Xilinx, Inc. is the world's leading supplier of programmable logic and related development system software. Founded in 1984, Xilinx is the inventor of the field programmable gate array (FPGA). These proprietary integrated circuits (ICs) uniquely meet the objectives of many electronic system manufacturers for both product performance and ease of product design. Xilinx also markets erasable programmable logic devices (EPLDs) and HardwireTM devices (non-programmable ICs functionally equivalent to a programmed FPGA) offering the broadest product range of any programmable logic supplier. Xilinx's products have provided effective solutions to widespread customer logic requirements, thereby permitting the Company to increase revenues and market share and to realize outstanding profitability.

Results of Operations

The following table sets forth certain operational data both as percentages of annual revenues and as percentage changes from the prior year's results.

Years ended March 31 Increase from prior year
1995 1994 1993 1995 1994

Cost of revenues
Gross Margin 
Research and development
Marketing, general and administrative 21.6% 22.7% 24.0% 32.1% 35.8%
Operating income before write-off 26.6% 25.4% 23.4% 45.1% 56.7%
Write-off of minority investment 0.7% ---- ---- NM NM
Operating income 
Interest income (net)
Income before taxes 
Provision for income taxes
Net income 16.7% 16.1% 15.3% 43.6% 51.6%


Xilinx reported record revenues for 1995 of $355.1 million, representing an increase of 38.5% from $256.4 million for 1994 and 100% from $178.0 million reported for 1993. The growth in revenues was a function of increased unit sales of IC products and, more specifically, was primarily attributable to the revenue contributed by the growth in the Company's proprietary XC3100, XC4000 and HardwireTM families.

Xilinx's development system software is used by the Company's customers to implement designs in the Company's ICs. Software revenues increased slightly in 1995 to approximately $12.6 million as compared to $11.6 million in 1994 and $12.7 million in 1993. Software revenues have remained relatively flat in absolute terms; however, sales have declined as a percentage of total revenues, accounting for 4%, 5% and 7% of revenues for 1995, 1994 and 1993, respectively. Cumulative licenses for proprietary development system software sold to customers through the end of 1995 approximated 21,000 units, as compared to 16,500 and 14,500 at the end of 1994 and 1993, respectively.

Revenue contribution by product line in 1995 generally followed the trend of the prior year. Customer demand for greater density and higher speed ICs continued to increase as did the demand for high-volume, competitive cost solutions realized through the HardWire product. Of the $98.7 million growth in revenues between 1994 and 1995, 97% was provided by revenues from the XC3100, XC4000 and HardwireTM families. Revenues from proprietary products, where the Company does not compete directly with a second source, increased from 55% of the aggregate revenues in 1994 to 74% in 1995. In the fourth quarter of 1995, proprietary products accounted for 79% of total revenues as compared to 64% for the comparable 1994 quarter. The Company believes that a strong concentration of revenues from proprietary products permits the most effective implementation of a corporate pricing strategy whose aim is to expand the market for its products by reducing sales prices coincident with and commensurate with reductions in the cost of manufacturing these products. Accordingly, the Company is actively pursuing a strategy of expanding its products through the broadening of existing product lines and the introduction of new architectures.

During 1995, all product families except for the most mature product line, the XC2000 family, and the XC3000 family, where there is a second source competitor, experienced increases in unit volume. During this period, the average selling price of an IC product family fell between approximately 5% and 35%. Individual family members experienced price decreases as much as 40% or more during the past year, as prices were reduced in the higher complexity and higher speed families in order to be more competitive in high volume, low cost applications. Price erosion of this magnitude has been common in the semiconductor industry, as advances in both architecture and manufacturing process technology have permitted continual reductions in cost. The approximately four-fold increase in unit volume for the XC3100 family and the more than doubling in unit volume for the XC4000 family outweighed the impact of price erosion on individual product lines, as the weighted average selling price for all ICs increased approximately 6% in 1995 relative to the previous year.

The XC4000 products provide the widest range of densities of any family, currently ranging from 2,000 to 25,000 gates. The Company's HardwireTM products offer a low cost migration path for high volume applications. During 1995, the Company introduced the XC5000 family, which represents the first FPGA specifically developed as a cost effective, high volume production alternative to gate arrays. The XC5000 family is expected to allow the Company to enter new market segments, where most new designs are expected to require higher quantities.

International revenues constituted 31%, 28% and 30% of total revenues for 1995, 1994 and 1993, respectively. International sales continue to be primarily to customers in Europe and Japan. Sales growth in these two international markets of 47% and 80%, respectively, outpaced the 33% domestic growth, as the economies in both Europe and Japan strengthened throughout 1995. The Company believes that international revenues will continue to grow at a faster rate over the intermediate future than domestic sales and projects that such revenues will eventually comprise 50% of the worldwide total. In 1995, the Company began construction of a manufacturing facility in Dublin, Ireland. The Ireland facility will increase production levels throughout the next year and is expected to enhance the Company's ability to meet the needs of its international customers. Sales to Pacific Rim, Middle East and other regions outside the United States, Europe and Japan represented approximately 4% of revenues in each year presented.

The Company's products are sold to customers within four broad market segments: Telecommunications networking applications; computer systems; industrial control and instrumentation; and military and other. No single end customer accounted for more than 6% of revenues in 1995 or 4% of revenues in 1993 and 1994.

Gross Margin

Gross margin as a percentage of revenues was 61.0% for 1995 as compared to 61.5% for 1994 and 61.1% for 1993. Margins on sales of mature products have generally decreased as a consequence of declining sales prices. The Company has been able to offset some of the margin impact of declining prices by negotiating lower costs from suppliers, hedging purchases of materials denominated in foreign currencies, enhancing manufacturing yields, moving production to more advanced processes as they become commercially viable and taking advantage of the benefits of expanded levels of production. Over the past three years, Xilinx has also been able to offset much of the erosion in gross margin percentages on the more mature integrated circuits with higher margins on newer ones. The Company projects ongoing price erosion for its existing products and anticipates limiting the impact of such erosion on gross margins through a combination of reducing manufacturing costs and introducing new, higher margin products. Because the Company's purchase of wafers are denominated in yen, an eroding U.S. dollar relative to the yen adversely impacts gross margin. See Factors Affecting Future Results.

Research and Development

The Company has increased the dollars spent on research and development each year in its eleven year history. These expenses in 1995 exceeded those of the prior year by 32% and those of 1993 by 86%. The increase in research and development expenses each year since 1993 is primarily attributable to an expanded number of employees. The Company is convinced that technical leadership is essential to its future success and is committed to continuing a high level of research and development effort. Through March 31, 1995, the Company had 59 U.S. patents issued and has filed for an additional 77 U.S. patents in the areas of software, IC architecture and design. As of March 31, 1995, research and development personnel were approximately equally split between the functions of software development and integrated circuit design. Xilinx does not capitalize any of the costs associated with its software development.

Marketing, General and Administrative

Marketing, general and administrative costs have increased each year but in 1995 and 1994 declined as a percentage of revenues because growth in revenues outpaced increases in spending. The Company sells its products through three channels of distribution: directs sales to manufacturers by independent sales representative firms, sales through licensed domestic distributors, and sales through foreign distributors. All channels are supported by Xilinx sales and technical support personnel. Sales expenses have increased each year due to increasing personnel, the costs of new sales offices, and greater commission expenses associated with higher revenues. The Company has eight United States sales offices in the metropolitan areas of San Jose, Los Angeles, Denver, Dallas, Chicago, Raleigh, Philadelphia and Boston as well as five international sales offices located in the metropolitan areas of London, Munich, Paris, Tokyo and Hong Kong. The increase in general and administrative expenses each year since 1993 is primarily attributable to an expanded number of employees and to a continuing high level of legal expenses associated with litigation intended to protect the Company's intellectual property rights.

Operating Income

Operating income grew from $41.6 million in 1993 to $65.2 million in 1994 and to $92.0 million in 1995. Operating income in 1995 was $94.5 million before consideration of the write-off of a minority investment. During 1995, the Company incurred a $2.5 million write-off of a minority investment in Star Semiconductor Corporation. See Note 7 of Notes to Consolidated Financial Statements. Over the past three years, operating income as a percentage of revenues (before consideration of the write-off of the minority investment) has ranged from 23.4% to 26.6%. Operating income as a percentage of revenues could be adversely impacted in future years as the Company expands its efforts in research and development and continues to assert its intellectual property rights.

Interest, Net

Historically, the Company has earned interest income on its cash, cash equivalents and short-term investments and incurs interest expense on lease obligations used to finance certain capital additions. The amount of interest earned varies directly with the amount of its cash, cash equivalents and investments as well as with the prevailing interest rates. The increase in net interest income in 1995 from the preceding year is largely due to the increase in interest earning balances during the year and, to a lesser extent, to an increase in effective interest rates related to changes in the mix of investment instruments in the portfolio. See Note 8 of Notes to Consolidated Financial Statements relating to the impact of the reverse repurchase transaction completed by the Company in 1995.

Provision for Income Taxes

Xilinx's effective tax rate was 37.5% for 1995 as compared to 38.8% and 37.6% for 1994 and 1993, respectively. The decrease in 1995 as compared to 1994 is primarily the result of a lower effective state tax rate. The effective rate for 1995 differs from the Federal statutory rate primarily as a result of tax exempt interest income offset by the impact of state taxes. The Company believes that net deferred tax assets (approximately $21 million at March 31, 1995) are realizable due to the taxable income existing in potential carryback years.

Factors Affecting Future Results

Dependence Upon Independent Manufacturers

The Company does not manufacture the wafers used for its products. To date, most of the Company's FPGA wafers have been manufactured by Seiko Epson Corporation (Seiko) and Yamaha Corporation. The Company has depended upon these suppliers and others to produce wafers with competitive performance and cost attributes, to produce wafers at acceptable yields and to deliver them to the Company in a timely manner. While the quality, yield and timeliness of wafer deliveries to date from its suppliers have been acceptable, there can be no assurance that manufacturing problems will not occur in the future. Any prolonged inability to obtain wafers with competitive performance and cost attributes, adequate yields or timely deliveries from its manufacturers, or any other circumstances that would require the Company to seek alternative sources of supply, could delay shipments. Any significant delays would have an adverse effect on the Company's operating results.

To further enhance the Company's ability to obtain wafers, in the first quarter of 1995 the Company advanced $42 million to Seiko for access to advanced wafer processes, with delivery of wafers planned to begin in May 1995.

In addition, the Company's purchases from these wafer suppliers are denominated in yen, and prolonged periods of a weakened US dollar exchange rate against the yen could adversely affect manufacturing costs.

Impact of Currency and Inflation

The Company has historically purchased most of the processed silicon used in its integrated circuits from Japanese foundries. Because such purchases have been denominated in yen, the Company has often limited its exposure to fluctuations in foreign exchange rates through the purchase of forward exchange and option contracts and by denominating billings to Japanese customers in yen. At March 31, 1995, the Company had entered into forward exchange contracts to cover approximately 5% of 1996 yen requirements after consideration of foreign sales denominated in yen. The effective rate on such contracts exceeds the rate in effect at March 31, 1995. During the fourth quarter of 1995, the value of the U.S. dollar against the yen weakened significantly. Continued weakness in the purchasing power of the U.S. dollar could increase the effective cost of processed silicon and adversely affect the Company's future results of operations. Foreign sales are billed in U.S. dollars except for sales in Japan denominated in yen. The effects of inflation upon Xilinx's financial results have not been significant.


The Company is currently involved in litigation with Altera Corporation (see Note 9 of Notes to Consolidated Financial Statements and 1995 Annual Report on Form 10K, Item 3, Legal Proceedings). The Company and Altera have each filed suits alleging the other infringes certain of its patents. Management believes it is unlikely that the ultimate outcome of the litigation will have a material, adverse effect on the Company's financial position or its results of operations.


On April 10, 1995, the Company acquired NeoCAD, Inc., (NeoCAD) a company engaged in the business of developing, marketing, and selling development software for programmable electronic technologies. While the Company believes that NeoCAD's advanced FPGA software technology will enhance its ability to provide FPGA solutions to its customers, the successful implementation of that strategy will require incorporation of NeoCAD's technology into its current product line, as well as satisfactory resolution of an inquiry into any anti-competitive effects of the acquisition currently under consideration by the Federal Trade Commission. See Note 10 of Notes to Consolidated Financial Statements.

Other Factors Affecting Quarterly Operating Results

The semiconductor industry is characterized by rapid technological change, intense competitive pressure and cyclical market patterns. The Company's results of operations are affected by a wide variety of factors, including general economic conditions and conditions specific to the semiconductor industry, decreases in average selling price over the life of any particular product, the timing of new product introductions (both by the Company and its competitors), use of new manufacturing technologies, the ability to safeguard patents and intellectual property in a rapidly evolving market, and rapid escalation of demand for some products in the face of equally steep decline in demand for others. Market demand for the Company's products, particularly for those most recently introduced, can be difficult to predict, especially in light of customers' demands to shorten product lead time. This could lead to revenue volatility if the Company were unable to provide sufficient quantities of specified products in a given quarter. In addition, any difficulty in achieving targeted yields could adversely impact the Company's results of operations. The Company attempts to identify these changes in market conditions as soon as possible; however, the rapidity of their onset makes prediction of and reaction to such events difficult. Due to the foregoing and other factors, past results are a much less reliable predictor of the future than is the case in many older, more stable and less dynamic industries.

The Company's future success depends on its ability to develop and introduce on a timely basis new products which compete effectively on the basis of price and performance and which address customer requirements. The success of new product introductions is dependent upon several factors, including timely completion of new product designs, achievement of acceptable yields and market acceptance. No assurance can be given that the Company's product development efforts will be successful or that its new products will achieve market acceptance. In addition, the average selling price for any particular product tends to decrease rapidly over the product's life. To offset such decreases, the Company relies primarily on obtaining yield improvements and corresponding cost reductions in the manufacture of existing products and on introducing new products which incorporate advanced features and other price/performance factors such that higher average selling prices and higher margins are achievable relative to mature product lines. To the extent that such cost reductions and new product introductions with higher margins do not occur in a timely manner or the Company's products do not achieve market acceptance, the Company's operating results could be adversely affected.

The Company relies upon patent, trademark, trade secret and copyright law to protect its intellectual property. There can be no assurance that such intellectual property rights can be successfully asserted in the future or will not be invalidated, circumvented or challenged. Litigation, regardless of its outcome, could result in substantial cost and diversion of resources of the Company. Any infringement claim or other litigation against or by the Company could materially and adversely affect the Company's financial condition and results of operations.

The semiconductor industry has historically been cyclical and subject to significant economic downturns at various times, characterized by diminished product demand, accelerated erosion of average selling prices and over capacity. The Company may experience substantial period-to-period fluctuations in future operating results due to general semiconductor industry conditions, overall economic conditions or other factors.

In addition, the securities of many high technology companies have historically been subject to extensive price and volume fluctuations which may adversely affect the market price of the Company's Common Stock.

Liquidity and Capital Resources

Total assets have grown from $226.2 million in 1994 to $320.9 million in 1995. This increase largely reflects the favorable operating results for the year. The percentage changes of selected balance sheet items from March 1994 to March 1995 are shown below:

Description  % Change from 
1994 to 1995 

Cash, cash equivalents and 
short-term investments 
Receivables  22.1%
Inventories  (3.8)%
Total current assets  31.9%
Total assets  41.9%
Total current liabilities  49.0%
Stockholders' equity  41.1%

Cash, Cash Equivalents and Short-term Investments

Xilinx's cash, cash equivalents and short-term investments increased by $7.2 million in 1995 to $122.9 million. The Company generated cash flow of approximately $88.0 million from operating activities in 1995 offset by $85.9 million of investment activity, including prepayments for wafers, restricted investments and property, plant and equipment. In addition, the Company generated $7.3 million of cash from financing activities in the form of $8.7 million of common stock proceeds under employee option and stock purchase plans, offset by $1.4 million of principal payments on capital lease obligations.


Receivables grew 22% from $35.9 million at the end of 1994 to $43.9 million at the end of 1995. This increase compares favorably to the 45% increase in fourth quarter sales between the two years.


Inventories decreased 4% from $26.6 million at March 1994 to $25.6 million at March 1995. The Company confronts dual, contradictory objectives with regard to inventory management. On the one hand, the Company believes that its standard, off-the-shelf products should be available for prompt shipment to customers. Accordingly, it attempts to maintain sufficient levels of inventory in various product, range and speed configurations to meet unpredictable customer demand. At the same time, the Company also wishes to minimize the handling costs associated with excess inventory and to realize fully the opportunities for cost reduction associated with future manufacturing process advancements. The Company continually strives to balance these two objectives so as to provide excellent customer response at a competitive cost. Year-end inventories as a percentage of the fourth quarter's cost of revenues decreased from 91% in 1994 to 60% in 1995.

Property, Plant and Equipment

Xilinx's investment in property and equipment was $26.2 million in 1995 compared to $12.3 million in 1994. The Company anticipates fiscal 1996 expenditures to be significantly above 1995 levels. In addition to expenditures in the past two years for software design tools and semiconductor design, test and manufacturing equipment, the Company initiated construction of a manufacturing facility in Dublin, Ireland in 1995.

Current Liabilities

Current liabilities grew by 49% to $76.1 million at the end of 1995. This growth is primarily attributable to increased deferred income for shipments made to domestic distributors and increased trade payables associated with an expanded scale of operations.

Stockholders' Equity

Stockholders' equity grew by 41% in 1995 to $244.0 million. The increase of $71.1 million consisted of $59.3 million in net income, $8.7 million related to the issuance of common stock in accordance with the Company's stock plans and $3.4 million of tax benefit related to the exercise of stock options offset by $0.3 million of net unrealized losses related to available-for-sale investments. Stockholders' equity as a percentage of total assets was 76% for both 1995 and 1994.

Employees The number of Company employees grew by 26% during the past year. Xilinx had 868 employees at the end of 1995 as compared to 689 at the end of the prior year.

At March 31, 1995, Xilinx had $122.9 million in cash, cash equivalents and short-term investments. The Company believes the available sources of funds and the cash expected to be generated from operations will be adequate to finance operations for the foreseeable future. In April 1995 the Company purchased NeoCAD, Inc., a private company engaged in FPGA software design tools, for $35 million. See Note 10 of Notes to Consolidated Financial Statements. In addition, in April 1995 the Company entered into a new lease agreement for its primary manufacturing and office facilities which would allow the Company to purchase the facility on or before the end of the lease term in December 1999. The agreement requires the Company to maintain additional collateral of $23.8 million during the lease term in the form of restricted investments. See Note 3 of Notes to Consolidated Financial Statements.

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