Advanced Micro Devices Inc (AMD) — Q4 2019 Earnings Call Transcript

Thank you, and good afternoon, everyone. With me are Victor Peng, CEO; and Lorenzo Flores, CFO. We will provide a financial and business review of the March quarter in fiscal year 2019 overall as well as provide the business outlook for the June quarter. Lorenzo will also share some color for how we see our fiscal year 2020 ahead of our Analyst and Investor Day where we will provide detailed full-year guidance. 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 risk factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements. In addition to GAAP financial measures, we will be disclosing certain supplemental non-GAAP financial measures used by management to evaluate the Company's financial results. We provide these measures to facilitate period-to-period comparability for purposes of evaluating continuing business operations by excluding the effects of non-recurring and unusual items, such as amortization of intangibles and certain one-time items related to acquisitions. We believe that sharing these non-GAAP measures will be helpful for analysts and investors in analyzing the Company's ongoing core business. A reconciliation of non-GAAP financial information to the closest GAAP measure is included in our earnings release and has been posted on our Investor Relations website. This conference call is open to all and is being webcast live, and it can be accessed from our Xilinx' Investor Relations website. Let me now turn the call over to Victor.

Thanks, Matt, and good afternoon, everyone. I'm very excited to report that we made exceptional progress on our strategy in fiscal 2019. We far surpassed our original revenue goal by delivering over $3 billion of revenue for the first time in our history. This was 24% growth over fiscal 2018. Our growth was broad-based with all our primary end markets up by double digits. We also reached record levels of profitability as non-GAAP EPS increased 32% year-over-year to $3.48 per share. The March quarter continued to see strength as revenue increased 30% year-on-year to $828 million and non-GAAP EPS was up 34% year-on-year to $0.94 per share. Lorenzo will provide more financial details on both the March quarter and fiscal 2019. So now I will focus my comments on key accomplishments during the year. We made excellent progress on our transformation to a platform company. First and second generation Zynq product revenue increased approximately 60% with strength and many applications in communications, automotive, particularly ADAS and industrial end markets. We taped out our 7-nanometer Versal, ACAP on schedule, which is an industry first. Versal will deliver 10x compute performance and 10x bandwidth and deliver power efficiency for many applications across all of our end markets. We also launched Alveo, a family of powerful, adaptable PCIe accelerator cards that increase the performance of a broad range of applications for both cloud and on-premise deployment. And we also hosted three very successful developers conferences globally that had a record attendance as part of our drive to increase application development and expand our ecosystem. Now, let me share some highlights around our three key growth drivers: communications, data center, and automotive. Starting with communications, 5G deployments began earlier than our expectations at the start of FY 2019. We were exceptionally well-positioned at this early stage of what's a historic 5G cycle, which we believe will be multiple times larger than 4G. Deployment started in South Korea, and now we see deployments gearing up in multiple geographies. We're shipping in volume in radio and baseband applications. Our opportunity in 5G rate is particularly strong because the complexity of the new standard drives the need for significantly more radios than in 4G. We expect to gain more content given the higher value we add for radios with products like our RFSoC. In addition, we have a complete product roadmap with our recently announced expansion of our RFSoC portfolio covering the full sub-6 gigahertz 5G spectrum. We expect to gain more than our typical share of baseband revenues in this very early phase of 5G deployment. We expect to retain some of the current 5G baseband sockets, while some will be replaced by ASICs over time. This aligns with what we've seen in the past deployments, including 4G and 4.5G. Now when our 7-nanometer Versal ramps to production, we have an opportunity to expand beyond our historical baseband revenue levels in later deployments of 5G. The data center continues to develop and expand our ecosystem and adaptable platforms in a variety of high volume applications. We are strengthening our data center-first strategy with today's announcement of our intention to acquire Solarflare, a provider of high-performance, low-latency networking solutions for multiple applications, including financial. Combining our industry-leading FPGAs, MPSoC, and soon ACAP solutions with Solarflare's high-speed NIC technology and Onload application acceleration software will create a powerful converged SmartNIC platform. Solarflare's software and networking expertise is an excellent complement to our silicon, IP, and development tools leadership. We also continue to fortify Xilinx platform and Alveo partners ecosystem through our corporate ventures initiatives. We nearly doubled the number of companies in our Versal portfolio year-over-year to more than 20 businesses, covering multiple applications such as data analytics, financial computing, and video streaming acceleration. We increased the cumulative number of developers trained on the SDAccel Development Environment to over 3,000, and we added over 500 independent software vendors to our ecosystem. Moving onto automotive. First-generation Zynq sales grew 40% in fiscal 2019, and we saw an expansion of second-generation Zynq MPSoC design wins in the next generation of ADAS systems. We also saw an increase in autonomous driving design wins. And put together all this momentum, we expect to see steady revenue growth well into the next decade. For example, at the last CES, Daimler showcased its AI solution in the new Mercedes GLE Sport Utility Vehicle that's powered by an MPSoC accelerating multiple neural networks. In addition, ZF announced a strategic collaboration with Xilinx for all technology that will power their highly advanced AI-based automotive control unit to enable automated driving. Another recent milestone was the announcement that BYD will be the first OEM in China to start mass production of its front camera ADAS technology using our Zynq SoCs. In summary, we made great progress in establishing strong positions in multiple large and growing markets. The exceptional growth we achieved in FY 2019 provides us with great momentum as we enter FY 2020. Having established a strong growth trajectory, we believe now is the time for us to optimize our organizational structure to better match our long-term objectives. To that end, we have created two business units to increase our focus and agility in strategic high growth markets. Specifically, we formed the Data Center Group or DCG and the Wired and Wireless Group or WWG, which will be led by Salil Raje and Liam Madden, respectively, reporting to me. Salil and Liam have both held senior leadership positions at Xilinx for over a decade. For the other core vertical markets, we will retain our functional structure to maintain our horizontally leverage model for sustained growth but with solid profitability. In addition to organizing for sustained growth, we will increase organic investing in FY 2020 as we execute our 7-nanometer silicon roadmap and extend our key IP portfolio, our software stack, and our ecosystem. We will also make inorganic investments that are strongly aligned with our strategy and will build lasting shareholder value, like our acquisition of DeePhi in FY 2019. We'll share more details about our FY 2020 plans and our overall strategy at our Analyst Day next month in New York City. Thank you. And I'll turn it now over to Lorenzo.

Thank you, Victor, and good afternoon to you all. We are all thrilled with the execution and financial results of the Company in FY 2019. Xilinx delivered many financial records this past year, highlighted first by $3.59 billion in revenue, which is a growth of 24% from FY 2018. Advanced products, which grew over 40%, are the key growth drivers of our business. They now account for 64% of total sales. With double-digit growth across all reported end markets, we are demonstrating the durable position our leadership technologies have achieved across the growth areas of our industry. Along with our revenue growth, we maintained strong profitability. Gross margin was 69% for the year and operating margin exceeded 31%. On a dollar basis GAAP operating income grew 40%. This excellent operating performance resulted in record earnings. GAAP EPS was $3.47, up 93%, and non-GAAP EPS was $3.48, up 32% over FY 2018. Due to the impact of tax reform on FY 2018 GAAP results, the growth of non-GAAP EPS would be more indicative of our financial performance. Moving on to our March quarter. Quarterly revenues were $828 million, growing almost 4% quarter-over-quarter and 30% year-over-year. Growth was driven primarily by communications, particularly wireless, as that end market grew 23% sequentially and 74% year-over-year. Industrial and A&D also increased quarter-over-quarter as each end market grew. Data center and TME declined. TME was flat, and data center was down, but we expect it will rebound in Q1. Automotive, broadcast, and consumer declined, but the stronger than expected growth in auto was offset by an industry cycle and broadcast. We maintained strong profitability in the quarter as well. Gross margin came in at 67.5% below our guidance due to the higher proportion of wireless in our revenue mix. GAAP and non-GAAP operating expenses were below guidance at $309 million and $300 million, respectively. GAAP operating margin was 30.2%, and non-GAAP operating margin was 31.2%. For the quarter, GAAP EPS was $0.95 a share, and non-GAAP EPS was $0.94 a share. EPS growth over our prior Q4 was 70% on a GAAP basis and 34% on a non-GAAP basis. A few highlights on our balance sheet and cash flows. We ended the year with $3.2 billion in gross cash and $1.2 billion in debt after retiring $500 million of debt in the March quarter. We continue to address our accounts receivable and ended the year at 37 days. Inventory increased $32 million to $315 million as we built inventory to support our increasing demand. In FY 2019, we returned $526 million to our shareholders through a combination of buyback and dividend. We repurchased $162 million worth of shares or 2.4 million shares at an average price of $66.30, and paid a total of $364 million in dividends. One last achievement to highlight before I move on to guidance. During FY 2019, we generated a record of $1.1 billion in operating cash flow, an increase of 33% from FY 2018. Revenue growth, rigorous focus on profitability, and disciplined management of our working capital all contributed to this outstanding result. Before I move into guidance, I want to elaborate a little bit on what Victor talked about with our new organization and our new revenue reporting structure. What we called Communications will now be called Wired and Wireless Group or WWG. Data Center and TME will be split. The Data Center Group will now be reported separately and will include high-performance computing, although that element has been historically very modest. The remaining end markets, which we will often call core vertical market will have a grouping of A&D, Industrial and TME called AIT, and the grouping of automotive, broadcast, and consumer called ABC. Now onto the guidance. Revenue growth continues in Q1 with expected revenue between $835 million and $865 million. The key driver of growth will be WWG with growth in both wired and wireless. Data center is expected to resume double-digit percent growth. We expect AIT will be down meaningfully with declines in A&D and TME more than offsetting growth in industrial. All end markets under ABC are expected to grow. This end market mix in Q1 leads us to forecast gross margin at approximately 66%. In Q1, GAAP operating expenses are expected to be $315 million and non-GAAP operating expenses are expected to be $308 million. Wrapping up our guidance, GAAP other income is expected to be approximately $15 million in Q1 and our tax rate is expected to be between 7% and 9%. While we provide more details on FY 2020 and our Analyst and Investor Day, we can provide you now a framework for the remainder of FY 2020. In the first half, we expect Q2 revenue and gross margin to be similar to Q1 with a modest increase in operating expense. In the second half, we expect to return to growth with strength in data center, aerospace and defense, TME and auto, while other businesses grow modestly or remain steady. The rebalancing of our end market mix is expected to improve our gross margin to more typical levels. Our operating expenses will also grow in the second half as we realize the impact of our annual compensation increases across our employee base and increased tape-out expenses. After exceptional performance in FY 2019, we are headed into FY 2020 with a great deal of momentum. We have done far more than deliver a year with great revenue growth and profitability. We have been successful in driving our strategy, expanding our leadership in our market reach and establishing our strength across 5G, data center, and automotive. As Victor noted, our accomplishments also include the acquisition of DeePhi and the recent announcement to acquire Solarflare, both bringing talented teams and technologies aligned with our strategy. With these successes, FY 2020 is off to a solid start and we are looking forward to growing the Company at double-digit rates. With that, let me turn the call over to questions.

Yes, guys. Thanks, let me ask a question. Victor, in your prepared comments you talked about the normal comp cycle, FPGAs get a lot of content at the beginning, and then there's some displacement as the build-out continues. I'm curious, can you help kind of quantify the magnitude or the timing of when you might expect some of the baseband business that you're winning today moving to ASIC?

Yes, thanks. First of all, I'm glad you modified that with baseband because radio, we’re going to be stronger than ever. As I said, there is going to be more radio and we're going to capture more content there. So within the baseband side, again, we historically have always even after ASIC displacement, retained some revenue streams from the baseband. It's very early, starting at the second half of last year and coming into the beginning part of this year, we still see continued higher-than-typical revenues. I'd say it's difficult to call the exact transition, because that depends on external factors of which we don't have complete visibility. The takeaway is that we build into the fact that while we don't have solid persistence, we expect some of that to roll off, and so it's built into how we think about things. You'll hear more details about FY 2020 at Analyst and Investor Day, but that's not unsubstantial. However, just think about it, we expect to have longer persistence than what's prudent.

Hi, thank you very much. I had a question on gross margin. I'm going back to the last peak in wireless and around that time. The company's gross margin was between 68% and 69.5%, if my historical numbers are correct. So the question is, is there something specific to 5G that is more detrimental? I know your revenues are higher in wireless versus what they were before. And then my quick follow-up, it's more blocking and tackling, Lorenzo, when you said second-half gross margin comes back to a more normal level, how do you define normal, and does that imply then wireless slows down considerably? Thank you.

So first of all, as you said, it's a very different place in terms of the magnitude and size. And by the way, I want to clarify, we're far from peaking, right, because this is just a very early stage of 5G. 5G is going to continue for quite some time because it is very ambitious. We see 5G being factors larger than 4G over its entirety. The other thing is that we're talking about very advanced technologies. The kinds of expenses for developing silicon back in the initial deployment of 4G is significantly different. Think about it that way as well. Then I'll begin the part – the starting part about the margins, I'll let Lorenzo pick up from there. I don't think you need to think about it as if it comes back there for a while, it goes down substantially. We're seeing a much heavier mix, and what we're trying to convey is that as other markets strengthen, we get a little broader strengthening, so that's the perspective instead of the big drop in wireless.

Right. So I think at this point, Ambrish, before Analyst Day, I want to stay in a relatively qualitative space in terms of providing guidance or shaping the year in terms of gross margin. What we're trying to communicate and elaborate on what Victor laid out is, we are at a point in the year seeing a very heavy concentration on wireless. It is significantly bigger than we have seen in the past, and that is, as everybody follows the company knows, puts pressure on our gross margins. We see in the second half, as I tried to lay out in my comments, that other elements of the business, including ones that are traditionally stronger gross margin will continue to grow and balance out our mix. When I say more typical, I think I'm pointing to ranges we would have seen in the past. I'd like to leave it at that until we get to Analyst Day, if that's okay.

Thanks for taking my question. Victor, one more on 5G. I'm curious what proportion of your communications sales would you attribute to 5G? Do you think the market, when you look at both 4G and 5G, is big enough and growing fast enough that even if you get some displacement on the baseband side, you can still expect a decent growth year for your communications segment overall?

Again, I think we're in the very early stages of the 5G deployment. We do have very good confidence that over the whole run of this cycle that this will be factors larger even with some displacement of baseband as we said. There will be some degree of indistinguishable, but overall the trend will be more growth. Again, we're not giving full-year guidance here, we're giving qualitative guidance now. We want to tell the fullness of the whole story at the Investor Day. But overall, yes, we think that 5G is definitely a growth driver. I want to say we're still in the very early innings of that, but there will still be some uncertainty depending upon the deployments as everyone knows. Korea led the way initially, now they're gearing up for China. That's going to happen this year. Some geographies will come along and this is just the beginning.

Great, thanks for taking the question. Victor, can you provide context around the data center D cell? In the March quarter, you guys also talked about a potential rebound into June. So what drove the D cell in March and what drives the reacceleration in June? Additionally, I know it's early with Versal, but where are you seeing the most traction with customers in terms of applications? Thank you.

Okay. So first, regarding the data center and D cell in the last quarter, I would bracket that as a couple of things. One is, as you know, data center revenue includes some of the traditional data center we've always had, right. So it's not all acceleration; not some of the new emerging areas, but includes some of the emerging areas. In the past, we talked about how crypto was quite small, but we had mentioned that going to zero, so that attributed a little bit to it. In our traditional business, it's kind of business that we've had all along. We had one customer that had just a pause, and we expect that to rebound. Now on the more interesting business, I think that is, has to do with acceleration and where we see the biggest growth opportunity, also coming off of last quarter. One customer took a bit of a pause, but we expect that to come back. The bigger picture here is data center; it's an emerging area. As I said, we are still building a foundation, and we don't have a huge breadth and depth with multiple customers. So we will be a little bit exposed in these early phases when there are some customers that have shifted their pauses. But it's not a trend. We saw a D cell, and we see that picking up again.

To finish up a point Victor brought about the crypto, the rebound we see going into the June quarter has no crypto element to it whatsoever.

So now on to Versal. First, we take that as expected. We're actually only weeks away from getting a silicon in-house. We have multiple early customer engagements across different markets. That does include communications, includes automotive for autonomous driving, and includes test. It's pretty broad. If anything, I would say the limitations on sort of lighthouse engagements is more on us enabling to provide enough support when things are in fairly early stages, but obviously, once we start sampling, that's going to widen out, but we see strong interest in Versal. So we’re very excited about that.

Hey guys, thanks for taking my question. I just wanted to revisit the margins because you obviously have seen a mix come in wireless for the last several quarters, and then you see the big step down in March. I'm just trying to understand why March is the one quarter you're seeing that step down?

Two phenomena worked against us. One is maybe the bad news from good news, which is the wireless business, for reasons Victor has talked about, was very strong. That's good news, but it does put pressure on our margins. The second thing, in a couple of our other end markets, particularly in test measurement emulation, we were below our expectations for the quarter. So that put more downward pressure on our margins.

Yes, good afternoon. Thank you for taking the question. I guess, first question, as you think about rising mix across data center and wireless where there's clearly a pretty high customer concentration, is there a storyline here where despite lower gross margins that OpEx, particularly SG&A and working with those clients would offer incrementally higher operating leverage, such that you could in fact see all-in op leverage in line if not better over time with some of your other businesses?

Let me first talk a little bit, and then Lorenzo please add color. One thing again, first on data center you put those together with wireless. While data center is maybe not as strong margin-wise as some other things like aerospace and defense or TME, it's much closer to what our historical ranges have been at the corporate level. So I'm not sure I would group both of them together. I think again, we must keep perspective. There may be a feeling as though everything rises and falls completely on wireless. There are three elements to our strategy, right. So data center, growth and driving growth in all of our core markets means that our broader markets, right, where we have very healthy margins we intend to continue to grow as we step into FY 2019. We had double-digit growth across all the markets. This isn't just about how we ebb and flow with wireless alone; it's also how we're doing in other core markets. You heard Lorenzo mention that part of the reason we had strength in wireless for a few quarters was due to declines in other segments that are very strong in profitability, not simply wireless. In terms of what we're doing on OpEx, we will always try to manage our expenses carefully. But I think I've also said in the past that we are going to lean into growth. We are investing for long-term growth. We're not going to do anything that isn't going to pay a significant return in the future, but you might see some ebbing and flowing of leverage in the near-term.

Yes, I actually don't have much to add to what Victor said, it's just that despite a lot of discussion on wireless, we do extract a great deal of horizontal leverage from our investments, both in R&D and SG&A, and we extract those over time in a lot of ways. The breadth of our end markets as Victor pointed out will provide us substantial profitability expansion in the long run.

Hi guys, just wanted to ask a question and probably butcher the new names of the segments, but I'll just start with the TME side. Any color why that was weaker than you guys had expected in the March quarter? What's going on with I can't remember if you called AIT or IAT in the second quarter, where you said it was down? If we think in the second half, it seems like that bucket is the part that needs to get better to help your mix and improve the gross margin back to your average levels. Is that improvement due to something that is company-specific, or are you making more of a cyclical assumption?

First, let me explain the TME; I'm glad you asked that. Recall that TME has sub-segments within that. One includes semiconductor test. For a while, semiconductor test was in a very strong position. But as we all know, particularly on the memory side, things dramatically weakened. We did see general semiconductor test weaken for us. Another sub-segment is emulation prototyping. I think Lorenzo mentioned that, but we had one significant customer that, you can say, is in a sort of bit of a transition situation. There was a pause, and that wasn't expected. Having said that, we also saw some strength in advanced testers due to deploying 5G. So with TME, we have some diversity, it just happened that several big elements weakened. Again, we see that strengthening in the second half of FY 2020.

Yes, you did a pretty good job on the nomenclature. AIT includes some relatively large revenue segments. In the first half, two of them will be relatively low, but we look to them and we have visibility into what's driving strength in the second half of the year. Those will come back heavier into our overall mix, and the continued growth of other elements of our business that are closer to our corporate average gross margin will push the gross margin back up, as I described earlier.

Great, thank you. There seemed to be some tightness in the quarter on substrates and things like that. Did that have any effect on your business? Any comments on lead times or customer inventories would be helpful.

Yes. There were a few things that made delivery a challenge. I'd say we managed through some of those challenges: TSMC's issue around their photoresist was noted. We managed through that; it was a big effort, but we did manage. You shouldn't take away that we had any material impact due to that, but it did require significant navigation on our part. For instance, the wireless side; all our key customers aimed for certain deployment dates. So this absolutely had to shift at some level. Overall, our operations team did very well working with our supply chain to prevent any material issues.

Hi, good afternoon. Given the momentum you now have in 5G base station, could you give us a sense of the content in 5G versus 4G or any way we could quantify how much you've won unit-wise to-date?

Again, I'll go back and say, we'll talk about this more at Analyst Day, but just to reiterate some things: our content is higher, particularly in radio, and there will be both because we're adding a lot more value. We're not just doing the same types of products we've done in the past. Also because of the shift in the more radio units shipped in 5G, and 5G will just deploy more, there are many different form factors, not just about traditional macro base stations. Our content will be higher, especially in radio; and there will be more of them. But please stay tuned for the Analyst Day.

Great, thanks for taking my question. I'm hoping you can help us better understand the strategy around the portfolio as it relates to M&A and venture investments. There's been heavy speculation that you were looking at a large public company that someone else acquired, but here you're announcing a smaller acquisition today, and I think you said 20 investments in the venture fund. Can you help sort of tie all these things together, so we understand this from some may be a top-level perspective? How important is M&A and these investments of what's the strategy around it? Thank you.

Yes, two quick questions. Let me give you high level, and I'll have Matt, who runs our Corp. Dev., maybe add some color. At the highest level, the common theme will be strongly aligned to our strategy, right? It's either fortifying that strategic position or increasing opportunity. If it's a bigger business, it should lead to acceleration in the more tangible and full near-term kind of range. We haven't ever said, 'hey, we only look at tuck-ins' or 'only guiding for public-to-public,' right? We look at every opportunity; we look at what we feel makes the most sense for us.

From our perspective, anything we can do that aligns with the strategy that ultimately balances the time to achieve the returns against the value we're providing through an investment or an acquisition. We're certainly focused on that. We'll talk more about our venture activity, which has been active for the last two fiscal years at the Analyst Day. From increasing ecosystem engagement with data center partners, application providers, and helping to build our Alveo ecosystem, that's all part of the focus. Whether it's a tuck-in acquisition or a larger business acquisition, those will absolutely be down along with the strategy of the company across our elements previously provided.

One point I'd like to emphasize is that DeePhi acquisition was about bringing deep expertise and innovative IP in machine learning. This is quite broad, not just for the data center, but also for various applications. The announcement of our intention to acquire Solarflare is specifically related to the networking opportunity that we've talked about in the data center area. Also, they'll bring their software and systems expertise. So the trend is to complement our expertise and build on what we already have in leading silicon and close-to-metal software.

Hey, thanks guys. Just a longer-term question on gross margin. So Vic, I think you said that 5G is going to be many times bigger than 4G, and you guys are talking about the margins on wireless being below the corporate average. How do we get margins back to that – gross margins back to that 70% level, or should we think of gross margins hanging out in the upper 60's range for a few years?

Let me answer that qualitatively again. What we haven't said yet is the people shipping in volume for this early phase of 5G are using very advanced technologies. Our 16-nanometer is leading-edge technology. There are many communications people looking at Versal already. If they’re in the early part when we have new products, they still have room in terms of cost reduction, yields, and other things we can do to optimize and reduce our costs to some extent. The early deployment was unexpected at a point in our cost road maps that are reasonable but also have room for improvement. So we're working very aggressively towards that. The other thing in general: we're adding more value by integrating high-performance analog technology and doing other things to create value that support higher margins. While there's no silver bullet, we're working hard across multiple fronts for various growth aspects.

Thank you. Victor, on 5G, I think you mentioned you're adding more value clearly, and that's driving some of the growth. I'm just curious, I believe at least from what I can see you also picked up some share versus 4G. I'm wondering if you could put some numbers around what your market share was versus your primary competitor in 4G versus 5G. How sustainable do you think that is? And then, Lorenzo, just a clarification, did you have any 10% customer in the March quarter? Thank you.

I'd say, yes, absolutely. We think we have a higher market share now. We believe it will expand. It’s early days in 5G, but based on several factors: One is that the RFSoC is still unmatched. We have also integrated multi-core SoC, which distinguishes us. Additionally, we also scooted into the market very quickly with competitive products. The challenge in 5G is much larger. We are adding value, and we've reached the market earlier. So I think there's a clear path to hold on to our market share. We retain focus on the next-generation applications and continue to develop.

With respect to the customer concentration question, our disclosure requirements at this time of the year are for 10% customers for the year, and we didn't have any customers close to that. We do have, at the top of the table, several significant customers that can ebb and flow, but we had no 10% customers this year.

Yes, hi guys. Victor, just a question on the radio side; when you go to 5G, there are multiple radios. Do you see any change in the competitive landscape in terms of – do you see that getting replaced by ASICs, or do you see that still being FPGAs for some time? On the gross margin side, as you go down to Gen 2, Gen 3 with millimeter wave capabilities and 7-nanometer, how do you think the gross margins trend on the radio going forward? Thanks.

I don't – again, I think our position on radio is strong and actually getting stronger. I don't really see the ASIC replacement because the new complexities expand the radio architecture that we're currently designing. In terms of future generations, yes, we’ll support with the 7-nanometer generation. Versal will be a relevant family product that we will deliver in the upcoming periods. But we will continue to drive revenue for a number of years with the 16-nanometer pipeline and context. We are still making significant investments. Again, we're using every architecture effectively, and our investment yields a significant return.

Thank you very much. Within Communications, can you give us some feel for what proportion of your revenues come from radio versus baseband?

We don't usually give that, and quite frankly, I don't know the exact number. We have substantial revenue from both at the moment. Again, please attend the Analyst Day and we'll give you more color. But we have strengthened both right now. We believe we will capture more market share moving forward.

And just following up on the last one, from my memory from the 4G ramp, you guys were traditionally more heavily or stronger in radios and less in the BTS. It seems like you're doing a lot better in baseband this time around. Just wondering why? What is it that you've done this time around that's allowing you to take more share in that part of the base station? Thanks.

Yes, first of all, I want to reaffirm what you said: yes, we have traditionally been stronger in radio than baseband. If anything, we will continue to hold in the radio space and we'll have more radios. You're also right that we currently have greater strength on the baseband, and the reason is: Our technology implemented in UltraScale+ is substantially advanced. Very few people hold what we hold for breadth, scale, and ability. Our products are very flexible. When standards are locked in, people want to deploy: we can go-to-market very rapidly in a fast-changing market. The counter side is, these ASICs are difficult to produce, which creates a challenge for the competition. ASICs require stability and sufficient deployment time to be effective. However, demand for our products is still very high.

Thanks for joining us today. We'll have a playback of this call beginning at 5:00 p.m. Pacific, 8:00 p.m. Eastern Time. For a copy of our earnings release, please visit our Investor Relations website. Our next earnings release is dated for the first quarter of fiscal year 2020 and will be on Wednesday, July 24, after the market close. We will be hosting our Analyst and Investor Day in New York City on May 14. We look forward to seeing you there. This completes our call. Thank you very much for your participation.