To our shareholders, customers, partners and employees

Nineteen ninety-nine marked the beginning of what is expected to be a multi-year expansion of the semiconductor industry (1) .

The growth of the Internet coupled with the increasing demand for digital consumer appliances is driving the demand for silicon at a breakneck pace. Additionally, economic conditions in Asia and Europe are firming, which is significant given that these markets represent nearly half of the worldwide demand for semiconductors.

The Programmable Logic Device (PLD) industry continues to be one of the fastest growing segments of the semiconductor industry.  According to the market research firm International Data Corporation (IDC), the PLD industry grew 33 percent during calendar 1999 – significantly outpacing the 19 percent growth for the overall semiconductor industry. Within the PLD industry, Xilinx recaptured its position as the number one supplier of programmable logic by growing revenues 54 percent in fiscal 2000 – faster than any other PLD company. During the year, Xilinx's profitability increased appreciably as our company continued to reduce operating expenses as a percentage of total revenues. Net income improved 97 percent over last year, resulting in a profit margin of 25 percent for the year – the highest in our history excluding all one-time charges and gains.

Our revenue growth was rewarded by strong stock price appreciation and we responded by splitting our stock 2-for-1 on two occasions during calendar 1999.

We continue to be the industry's leading innovator, and during the year Xilinx was one of the first semiconductor companies to introduce products manufactured using 0.18-micron technology. Additionally, Xilinx launched several new product lines including Virtex-E and Virtex-EM Field Programmable Gate Arrays (FPGAs), Spartan-II FPGAs, and CoolRunner Complex Programmable Logic Devices (CPLDs). These product families solidly position Xilinx to expand into new markets as well as to continue our expansion into the overall Application Specific Integrated Circuit (ASIC) market, a $13 billion market as estimated by World Semiconductor Trade Statistics (WSTS) – over four times larger than the PLD market. Finally, Xilinx made two acquisitions, integrating important new technologies into our existing product portfolio as well as adding critical engineering talent.

Working on a New Scale

Xilinx is now an even more significant force in the semiconductor industry. With locations in San Jose, California; Boulder, Colorado; Albuquerque, New Mexico; Dublin, Ireland; and satellite offices throughout the world, our global presence is established and growing. In late 1999,  Xilinx was added to the S&P 500, and on March 31, 2000, at the end of our fiscal year, our market capitalization reached $26.9 billion, making Xilinx the second largest semiconductor company headquartered in Silicon Valley. As we transition to a larger company, Xilinx is establishing a global infrastructure that will facilitate our continued growth. Two primary areas of focus include attracting, retaining and developing key people, and tailoring our sales strategy to better serve each customer's unique needs. During fiscal 2000, Xilinx increased its employee headcount by 30 percent and we now employ over 1,900 people globally. In spite of this increase in personnel,  our revenue per employee increased nearly 30% to $597,000, which is among the highest in the electronics industry. We work equally hard at retaining our employees, and our efforts have paid off – the employee turnover rate at Xilinx is one-third the average for Silicon Valley.

As the fastest growing company in one of the most rapidly growing segments of the semiconductor industry, Xilinx is selling its chips to more customers than ever before. The increasing reliance by our customers on both distributors as well as contract manufacturers has changed the dynamics of the PLD sales model. As a result, Xilinx has implemented a new, more focused sales strategy that enables us to serve a broader base of customers while devoting the proper level of attention to each customer – whether it's a large, established global company, a fast-growing start-up or a contract manufacturer. This more tailored approach was rewarded during the year when Cisco Systems, one of our largest customers, presented Xilinx with the "President's Customer Satisfaction Award," Cisco's highest honor for a supplier.

The Communications Solution

Receiving Cisco's supplier of the year award is just one example of how Xilinx is achieving widespread success within the communications sector.  During fiscal 2000, communications-related sales increased by 75 percent over fiscal 1999 and accounted for 69 percent of total revenues.  You will find Xilinx chips in some of the hottest emerging technologies including wideband CDMA, voice-over-IP and optical networking. With high-density, high-speed, system-level capabilities Virtex FPGAs are the PLDs of choice for electronic designers in these rapidly growing markets. Since their introduction in August 1998, Virtex devices have captured opportunities at the high-end of the ASIC market that would have previously been the domain of Gate Arrays or Standard Cell devices.  Cumulative revenues from the Virtex family since its introduction have accounted for more than $125 million. The majority of these revenues are related to prototyping orders; when the Virtex family goes into full volume production by our customers, its revenues are expected to set Company records and to be significantly larger than our most successful family to date – the XC4000X family (2). In September 1999, Xilinx introduced the Virtex-E series of FPGAs. Virtex-E devices build on the success of the Virtex family while adding features resulting from valuable customer feedback we received over the past year. Since its introduction, Virtex-E revenues are significantly outpacing revenues from the Virtex family at the same point in time. These two product families, with their innovative, system-level architecture and enhanced performance capabilities have not only solidified Xilinx's position as the industry's leading innovator, but will enable Xilinx to continue capitalizing on the huge demand for broadband communications (3).

The Everything Solution

Xilinx's programmable logic solutions are experiencing success throughout the digital world. While Virtex devices are gaining market share in sophisticated communications equipment,  our Spartan family of FPGAs and our CPLDs are expanding our presence in mass markets such as mobile computing and consumer electronics.

During the year, we introduced the Spartan-II family which leverages the system-level features of Virtex devices while providing customers with industry-leading prices. These prices are a strong testament to our rapid advances in process technology:  With Spartan-II devices, Xilinx offers customers 100,000 programmable system gates for less than $10 in volume quantities – more than double the number of gates we could offer last year for the same price. Additionally, these low prices expand our market opportunity by enabling Xilinx to further penetrate the low-end of the ASIC market. Spartan devices are leading the way into the burgeoning digital consumer market. By next year, we expect to see these devices in everything from digital VCRs and home networking appliances to Internet Audio devices (MP3 Players) and cable modems (4).

In the area of in-system programmable CPLDs, Xilinx made notable progress in fiscal 2000 by increasing market share to 14 percent, up from 10 percent last year. During the year we augmented our existing XC9500 CPLD family with the CoolRunner CPLD family, acquired from Philips Semiconductors.  The CoolRunner family is unique in that it runs on considerably less power than any other CPLD device on the market.  This ultra low-power feature allows Xilinx to enter mobile computing applications such as portable Personal Computers (PCs), Personal Data Assistants (PDAs) and other wireless devices.   Finally, Xilinx has continued engineering Web-powered CPLD solutions by introducing the WebPACK tool, which enables our customers to download free CPLD software from the Xilinx website to their desktop. In nine months since its introduction, nearly 9,000 CPLD designers have downloaded our CPLD software. The WebPACK tool is just one example of how Xilinx is taking the lead in providing Internet-based solutions to our customers.

The Internet is revolutionizing PLD software and support, and Xilinx is at the forefront of this trend. Our customers are now routinely customizing and downloading Intellectual Property (IP) cores from our website, and customer design teams can now use the Internet to remotely program different parts of the same Xilinx chip.

Xilinx has the largest on-line customer support presence of any PLD company, and we are also developing a presence in e-commerce. While e-commerce has historically been more closely associated with the consumer goods sector, Xilinx is exploring ways in which to better serve and broaden our customer base by making certain products available directly from our Internet site. The WebPACK tool represents our first foray in this area and during fiscal 2001, you can expect to see further developments.(5) Additionally, Xilinx continues to promote the use of the Internet by our customers. In last year's letter, I discussed the promise of Internet Reconfigurable Logic technology (IRL) and how this technology will allow customers to extend their product life cycles by remotely reconfiguring Xilinx chips using the Internet. During fiscal 2000, IRL technology became a reality and is currently used by our customers in applications such as network routers, ATM switches, personal video recorders and wideband CDMA basestations. As our customers increasingly adopt this technology, Xilinx is poised to be a direct beneficiary (6).

Tomorrow (7)

With all our successes come new challenges. We find ourselves operating on a larger scale and addressing more diverse applications and markets. In fiscal 2001, Xilinx will focus on managing the increasing complexity of designing and manufacturing chips, as we simultaneously manage the logistics of working in a higher-volume environment. With our flagship Virtex FPGAs, Xilinx will continue to investigate emerging opportunities in the telecommunications and networking sectors that can benefit from the speed, complexity and time-to-market advantages afforded to customers by our chips. With our Spartan FPGAs, XC9500 and CoolRunner CPLDs we will continue to aggressively reduce the cost of our chips to gain broader access to consumer markets, replacing custom gate arrays and other ASIC solutions. Finally, we plan to continue setting the PLD industry's pace of innovation by leveraging a focused research and development strategy with key technology partnerships. In fiscal 2001 and beyond, we expect to invest significantly more dollars in research and development than our competitors. This strategy has allowed Xilinx to gain market share by being first to market with innovative new products and technologies. Moving forward, we plan to complement this focused research and development strategy by forming strategic partnerships with technology leaders.

As a fabless company, our business model is built on a foundation of technology partnerships. Our existing relationship with United Microelectronics Company (UMC), for example, is a mutually beneficial alliance allowing Xilinx and UMC jointly to introduce new technologies to the marketplace.  Just recently, the combined efforts of this relationship enabled Xilinx to be the first fabless semiconductor company to introduce chips using copper-based technology. This is an important development that will allow us to migrate our chips to more advanced process technologies while providing our customers with greatly enhanced performance. Over the next fiscal year, we plan to form additional partnerships that will enable us to produce several new products on the most advanced process technologies in the industry.

Moving forward, I believe Xilinx is in the right place, with the right tools and the right people, to extend our leadership and success. I would like to close by extending my thanks to our customers, partners and employees. As we look back over Xilinx's first 15 years, we can all feel proud of our accomplishments, and we should feel excited by the fact that this is just the beginning.

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WILLEM P. ROELANDTS
President and Chief Executive Officer