designing it from scratch to fully exploit the benefits of that. Some customers can do it and some customers find that more difficult. It's a higher effort. But if you compare 16-nanometer to 20-nanometer then 16-nanometer has the FinFET and 16-nanmeter will undoubtedly have even higher performance and lower power than 20-nanometer. But 16-nanometer inherently is a more complex manufacturing process and FinFETs are more difficult to design and require more (indiscernible) and hence they costs more. So, you can achieve higher performance you can achieve lower power. You can modulate between those two. It's difficult for a given design to achieve cost reductions. So by definition, 16-nanometer addresses the high-end of the product offering communications in aero wide communications in aero, test and measurement prototyping (and less) the other markets we address.

Operator: We have no further questions at this time. I turn the call back to the presenters.

Jon Olson - SVP and CFO: Great. Thanks for joining us today. We have a playback of this call beginning at 5.00 pm Pacific Time, 8.00 pm Eastern Time today. For a copy of our earnings release, please visit our IR website. Our next earnings release date for the second quarter fiscal year '14 will be Wednesday, October 16 after the markets close. This quarter, we will be presenting at the 2013 Citi Global Technology Conference in New York City on September 3. This concludes our call. Thank you very much for your interest and for your participation.

Operator: This concludes today's conference call. You may now disconnect. Thank you.