Advanced Micro Devices Inc (AMD) — Q3 2015 Earnings Call Transcript

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 December quarter, and then we'll open the call for questions. Let me remind everyone that during our conference call today, we may make projections or other forward-looking statements regarding future events or the future financial performance of the Company. We wish to caution you that such statements are predictions based on information that is currently available and that actual results may differ materially. We refer you to the documents the Company files with the SEC, including our 10-Ks, 10-Qs, and 8-Ks. These documents contain and identify important risk factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements. This conference call is open to all and is being webcast live. It can be accessed from our Xilinx Investor Relations website. Let me now turn the call over to Jon Olson.

Thank you, Rick. Profitability remained strong during the quarter, but sales were lower than anticipated, declining 2% during the December quarter. The primary weakness was driven by broadcast and wireless communications end-markets. 28-nanometer sales represented one of the bright spots of the quarter, with sales increasing nearly 20% sequentially. All members of this product family grew with Zynq, Virtex, and Artix all posting double-digit growth rates. From an end-market perspective, sales to communications customers declined 3% sequentially with flat wired sales and a decline in wireless sales. Wireless sales were impacted by weaker sales from non-China regions, while our China wireless business increased in line with expectations. Industrial and aerospace and defense sales increased as expected, with strong defense sales offsetting declines in industrial, scientific, and medical. Broadcast, consumer, and automotive sales declined due to weaker broadcast sales, which were driven by weak purchasing activity from a couple of large customers. Automotive sales were better than expected as several new advanced driver assistance programs began to ramp. In terms of linearity, the month of October and November were in line with our expectations, and the month of December progressively weakened. Turns were 44% for the quarter. Gross margin of 69.7% was better than expected as a result of customer and product mix. Total operating expenses were $224 million, including $2 million of amortization-related expenses. This was $6 million lower than guided resulting in operating income of 32%. Other income and expense was a net expense of $4 million better than forecasted, mainly due to higher interest income from our investment portfolio. Net income for the quarter was $168 million or $0.62 per share including a $0.02 per diluted share benefit primarily related to the reinstatement of the R&D tax credit. Operating cash flow for the December quarter was $291 million before $6 million in CapEx. Strong cash flow during the quarter was positively impacted by a net improvement in working capital led by the timing impact of accounts receivable. Diluted shares for the quarter were 274 million shares. This was a bit higher than forecasted as a result of the higher stock price. There was a 7.8 million share dilutive effect from our convertible note. We are committed to returning cash to shareholders. During the quarter, we continued to aggressively buy back stock through purchasing 4 million shares for $175 million. We also paid $76 million in quarterly dividends. For the fiscal year thus far, we have returned over $700 million to shareholders in the form of repurchase and dividend, $80 million more than we generated in operating cash flow. Let me now comment on the balance sheet. Cash and investments increased $28 million to approximately 3.6 billion. We have $600 million in convertible debt and $1 billion in fixed-rate debt resulting in the net cash position of approximately $2 billion. Inventory dollars decreased by $16 million during the quarter; we plan to continue to reduce inventory dollars in the March quarter. Let me now turn to a discussion of guidance for the March quarter of fiscal year '15. Our backlog heading into the quarter is down sequentially. Although we are forecasting another strong quarter for our 28-nanometer products, we will be facing headwinds from aerospace and defense due to normal seasonality and program-related timing. We expect both wired and wireless communications to be flat sequentially. Wireless sales will be impacted by the timing of the FDD-LTE deployments. We expect industrial and aerospace and defense segments to decrease for the reasons I mentioned earlier, offsetting flat sales to ISM and test and measurement. Broadcast, automotive, and consumer is expected to be up driven by a rebound in broadcast and continued advanced driver assistance strength in automotive. As a result, we’re expecting total sales for the March quarter to be down 2% to 6% sequentially. The midpoint of this guidance is predicated on a turns rate of approximately 51%. Gross margin is expected to be 68% to 69%. Operating expenses in the March quarter are expected to be approximately $227 million, including $2.5 million of amortization of acquisition-related intangibles. Other income and expense for the March quarter is expected to be a net expense of approximately $7 million, and the share count is expected to be approximately 270 million shares. The tax rate for the March quarter is expected to be approximately 13%. Now I’d like to turn the call over to Moshe.

Thank you, Jon, and good afternoon to you all. I am clearly disappointed with our top-line performance, both during the December quarter and the guidance for the March quarter. Looking forward into fiscal year 2016, we are planning for a flat to low growth environment. The renewed revenue growth from our 28-nanometer portfolio will be somewhat offset by uncertainty in global communication spending and expected declines in key aerospace and defense programs. On the positive side, Xilinx posted strong profitability in the December quarter, both gross margin and operating margin at 69.7% and 32% respectively were better than our expectation contributing to earnings per share of $0.62. Our cash flow continues to be healthy and we are on a path to return more cash to shareholders in the form of both dividends and buybacks that we will generate in fiscal year '15. The most significant highlight for the quarter is our renewed 28-nanometer revenue growth, which exceeded $150 million with a sequential increase of nearly 20%. We’re anticipating 28-nanometer sales to continue to grow and exceed $160 million in the March quarter. We also achieved several important milestones for our 20-nanometer portfolio. Our Kintex UltraScale devices became the industry's first 20-nanometer FPGAs to move into volume production. Based on customer feedback, we continue to believe that we have an estimated one-year lead over the competition. This technology leadership is complemented by our Virtex UltraScale family, which is the industry’s ASIC class 20-nanometer high-end product offering. It's a very high-end of this family, we began shipping the industry’s largest FPGA which delivers over 4x the capacity of any competitive devices. Finally, in the area of design software, we launched the SDAccel development environment. This is the second in a family of software-defined development environments, which we call SDX, and this will greatly expand our user base to include the broad community of systems and software engineers from both existing and new markets. This environment combines OpenCL, C, and C++ languages with an initial focus on the growing data-center acceleration market. Despite the top-line challenges, I remain confident in Xilinx’s strong technology leadership and market position. We’re still in early phases of 28-nanometer revenue growth, have already delivered the first production ASIC class 20-nanometer product, market-expanding new SDX software-defined programming environments, and soon our 60-nanometer products that include multi-processing SOCs. At our Investor Day on March 10th, we look forward to providing you with more details outlining our plans. I’d like to turn the call back to the operator for the Q&A.

Moshe, I just wanted to get a little more color, if you could, on your statement about, I think you said fiscal '16 being a flat to low growth environment. Can you give us, again, a little more detail on the puts and takes that lead you to that conclusion? Thank you.

Well, we’ll be giving more details in March, but fundamentally growth is driven for us by 28-nanometer, and we see clouds from communications and A&D. And so when you look at the combination of both of those, we see it as being generally speaking flat to a low growth environment for fiscal year '16. That’s probably as much as we can say at this point in time.

Yes, I don’t think we’re making a long-term statement on that, Will. I think I’d just like to highlight the headwinds from aerospace and defense, which are in some instances program-related that are causing some of the headwinds for FY16, and we still have a good strong long-term view of our aerospace and defense participation.

Also on growth, in the past, Moshe, I think you've talked about growing at some multiple, I believe it was two times the semi industry. We're not seeing that now, and you're certainly setting more moderate expectations for fiscal '16. Should we think about this as a more sort of permanent reset to the longer-term growth potential that the Company has? Or do you think this is a sort of soft spot that we will power through eventually and return to more meaningful growth?

Making comparisons with the broader semiconductor industry is challenging due to its various components, and there are rapidly expanding sectors, such as mobile, which do not pertain to our focus. However, we are certainly observing a slowdown. We plan to provide more clarity on this in March and will be better equipped to estimate how long this trend may last. At this moment, I wouldn't classify this as a definitive global assessment, and we anticipate being in a stronger position to address it come March.

I’m wondering, as you look at your aerospace and defense business, how much of this is a result of the Russian sanctions? Do you have visibility on how long these delays might last? And is there any effect from the strong dollar factoring into either this category or even in the communications segment? Thank you.

From a Russian perspective, the impact on our aerospace and defense business has been minimal. Some of our communications operations and high-performance computing segments have been affected due to Russian sanctions, which have made it challenging to ship certain products and obtain necessary licenses. While this has had some impact, it's relatively small. However, every little bit matters in the current environment. Regarding the stronger dollar, our products are sold in U.S. dollars, so there’s no direct hedging impact for us. But our customers’ customers and distributors transact in local currencies, and while we haven't received feedback indicating a significant impact, I've heard from other businesses that they are experiencing challenges. Our products have become about 20% more expensive in relation to the euro over the past year, which will affect us in an already weaker European market compared to other regions.

Yes, my one question is in the China base station business. You still have some big targets for base station deployments this year among the carriers. Do you expect any of the same sort of bomb kit issues you had last year supply constraints in RF power amps from other suppliers?

Yes, so from the power amp perspective, I think there are still some other shortages that are going on, but that’s really not the biggest gaining factor to our overall wireless business, that’s for sure. And I think with specifically in China there are probably two changes to what we have been thinking and saying about it. One is the phase 3 rollout, while it is, and we still believe it is, beginning in the springtime, and that’s progressing. The pace of that rollout seems to be a little slower than the previous two phases where in the past we’ve seen a pretty high concentration over a quarter and a half of deployment, and that deployment seems to be at least best as we can tell maybe lasting a little longer to get those base stations out, so a little bit longer time period. And the second thing which is also looming on our minds is around the FD licenses. I think I’d articulated that the FD base stations would start to ship in this March quarter and then throughout the remainder of calendar '15. Right now the licenses still are not broadly let, and our modeling was essentially a one-year lag from when the TD base station started shipping in volume, which was similar to the 3G deployment, and that really isn’t happening right now. So we’re kind of on pins and needles here waiting for those licenses to be let so we can kind of model when that might start.

So you mentioned clouds from wireless, so is that really from just Asia? How much of that is non-Asia? And then the magnitude and timing on Europe and perhaps even India, does that play into your forecast at all for next year?

Yes, I believe the challenges we are facing are related to communications as a whole, not solely in the wireless sector. On the wireless front, we are experiencing short-term weakness, particularly with deployments in North America, which has impacted our shipments this quarter and in the previous and upcoming quarters. This is largely due to capital being redirected away from AT&T and Verizon, among others. Additionally, Sprint is encountering more difficulties with its rollouts, leading to OEMs supplying the Sprint LTE rollout reducing their orders as they are not receiving requests from Sprint, based on our understanding. This softness in the North American market has been noticeable, especially early in the year. Regarding Europe and India, at this time, we are not anticipating any significant product demand from either region, and it is likely that this will extend into next year as well. We will continue to monitor this situation, but we have not observed any substantial growth indications at present.

I guess, what gives you confidence that this is purely a demand problem versus some share loss?

Well, the numbers on 28-nanometer are growing again very rapidly actually, and if you look over the past three years we believe that we’ve been consistently above 60%, and it sort of peaked last year probably at around 70%, and it's still well into the 60s now. So, I don’t believe that it's a result of that. The other thing we’re seeing is 28-nanometer now all elements that are growing. So, the high-end, the Virtex side, the Zynq side, and the Artix side are growing too, and in the past a lot of growth came from the mid-range Kintex, and now as this expands the breadth and depth of our product portfolio continues to give me confidence in that regard.

And just one more thing, if we think about the way we cast the second half of this current fiscal year previously and where we think now; almost all of our shortfalls are around situations that are more demand-related over older products than 7 Series and that wouldn’t typically indicate share loss because no one redesigns an older product, right? So it's really around that doesn’t seem to be around any of the leading edge.

I actually had a clarification and a question on the clarification, maybe if you could also give us some more color on how we should think about gross margins given the weakness in the mix. Is it better to think gross margins could be, say, 67%-68% than the 69%-70%? And then Moshe for my question, if you could just give us the status of your 16-nanometer FinFET engagement with TSMC, what is the status there? And do you expect to get products out on time this year? Thank you.

On the gross margin side, we have provided estimates for Q4, but our planning is not yet complete. We aim to operate within a range of 68% to 70%. At this point, I wouldn't suggest a lower number for gross margins. We believe that our strength at 28-nanometer and the favorable cost profile give us confidence in maintaining that range for now.

Vivek, with regards to taping out, the program continues, and the relationship with TSMC is excellent. We’re getting absolutely outstanding support. The design is a very challenging design, and as a result, we expect for it to tape out a couple of months later than we had originally expected. So, we’re probably looking at the May timeframe as opposed to the March timeframe, which is our latest estimate for that.

This is Ryan Carver in for John. I just wanted to get a clarification. You gave some color on fiscal '16 as being driven by a strong 28-nanometer, but offset by global comms and some weakness in aerospace and defense. But if I look at some of your 40-nanometer and 45-nanometer business, I mean share has been declining year-on-year for the last four quarters, and if I think about sort of where 28-nanometer product goes, primarily it’s been into the comms end-market. So I guess, how comfortable are you guys in thinking that 28-nanometer is going to be able to drive this outperformance in fiscal '16 given your commentary about comms and aero and defense sort of equating to probably north of half of your revenue for the year next year? And the continued 40-nanometer declines.

Sure, so 28-nanometer is a very broad and deep product offering, and there are lots of elements to it and there are different components and different families that are targeted at specific different applications. It addresses all of the markets we’re in, absolutely all of them, and is an expansion play into additional areas. It would be correct to say that last year’s production was driven by wireless comms, but it’s not that that’s the only market that it has addressed. And if you look at the early shipments, they weren’t necessarily into comms at all; they were in ASIC emulation, they were actually into some consumer markets, and all of these continue. What is happening is as the family of product has rolled out and has been extremely successful, more and more are moving into significant production, and the growth you see now back to over 150 was actually driven by growth on the Virtex front, growth on the Zynq front and growth on the Artix front that addressed numerous markets, not only comms. So it’s broad, it’s growing significantly, it’s the fastest-growing product we’ve ever seen, and we’re very confident that if you look at the numbers, then it grew from $100 million to $380 million; if you look at our projection of over $160, it will come in at about $580 million for the year. We expect significant growth beyond that. So that is growing rapidly, and it’s going to be the most successful and broadest portfolio we have. Having said that, when you look at 40 and 45, we continue to see strength, and on the 45 which is the low-end product offering, the Spartan product offering whereas we believe that 40-nanometer is no more or less peaking for us at this point in time. In terms of market share on 40-45, it hasn’t necessarily shrunk, it’s sort of going up and down over the past year I would say, and that’s our valuation.

Yes, Ryan, I just want to highlight that one of our key growth areas this year and looking ahead is our industrial business, as well as automotive. Both of these segments are primarily being driven by growth in our 45-nanometer and Zynq product families. As you consider the momentum in these end-markets, which has been evident over the past year, we believe that this momentum will continue. We are seeing a shift from older products to these new, higher-value products with higher average selling prices, which is providing us with significant advantages. Moreover, within the wireless sector, there is a transition happening as well, moving from older products like Virtex-5s and 6s to the 7 Series and larger Zynq products in wireless applications. Therefore, we expect to see continued growth in the 28-nanometer area, even within communications. So please don't dismiss communications completely here.

Back when the HD TVs were ramping, there was demand for FPGAs into TVs and also in broadcasting which helped your consumer business. Do you expect a similar trend to happen with the rise of 4K TVs? And do you see any interest there also in OEMs, and what would be the timing on that?

Yes, Tristan, this is Jon. We have already shipped a significant amount at the end of last fiscal year and the beginning of this fiscal year into 4K and ultra high definition televisions. We are also starting to ship into OLED technology-based televisions, and we believe we will remain in the television business longer than previous generations did with initial HD models, which were phased out quickly. There seems to be a lot of activity among current manufacturers in this sector, so it's a positive opportunity for us.

Moshe, I just had a clarification on the FinFET comments you made. Is this an issue emanating from the difficulty, in your opinion, TSMC is having, or is it coming from the Xilinx side? And just as a quick follow-up, what’s the timing from tape out to when we should expect production volume? Thank you.

Okay. So there are no issues with TSMC; they have had numerous tape outs already; they are giving us full support. The design, whenever you encounter a new generation of product, tends to unearth problems that you did not anticipate, and as a result, the closing of all of these issues is taking a little longer plus the challenges related to design for FinFET transistors are more significant. So it's not a TSMC challenge or issue at all, it's just our ability to finish the design with their support. After, if you look at our business, typically what sort of happens is tape it out, you get it back after a few months, you go through a lengthy evaluation cycle, and then you move it into production at which point in time it takes two to three years until it reaches high volume production. So, it sort of depends; if you look at 28-nanometer, we reached $100 million production I think three years after we tape out the product.

Do you mean a quarterly run rate of 100?

No, not a quarterly figure, it's an overall 100. I apologize for the confusion. It typically takes years to reach that. Yes, I was looking at the quarterly numbers.

That’s okay. We all knew what you meant, Moshe.

This is Gabriela Borges on behalf of Jim. I want to ask a longer-term question, specifics that you can comment on until you have the Analyst Day that would be very helpful color. Just wonder if there is any change longer-term in how you're thinking about the OpEx profile of the Company as we transition to a server environment or on the capital allocation profile of the Company as well. Thanks very much.

From a spending perspective, we will provide more updates about our outlook for fiscal year 2016, but primarily, it's a comment on positioning the company for a flat to low growth environment. We are very aware of what that entails and are aligning our spending goals accordingly. In terms of long-term outlook, the increasing R&D intensity as we approach smaller nodes, especially at 10-nanometer, presents some challenges, but we are managing these through various strategies we have implemented. Therefore, I am not particularly concerned about a significant increase in spending. Regarding capital allocation, our decisions are influenced by several factors, including our plans for any excess cash beyond returning it to shareholders. Our priority remains on dividends, and then share repurchase will be considered opportunistically based on my current visibility regarding the future. I do not foresee a change in that policy.

I just want to go back to the wireless segment with the March guidance being down four quarters in a row. So you talked about some end-market issues, but I am not aware of other companies seeing these declines. So I was just curious, as you look back, what’s really causing this? Did you see ASIC replacement? Is there a mix shift to the mid range in than fiscal '15 guidance, you talked about uncertain outlook, how much are you expecting this business to come back for you within that? Thanks.

The short-term challenges in our wireless business are more related to global factors rather than specifically China. Our customers have indicated some softness, and given our significant market share in supporting the Sprint rollout, this has been disappointing compared to our expectations for this quarter. We believe this will also affect our forecast for Q4. In fact, we experienced growth in China as we had anticipated, so that hasn’t been the short-term issue. However, we had previously expressed more optimism regarding wireless growth in China due to the phase 3 rollout in March, and although we are not seeing a decline there, the growth acceleration is not matching our initial expectations. Our wireless business is not diminishing; it's simply not growing at the rate we had predicted. Regarding fiscal year 2016, we recognize that the cloud and communications sector is experiencing challenges in global spending that are not confined to a specific region in wireless. Therefore, we are not providing guidance on wireless for FY16 at this time and will revisit this in March.

Moshe, more of a philosophical question. I am just looking at the business over the last three years, and based on your guidance for fiscal '16, on average there isn’t a whole lot of growth here. I think in fiscal '10 you grew, I mean a couple of years ago you grew about 10% fiscal '14, but outside of that. So, my question is obviously R&D is running at fairly high OpEx is running close to 40%. As the leader, I am wondering, does it still make sense to chase Moore's Law? I mean is it part of the business that you have to continue to invest in Moore's Law? And my question is, why wouldn't it make sense to kind of slow it down a little bit and kind of bring that OpEx number down?

That’s an interesting question which we could discuss for a long time, but let me give you a brief response. You are correct that the growth has not been consistent. For Xilinx, revenue increased to $1.8 billion; it remained around $1.7 billion to $1.8 billion for several years before jumping to approximately $2.4 billion, where it has stayed longer than we anticipated. This is disappointing. Nevertheless, we view this as a business opportunity. As the semiconductor industry evolves, being at the forefront allows us to capture a larger serviceable addressable market, and to achieve that, we are investing strategically to offer solutions. We believe that 28-nanometer was the first significant opportunity in this regard, and we are noticing, in several instances, a shift away from ASICs to FPGAs, as well as some traditional ASSP providers struggling to keep pace, which presents a chance for us. To capitalize on this, we need to develop new products and invest heavily in software enablement. We are currently making these investments, and we believe the potential return lies ahead. An example of this is the Zynq product line, allowing us to engage more significantly in the automotive sector, a market where we previously had minimal presence. While I acknowledge your numbers are accurate, I firmly believe that the opportunity to capture these markets is still forthcoming, and we will provide additional insights around March. Thank you for the excellent question.

Moshe, I just wanted to throw in another question on the communications discussion. In terms of that end-market, you historically haven’t provided longer-term guidance, and now you're giving us a little more of an outlook from a longer-term perspective. And I am wondering if some of that is driven by what you’re seeing in addition to these clouds around the design environment? Has anything changed in the design environment from your big customers that globally that sell into the service providers as it relates to FPGAs, would you say? Or do you think that, once you get past fiscal 2016, that you can still think about some of the CAGR growth rates that you guys have discussed historically around the various communications markets? Thank you.

So we believe there are opportunities for growth in both wired communications and wireless communications. We will try to size those. Wired in particular has been frustrating for us. For several years now we’ve predicted growth, projected growth, and it hasn’t happened; even the 28-nanometer on the wired side, it’s taking longer for those very significant designs to translate into revenue. Nonetheless, the opportunity is there and the wired market is not going away, but we’ll give you a deeper and more accurate response in March.

I think from a design environment though I think, as Moshe said earlier, that we are seeing ASICs being replaced; we are participating in the aggregation that’s going on as there can be continued consolidation in the infrastructure business. We are still seeing lots of opportunities for us out there.

And things like the SDX environments, those design environments have specifically targeted to enable us to address those markets more smoothly and more efficiently than we have in the past. So, there is a need to provide somewhat of a different approach in order to expand the population of designers we have there, and that includes communications, but it's not only limited to communications.

You talked about a slow growth environment but you've also got the third highest gross margins in semis after Linear and PMC-Sierra. So, have you thought about going after some new volume applications, perhaps with some price elasticity?

Yes, we definitely have a posture here that’s about offering profit dollars with respect to that, so it's not like if a deal doesn’t look like 59.7% to us, we won’t bid on it; we won’t go after it; that’s not the case at all. We certainly think about this as a portfolio and an opportunity. The issue becomes when are those that still make sense that an FPGA is the right answer because obviously bidding at a negative 20% for some single function capability doesn’t really add any value to shareholders; also we don’t do that, but we absolutely have looked at broadening applications within our existing markets, and we’ve made certainly done some of that as well.

Just a couple of questions on 28-nanometer and 20-nanometer. On 28, where would you say we are in the cycle now versus where 28-nanometer peaks? And for 20-nanometer down the road, do you expect to have a similar shape of ramp versus 28, or somehow distinct? Thanks.

Our position on 28-nanometer technology has evolved. We now anticipate that its peak will occur later and last longer than we initially expected. While the peak may be slightly smaller, the overall output will be similar. We are still several years away from reaching that peak, and many markets that our product addresses are just beginning to move into production, which will likely take another two to three years. Consequently, the buildup leading to this peak is still several years off. Regarding 20-nanometer, we view the combined capabilities of 20 and 16-nanometer as roughly equivalent to 28-nanometer since their introductions are occurring close together. To clarify, it took three years for 28-nanometer to hit $100 million in revenue, and we expect a similar revenue trajectory for a combined 20 and 16-nanometer approach if they start at the same time. However, if we consider 20 or 16-nanometer independently, they will not reach the success that 28-nanometer has achieved. The expectation is that the two together should approach the performance of 28-nanometer within a comparable timeframe.

But, Jon, can you give us a sense, last year, what the end-of-life product sales were? Or maybe you can give us the past couple of years? Thanks.

We haven’t provided that detailed information because we believe it's not particularly material. Over the last few quarters, we have been gradually increasing our shipments to the aerospace and defense sector, but we expect that trend to decline over the next few quarters. We haven't quantified this further as it hasn't been significant over the last few quarters, and it's been consistent in each quarter.

Hi, this is Sanjay for Romit Shah. Moshe, one question you indicated your frustration with the wired segment, and I was wondering if you could drill down a bit deeper and which specific segments in wired you think have disappointed you? And when you talk to these customers, just wondering what is the take on it? Do you have better products, more integration in your FPGAs? What is it that's been so disappointing? Why you are not seeing the growth from these segments?

We will provide more details in March, but this is a challenge that will take several years to address. For a long time, this particular segment has shown consistent growth predictions. We have secured design wins, but the transition to production is taking longer than anticipated, and the yields are lower than we expected. I will break it down by category later. It's important to note that it's not fair to generalize across the board since this market is quite broad with various sub-segments. I’ll point out which areas are progressing faster and which ones are lagging, but I don't have that information available right now.

I just have one clarification. As I listened to the Cisco call, their business in the wireline kind of segment were surprisingly strong in the U.S., and even their European business wasn't that weak. I was wondering whether this is a phenomenon of one company doing relatively better than the other ones or is this a generalization that you can see across your customer base?

Yes, I haven't closely followed what Cisco has said recently, but in the short term, they do operate in various applications beyond just wired communications, including broadcast and cable equipment. As mentioned, we experienced lower than expected performance in that segment last quarter. It's often specific to certain applications or sub-applications. I'm not trying to criticize Cisco negatively regarding wired or broadcast; we've also seen weakness among other customers and geographic challenges, particularly in Europe. It's typically not about how the entire company is performing, but rather the broader industry context and sometimes the specific applications we handle within that industry. All I can do is clarify our position in the market; it's difficult for me to speak to Cisco's strengths or weaknesses in any specific region.

Could you speak for a moment about your 40-nanometer revenues this quarter and just provide a little bit more color in that space? Thanks.

Yes, so our new product category is made up of 28-nanometer and then our 40-45, so there are two generations of technologies, and so our overall new products numbers were down a little bit. And we updated that our 28-nanometer was up substantially, so that leads you to believe obviously by actual subtraction that the 40-45 was down. Within that it was a broadcast-related and some communications. The low-end that Moshe talked about continues to be quite well. And that was doing well, so it was really the high-end and it was related to the communications segment and broadcast, so it really ties nicely to the overall disappointment if you will because of that. And another way for us to describe that to you would be there were some older products that are either going through transition or there is slow demand by their end-markets depending on which customer and which situation that we’re driving that.

Great, thanks for joining us today. We have a playback of this call beginning at 05:00 PM Pacific Time, 08:00 PM Eastern Time today. For a copy of our earnings release, please visit our IR website. Our next earnings release date for the fourth quarter of fiscal year '15 will be Wednesday, April 22nd after the market close. This quarter we will be holding our 2015 Investor Day on March 10th in New York. We do look forward to seeing you there. This completes our call. Thank you very much for your participation.