Intel Corporation (INTC) Q2 2014 Earnings Report, Transcript and Summary

Good day and welcome to the Altera Corporation’s Second Quarter 2014 Earnings Conference Call. As a reminder, today’s conference is being recorded. At this time, I would like to turn the conference over to Scott Wylie. Please go ahead.

Good afternoon. Thank you for joining this conference call, which will be available for replay telephonically and on Altera’s website shortly after we conclude this afternoon. To listen to the webcast or replay, please visit Altera’s Investor Relations web page, where you will find complete instructions. The telephone replay will be available at (719) 457-0820, and be sure to use code 258712. During today’s prepared remarks, we will be making some forward-looking statements. In addition, management may make additional forward-looking statements in response to questions. In light of the Private Securities Litigation Reform Act, I would like to remind you that these statements must be considered in conjunction with the cautionary warnings that appear in our SEC filings. Investors are cautioned that all forward-looking statements in this call involve risks and uncertainty and that future events may differ from the statements made. For additional information, please refer to the company’s Securities and Exchange Commission filings, which are posted on our website or available from the company without charge. With me today are John Daane, our CEO; and Ron Pasek, Chief Financial Officer. After Ron and John’s initial remarks, we will take your questions. Prior to the Q&A session, the operator will be giving instructions on how you can access the conference call with your questions. I would now like to turn the call over to Ron.

Thank you, Scott. Sequential revenue growth for the second quarter was 7% and above the top end of guidance. Q2 revenue represents the fifth consecutive quarter of sequential revenue growth and it’s a 17% increase from Q2 a year-ago. Gross margin was spot onto guidance. 28-nanometer revenue grew to more than $70 million greater than 30% sequential growth rate and the new products were 53% of total revenue. Lead times for most products have improved, although we do continue to experience extended lead times on several notes. As we indicated last quarter, we are sampling our 20-nanometer Arria 10 product and are now experiencing a record opportunity pipeline. We stepped up the pace of our share repurchases in Q2 by repurchasing $197 million in the quarter, or 6 million shares at an average price of just under $33 per share. we are committed to a total repurchases this year in the $700 million range. Additionally, our board has authorized a 20%, or $0.03 per share increase in our quarterly dividend, making this the fifth consecutive year of a dividend increase. Between the share repurchase and dividend, we are on path this year to well exceed our 60% to 80% of cash flow from operating activity shareholder return target. In Q3, we see a sequential revenue growth of minus 2% to plus 2%. using the midpoint of Q3 guidance, Q3 year-to-date 2014 revenue will show growth of 13% over Q3 year-to-date 2013. gross margin will remain essentially unchanged from the previous two quarters. Finally, we will see 28-nanometer revenue continue to ramp in Q3 2014. Now let me turn the call over to John.

Thank you, Ron. Our second quarter revenue growth was broad with nine of our 11 submarkets increasing sequentially. Of our large submarkets, telecom had double-digit growth and industrial group for the fifth straight quarter and is up 23% from a year ago. For the third quarter, we expect the telecom and wireless segment to be flat sequentially. The auto, industrial and military category should also be flat. the computer and networking category should grow. And finally, we expect the other category to decline. Our wireless growth has been a combination of China Mobile LTE deployment, LTE in U.S., Europe, South Korea and Japan, and 3G in several developing countries. In fact, almost all of our growth in wireless in Q2 was non-China related. Overall we believe that we are in the early innings of the global LTE deployment. As we said in the Q1 earnings call, we expect the wireless market to be flat for us in Q3. for the fourth quarter, we expect the wireless revenue will decline sequentially, as China mobile takes a pause in their network build out. It is far too early for us to call our other submarkets. So, at this time, we cannot provide any guidance on overall Q4 revenue. A few weeks ago, Microsoft announced Bing search acceleration results, using Altera FPGAs and detailed plans to roll out servers incorporating our chips in the first quarter of 2015. The server market is quickly becoming a much larger opportunity for Altera with acceleration applications, including search, encryption and compression, covering a broad number of data center and cloud build outs. Overall we believe computers should be the fastest growing market for us in the next several years. We are excited about the competitive position of our new generational products. Our Quartus EDA software system has the industry’s fastest compile times. With the Arria X 20-nanometer product line, we now have a very competitive midrange family. Additionally, Arria X is the only 20-nanometer product line with embedded microprocessors, a key for the wireless radio market among others. And finally, Stratix 10 with a combination of Intel’s 14-nanometer Tri-Gate process technology and our new HyperFlex architecture provides high-end customers with unparalleled FPGA performance levels, and most importantly, opens a larger swath of the ASIC market for us to replace. In summary, we are pleased with the broad end market growth in Q2 and our likely outgrowth of the semiconductor industry this year. Now, let me turn the call back to Scott.

We would now like to take questions. Please limit your questions to one at a time, so that we give as many callers as possible the opportunity to ask questions during the call. Operator, would you please provide instructions and poll for questions?

Thank you. (Operator Instructions) We will take our first question from Blayne Curtis of Barclays. Blayne Curtis – Barclays Capital, Inc.: Hey, thanks for taking my question. Just wanted to follow up on the comments in wireless. You said it would take correction in December. You are up quite significantly year-over-year. So I was just wondering if you were thinking of any magnitude on that correction.

We cannot provide a magnitude at this time. and I think, as we mentioned, if we just kind of roll through this whole thing, it has been up for us sequentially in Q1 and Q2. It will be flat in Q3, and then we expect at this point, it will be down in the fourth calendar quarter. We saw most of the growth in calendar quarter Q2 from non-China. So that’s very positive and that we’re seeing more than just China build outs, which we’re really feeling most of the wireless growth last year, but can’t really predict exactly what the number will be. The reason that we’re able to provide more guidance or longer-term guidance on wireless for the last couple of quarters is really, because of allocation that we’re seeing out of other products in the industry. So I think as you probably all know, power amplifiers have been on allocation for several quarters. That caused our customer base to react by putting long-term backlog on ourselves and others, in order to secure supply and then obviously they smooth that, based on when they were going to get power amplifier supply – power amplifier supply from several analog companies. So we've enjoyed several quarters of backlog in particular on wireless over the last several quarters, and that has provided more visibility. The good news additionally is the forecast in backlog and wireless in particular has been very stable. So, as they have been receiving power amplifier products they have also been taking our products at the rate that they had forecasted and at the rate of their backlog. We haven’t see much change. So at this point we can call a direction in Q4 to an extent there is still could be changes in that because there are other activities outside of China Mobile. Obviously China Telecom is now has a partial license to operate an FTP network. We would expect that to start picking up, we’ve also seen as I mentioned a lot of activity other markets. And I think as we see those puts and takes that may change the end result. But at this point we do expect it to be down. And so that’s – that hopefully gives you some indication as to what we see in wireless right now. Blayne Curtis – Barclays Capital: I appreciate the color. And I wanted to ask you on the computing opportunity, you said it would be one of the fastest-growing opportunities. When would that start to ramp and is there any way to size that opportunity?

We expect computer to be up strongly in the third calendar quarter and I think what you are going to see is there will be some choppiness associated with it because data center builds tend to be very concentrated and very quick, not necessarily be shipped to the same customer every quarter. And so there will be some choppiness, but I think when you look at it over the next several years. We would expected to grow considerably year-over-year and again, be our fastest-growing market over the next several years. Blayne Curtis – Barclays Capital: Thanks so much.

Thank you, very much. Next question please.

We will take our next question from Romit Shah of Nomura. Romit Shah – Nomura Asset Management: Thanks, hi John. Just back to China. Not that you haven't shipped a lot of volume, but I think just relative to expectations it has been a bit of a downer. And I just want to get your take on the LTE market here. Do you think that the build is largely over or, as you think about 2015, do you think this market can help you drive your top line?

I think that’s if you look at LTE it’s still very early. Most of the – if you kind of go back two years we saw in the US AT&T and Verizon start their builds and then stopped for a period of time. But their builds are saturated. AT&T has the challenge of having a deep coverage in only a few areas and they need to build out their network more broadly across the country. Verizon, on the other hand has very broad coverage across the country but not very deep. So they both have quality issues and they are starting to spend again. Plus we see Sprint in North America picking up. So overall we see North America starting to pickup I mentioned Japan, South Korea, Europe is just starting. And really if you look at China so far most of the build has been only China Mobile. And if you look at China Mobile's TBS CDMA deployment that was five or six phases actually six they call the last one 5.1 and 5.2. But six phases over a number of years and I think what you are going to see out of China Mobile is, again, that sort of structure where they may halt for Q4 and then pick up sometime again next year with the next phase. And so we think we’re still early innings in LTE deployment. As I mentioned, we are also seeing 3G and to a small extent 2G pickup in developing countries as well. And so wireless certainly is a lot brighter for us right now. And we would hope has a lot of potential for us going forward as well. Romit J. Shah – Nomura Securities Co. Ltd.: Thanks. Appreciate the color. Second question on gross margin, it looks like your 28 nanometer business is showing some increased momentum. You gain share in Q2 and it looks like, based on your guidance, that you will probably gain share in Q3. As 28 nanometers starts to become a more significant part of business what is the impact to gross margin? Is this something that – is this a trend that can help gross margins to get back to the midpoint of your target model??

Yes, I think. Romit, this is Ron. Yes, it is no different than any other node that starts to ramp. As you have seen early in the node the margins are a little depressed on the new products but as the margins mature, as those products mature they get a little better. So, I think that's fine.

I think if you look at, what we’ve seen this year is a lot of the growth for us has been for instance out of wireless and wireless, as we have mentioned in the past, has lower gross margin and some of the other market segments for us. As we get growth in some of the other markets we would expect that we do have margin expansion opportunity we are still very comfortable with our 67% to 70% range long-term. And that’s really product independent for us. Obviously, different markets will grow and ebb at different times, but with the right mix, we would be at the high end of the range and with the worst-case mix we feel comfortable at the low end of the range which is where we are currently today. Overall, back on 28 nanometer, I would say you are right based on what we've heard from the competition. We were roughly about 35% market share last quarter. We would expect to get close to about 40% market share this quarter. Our overall market share in FPGAs is only 38%. So anything equal or above that means we gained market share. And in part is part of the reason where, if you look at the first half actuals and the Q3 forecast, it looks likely that we would gain market share as a company this year in programmable logic. Thank you very much, next question please.

We will take our next question from Ambrish Srivastava with BMO. Ambrish Srivastava – BMO Capital Markets: Thank you, guys. Just to stick with 28 nanometer, John. If you could help us understand what is going on there. Clearly you guys were behind, Xilinx had the momentum and then Xilinx gave out a pretty large target for the year. And then we all heard what we did a couple of days ago. Is it as simple as you were small and the customer said hey, we can't be 70/30, we are going to normalize it back down to what it typically goes down to every node 55 in that range. Or was it something structurally different with your product or just where your designs were versus where the ramps were?

I think, we look at our product portfolio and we have talked about this before, we are fine at the low end. We have got a very competitive product, feature set and cost structure. We are advantaged in the high end. We have the highest performance. We had the best EDA to infrastructure and we are able to do very, very well at the high end. In the mid range we have a much slower product line both in terms of transceiver performance and core performance which was by specification and, unfortunately, the competition's product I think matches the market requirements better than ours. So if we kind of sum it up we are doing fine at the low end. We are not doing as well in the midrange. We are doing very, very well at the high end. All totaled we expect to have 50% plus market share of the overall node. However, as this node is growing, what came out of the gate fastest was the midrange because, to an extent, you saw the mid range integrated into radios and you’ve seen wireless pickup and, obviously, radios are a very high volume component and because our competition was stronger there, they got out of the gate much faster. The higher end is in application such as test and measurements, base station equipment, and wireless, telecommunications equipment. That takes a longer period of time to ramp because of the complexity of the system and the amount of software. And so what we’ve said is as the high end starts to ramp, we will start to close the market share gap, and you are seeing that happen real-time. And in fact, this quarter we would expect to be above our normalized overall market share of 38% versus our competition in FPGAs. And so that speaks, I think, well to the progress that we are making. Ambrish Srivastava – BMO Capital Markets: Okay and then a quick follow-up on the 14 nanometer. Could you just please remind us? Last quarter you said that tapeout was delayed by a quarter. What is the timeline for sampling and also for mass production? Thank you.

So, schedule for our 14 nanometer product remains Q1 for our first production part tapeout which will sample roughly midyear to customers. We are now putting out software to some of our early access customers to start working with our new HyperFlex architecture. We did announce last quarter with Rohde & Schwartz, is a test we are manufacturing in Europe, that they were able to take a design and move it over to our architecture and realize twice the performance out of our new Stratix 10 product over competing or existing FPGAs. And that’s twice is – what we advertise and it is very, very exciting for us because this opens up a lot of new market opportunity. So everything remains on schedule for us and that is our current timeline. Thank you, next question please.

We will take our next question from John Pitzer of Credit Suisse. John Pitzer – Credit Suisse Securities, LLC: Yes, good afternoon guys. Thanks, let me ask the question. Congratulations on the strong results. John, I just want to focus in on the comps growth because if I go back over the last kind of four or five quarters and compare your growth to your nearest competitor, you guys are winning by a fairly wide margin. Now granted some of that is off of a smaller base, but even if I just look at absolute revenue added over the last four or five quarters, you are doing better and clearly your June quarter and September guide is a little bit different than what they put up a couple of nights ago. And I’m curious to what extent do you think this is just your geographic exposure being better than theirs right now versus real socket wins versus the LTE build out being more at 40 than 28? Can you help me understand kind of those factors?

Sure. So I think the last four conference calls, I think I’ve been asked three times about will wireless, as an example, be only 28 nanometer or will it be other technologies deployed. And want I tried to explain on each of those is that based on when a piece of equipment was designed, and based on when it was qualified with the end customer, there will be a mix of nodes within – shipped in any wireless deployment. So I’ve mentioned that we fully expected that for instance in China that the deployment would be a mix of 65 nanometer, 40 nanometer, 28 nanometer and then ultimately a 60 falls off or 65 falls off, some of that would roll into 20 nanometer. And that’s very consistent with what we’ve seen over time, because base stations aren't redesigned every year. Usually, a base station is redesigned every three years to five years and depending on when it comes up for redesign and what the node is, they will select that node and then it will be in production for long time. And then radios are also quite different in that people are designing as many as 100 radios to 200 radios per year, given all the frequencies. And so there will naturally therefore be a mix of technologies in those. And that’s what we are seeing in this ramp. We are shipping 65, we are shipping 40, we are shipping 28. And next year, we’ll be ramping 20 nanometer as well, into these deployments. And so that's exactly what we’ve seen which is, again, what we’ve expected. But I think another way to kind of back into this is if you look at the revenue of programmable logic companies, typically from the time that you first deploy a product, it’s four or five years before you hit the peak. And then, there is a very, very long tail. And so, add its peak, any node for one of our companies maybe 30% to 35% of our revenues, but clearly doesn't dominate the total revenue of the entire corporation. And, again, that’s because your older products continue to ship in a lot of military communications, industrial applications. And so that’s why we see that mix. And I think that’s what is now evident is that it’s not all one process node. Even if it was just 28 nanometer, we’d still be doing quite well and if I go back to, for instance, what we said last November is we believe that we are number one in wireless. And so I think the performance that you are seeing of our company in the wireless sector versus our competitors and programmable logic, the reason that we are growing more and doing better as well as in areas like telecom is because those are markets for which we have the overall number one position. John Pitzer – Credit Suisse Securities, LLC: Then, John, the pause you talked about for China Mobile in December quarter, is that all – at all impacting your view of the timing around FTD, LTE? And help me understand that the relative size of that build to China Mobile in your opinion.

So, China Mobile’s build, they announced about 500,000 base stations that they would do between last year and this year and so we are shipping into that 500,000 base stations, right now. They have not announced how many they will do next year. There have been some reports, but nothing official. Nor have they done any commercial bids or commercial awards, which you’ve typically seen with each new phase that they will do. But it is expected that they are going to do another deployment and they have talked about that next year. On the FTD side, for China that is the technology for which China Telecom and Unicom want to deploy. Unfortunately for both of them, they were not granted a license until recently and, recently, they got a very limited license to operate in a subset of the major cities. So I think we'll see a pickup this year and it may go into early next year of maybe 100,000 plus base stations for China Telecom and Unicom. Perhaps it will get more because Telecom and Unicom, particularly Telecom are now behind China Mobile and losing a lot of subscribers. Now if you go into the other geographies, obviously FTD is doing very well in North America, South Korea, Europe, and Japan and we would expect that that business would continue to pickup. So you really if you were to go back a year, most of the growth, perhaps a year ago in wireless really for us was predominantly China Mobile. What we’ve done is we’ve added on a lot of other geographies both 3G and 4G. China Mobile will probably ebb a little bit in Q4, but again overall it’s a broader deployment now and it is something where we still feel we are very early in the overall equipment deployment for LTE. John Pitzer – Credit Suisse Securities, LLC: Perfect. Thanks, John. It's very helpful.

Thanks, John. Next question, please.

And we will go next to Joe Moore of Morgan Stanley. Joe L. Moore – Morgan Stanley & Co. LLC: Great, thank you. Continuing on the competitive dynamic. Understanding the market share stuff that you just laid out, your competitors seem to have in retrospect a pretty big overbuild in the March quarter timeframe and they are kind of working that down in September and then may see it up in December. Can you talk about what might have triggered that, the difference between the two companies and if there is anything from a supply standpoint or from a procurement standpoint that’s driving the different sequential progressions?

Joe, I cannot comment on our competitors at all. All I can tell you is what we see; we really had the wireless vendors’ pipeline, their orders for us, a long time ago, and they really spread it out based on what they thought they were going to get in terms of power amplifiers. There’s three companies that are shipping power amplifiers, there is another one bringing it up, the capacity build out was known for a very long period of time. We were not the long pole in the tent in any sense of the word. Even though, as Ron pointed out, last quarter, we did have some lead times expand that did not impact any of these wireless customers at all. They really pipeline the material based on the power amplifiers. Now they did that both on base stations, because that’s where the power amplifiers go, but also because of radios, because these are becoming a kit to the end customers. And so our backlog has been very stable in wireless and our expectations have been very stable, I can’t tell you why anybody else would see anything different. and I think our announcements are fairly similar to what I’ve seen out of, so far at least one of the power amplifier companies. In other words, what we’re seeing is what they’re seeing as well. Joe L. Moore – Morgan Stanley & Co. LLC: Yes. That makes sense. And then with regards to server acceleration, I don’t know if you could talk to the Intel announcement that they’re going to have FPGAs in the same package as Xeon, but can you talk about the importance of that to the overall market and could that be something that makes this a bigger opportunity than if Intel weren’t getting directly involved?

Right. so I can’t comment on another company’s product or technology. So I would let you if – ask Intel as an example, about what they’re doing. But from our perspective, the reason that we see FPGA is becoming very important within the server market is really, because of the base factor two reasons. Number one is power consumption is the – or power is the number one spend for data centers now. And so many of these companies are looking at alternative technologies to lower their power, so that they can lower the overall cost to operate a data center, or a cloud data center. FPGAs can usually operate mathematics algorithms 10x rate of what you can do in a CPU, or greater that much lower power, and if you compare to GPUs, generally from a performance perspective, we’re on par as a GPU, but in order of magnitude at least lower power than a GPU. In order to really work in these applications, what we needed to do is solve the programming flow. In other words, you program an FPGA through RTL, Verilog or VHDL, but people programs servers to software C code. and so that’s why we did the development and uniquely, for Altera in the PLD industry, we did the development of a compiler that allowed our customers to go from open CL, which is a C-like parallel processing language down to our FPGA and hide the complexity of the FPGA. So the FPGA can now be added as a co-processor to the CPU and the server, and accelerate mathematics algorithms and lower total power consumption. And math algorithms are in areas like search. So search companies are very interested in this technology. Image compression or data compression and you can think of applications, we have a lot of photographs stored, or you’re sending a lot of data around is an area that you want to do that. Encryption, decryption is becoming very important for data centers, because of government intervention, and are trying to – people trying to grab other people’s data. So we’re seeing that as another area. and again, there are many others, if you go into financial; geological where people are looking at FPGAs to accelerate math algorithms. And so we think we’ve solved programming flow, we think we’ve got the great high-end FPGAs and Microsoft was one of the early announcements what we have there, but there would be others. and so I think this is now a fundamental technology, which is required for high-performance servers, and we should see our business start to build over the next several years. Joe L. Moore – Morgan Stanley & Co. LLC: Okay. Thank you very much.

Thank you, Joe. Next question, please.

And we will go next to Doug Freedman of RBC Capital Markets. Earl Hege – RBC Capital Markets LLC: This is Earl Hege in for Doug. Congrats on the strong results and cash flow performance in the quarter. I guess my question is, does a 14-nanometer product with twice the performance open an unserved market for you guys? If so, what size do you think that market is? I guess, what are the incremental opportunities there?

Yes. The most important thing it does is it opens up more of the market for us. If you look at prior generations, if you look at really, the last five generations, as we move our architecture forward in the new process technologies. We only get about a 20% performance increase in the core fabric. The I/O speeds have been going up much faster than, as we’ve gone to very, very high performance serial I/O. If you go back to several generations, we might have had a 1 gig LVDS buffer. We now have 28 gig transceivers that are operating in our chips and many of them. And so you now have the need to have a much higher performance fabric in order to really, not only keep up with where the telecom industry is going in terms of performance levels, but also there are a number of ASICs that are designed today and telecommunications and test equipment, and some military applications as examples, there are many others if I sat here and thought about where they need a much higher performance fabric than what the PLD industry has been able to offer. So because we’re making the shift, both with the true 14-nanometer technology, but we’re also making a very significant architectural change, which is unique, we’re going to be in a position, which we alone will be able to tackle more of the high density, high performance ASIC market. And the ASIC market is many times larger than the PLD market itself. So the more that we can open, the faster that we can grow. We haven’t outlined a specific size of that market opportunity that this opens, perhaps we’ll think about detailing that in the future. but again, the importance of this product really is, a) it positions us alone in the high-end segment with a very high-end, high-performance architecture, and the high-end is 50% of the overall PLD industry. And number two and most importantly, it opens up a much larger portion of the overall ASIC market for us to go attack and replace. Thank you very much. Earl Hege – RBC Capital Markets LLC: Thank you.

Next question, please.

We will our take our next question from Srini Pajjuri of CLSA Research. Srini Pajjuri – CLSA Research: Thank you. John, just kind of taking a step back to 2010 during the 3G rollout. If I recall correctly, you guys had at least six or seven quarters of almost double-digit growth in your communications from the back of China 3G build. I understand there were other drivers as well, but I think China was a key driver. And if I compare the base station numbers from then to now, it does seem like the base station numbers now is actually much larger yet. we are not seeing that kind of growth. So what’s the difference? I mean my understanding is that your content in 4G base stations is actually higher, not lower. So what am I missing here?

Well, I think if I go back, what you saw in 2010 was a very concentrated wireless build in several geographies. So we had China growing very, very strong with 2G and 3G. So it wasn’t just 3G, it was also 2G equipment GSM. And then we had North America doing a very strong build as well and some activity going on in Europe. If you go back to last year, we’re really – beginning of last year, there was almost no activity going on around the world, other than phases of builds for TDFC/DMA for China Mobile. So as we said last year we really felt that the first half of last year was a low for us in wireless, because we weren't seeing much activity at all around the globe in terms of deployments. Nevertheless we were still doing well in wireless just because of the ongoing maintenance and general activity that goes around build of an existing node or standard. If you go back to late last year, we really saw China Mobile start to pick up on 4G, and that was really for the most part the only activity that you were seen going on in China. U.S. and Europe were very quiet. Now, you are seeing a pick up of the U.S. seeing a pickup out of Europe, seeing a pickup out of developing countries to add to the activity that is going on in China. And that has pulled up the number faster. But overall if I were to compare 2007 with now, 2010 had a much more concentrated build across several geographies and a number of carriers and today it is a little bit more muted and probably therefore more spread out overtime. Srini Pajjuri – CLSA Research: Okay, fair enough. And then on the 28 nanometer, when do you think 28 will peak for the industry? And as we go to 20 how big do you think the 20 nanometer node will be? And also, Ron, if you can talk about the implications for gross margins as we go to 20. Thank you.

So, I don’t think 28 will be any different than 40 or 65. It peaks somewhere between your 5 and 6. I don't see that changing for 28 or 20 for that matter. Difficult right now to say on gross margin for a product we haven't actually broadly started shipping yet. But it certainly shouldn't hurt our gross margin picture.

And I think if you look at 20 it will be different than 28. Because in 28, we did low-end and high-end. We are not as strong as we mentioned in the midrange. In 20 we are really doing a midrange family, it does extend a little bit into the high-end, but it is a midrange family. And then we will be doing 14 for the high-end. So if I were to compare 20 versus 28 probably 20 won't be as high because there is only one family in it. Overall, though that is probably not the right thing to look at – the right thing to look at is do you have the best product and I think our 20 nanometer midrange is extremely competitive. And we’re really going to be in a competitive advantaged and I mean very, very advantaged with the high-end which is half the industry. And then we are in a pretty good position with the low end. And in fact we didn't talk about this quarter, but we are introducing a new very low end FPGA family in Max 10. So I think we have got a really good product line up. And, we’re looking forward to expanding our market share going forward. Srini Pajjuri – CLSA Research: Okay, maybe one follow-up to Ron. Just looking at the OpEx for that next quarter guidance it looks like it is jumping a bit. What is driving that and then how should we think about it for – into Q4? Thank you.

I am not changing the full year guidance which I am holding at 740. Remember the one thing that’s a little lumpy typically are masks and wafers, so that is what you see next quarter is a couple of takeouts. Srini Pajjuri – CLSA Research: Okay, great. Thank you.

Thank you very much. Next question, please.

And, we will take our next question from David Wong of Wells Fargo. We appear to have lost Mr. Wong. We will take our next question from Ruben Roy of Piper Jaffray. Thank you. Ruben Roy – Piper Jaffray: Thank you. John, I was wondering if you could maybe describe how you are seeing the design activity out there. In the wireless landscape, you guys mentioned with the 20 nanometer Arria X now potentially – well, you guys talked about a record opportunity pipeline and potentially the opportunity to participate in the radio cards. I am wondering, has the design activity around the wireless markets kept up?

Yeah, the wireless activity is very aggressive, particularly, for radios, the radio complexity overall is lower than most pieces of equipment that we ship into. So their ability to redesign and they constantly are doing that for cost and power happens on the industry. So I think we are coming out with 20-nanometer has great performance as they move up the performance requirements, the processing they are trying to do lowers power a lot also lowers cost. So we think we are in a good position. Plus we have the microprocessors, BR microprocessors embedded in the chip. That’s unique to us and those are becoming very important in wireless and wireless radios. We are also seeing a lot of activity in base stations, in telecom equipments test and measurement equipments, military it’s a really good product and so right now that’s as Ron mentioned we’ve got a record pipeline of opportunities and we’re very excited as we’ve introduced this technology and product line. So we'd say, overall, the design activity is very robust. Ruben Roy – Piper Jaffray: Thanks, John. And a quick follow-up around the China market. A couple of weeks ago the three carriers formed a joint venture to potentially leverage some of the equipment that is on the ground. Do you think that is having any impact on – a pause on wireless at this point?

No, the announcement really – if you read into it so far is about sharing towers for radios and if you look at the U.S. that’s no different from what you see in the U.S. several carriers are leasing either from one carrier room on a pole or third-party companies that have now been established that lease out space for your radios. And so that’s what they are doing right now is they are sharing space to put their radios. But they are not sharing radio equipment and they are not sharing base station equipment. And in fact, if you look out it on 3G all of them have different standards, so they are not going to share any equipment on 3G. And then on 4G, China Telecom and Unicom are sticking with their strategy to deploy FTD equipment only. And China Mobile is going to deploy TD equipment only. So there really is not an opportunity for them to share much equipment. So we don’t see that impacting the business today and I think it is unlikely that it would impact the business going forward. Ruben Roy – Piper Jaffray: Very helpful. Thanks John.

Thank you very much. Next question please.

And we will take our next question from Hans Mosesmann of Raymond James. Hans Mosesmann – Raymond James: Thanks. Congratulations. Two questions, John. Your competitor mentioned a phase 3 aspect to China Mobile. Can you explain what that may be? Is that related to radios and not base stations? And the follow-on, can you comment on ASIC displacement that could be happening in certain segments of the programmable logic market over time? Thanks.

So Hans, if you go back the TDFC/DMA what you would see China Mobile do is announce a phase and generally they had a phase every year where they would do a deployments and very quickly buy the equipment, do a deployment and then stop for a period of time before the next phase. And as I mentioned earlier they went through phases there were six phases the last one was 5.1 and 5.2 which were separate. So generally what you see is general. They will buy in three months to a nine months period of time and then they will stop for anywhere between one quarter to two quarter sort of period of time before the next phase. And these were public, because each time they were doing a commercial bidding and then they would do and award X percent of the next phase for the individuals. They haven’t really done that for this particular round, but if you were to kind of back it up remember originally they said that they wanted to deploy 200,000 base stations last year and early last year and that drifted out a little bit. And then, as they were in process of deploying that, they added an additional 300,000 base stations, to make that total 500,000, you could call that two separate, you could call it one, I don’t know how to break it up, but that’s perhaps why our competition is talking about a third phase coming up. Now, our expectation was that a third phase would not happen this year. There has been nothing announced either by China Mobile or by any of our customers in between that have talked about that. Our expectation is that will happen next year. We do think it will be significant. Each of these phases includes both radios and base stations. They deploy them to together. And China Mobile is unique in this in that every other carrier we see whether it’s in China, Japan, U.S., or Europe generally does a more regular buy every quarter. China Mobile tends to do these concentrated purchases. In the end it makes our business a little bit more choppy in wireless because of China Mobile as it has over the last several years. But that’s kind of what we see and what we live with. So overall, I hope that answers the question, certainly from our perspective, the next purchase we would expect from China Mobile will be sometime next year, as they complete this round of the total 500,000 base stations plus. It’s probably about a 1.5 million radios that are being shipped in this current, whether it’s a one round or two round phase of TD-LTE deployment. Hans Mosesmann – Raymond James: That's helpful. And then on the ASIC question.

I’m sorry. On ASICs there are ASIC replacements from time-to-time that will happen usually only in very high volume applications, because as you know you can get a cost reduction and moving to an ASIC and if your volume is high enough, you maybe able to achieve the return that you need in order to pay for that very hefty non-recurring engineering charge for the ASIC. We see conversions periodically. They are not very regular. Currently, we can get into volumes with our FPGAs in the million of units per year, before they would be converted, so most applications that were in people would never convert today. Do I see a lot of ASIC conversion activity going on per se? I don’t know that it is any different now than it was last year, the year before, the year before that. I can’t comment on what our competition is seeing so I don’t want to go there at all, but that’s just from our view what’s happening that we see in the marketplace. Hans Mosesmann – Raymond James: Thanks you. That's helpful.

Thank you very much. Next question please.

(Operator Instructions) We will take our next question from Christopher Rolland of FBR Capital Markets. Christopher Rolland – FBR Capital Markets: Hey guys, thank for the question. So to the data center opportunity here, the data center purchasers, are they primarily tier 1 buyers here? Are they, or are we talking about perhaps the four, five largest web guys, something like that? Or would you describe it also as tier 2 guys as well in the web scale area and then are the carriers outside of just their networks on the data center side, are they also at the point where they are starting to use hardware accelerators? Thanks.

So China Mobile has announced program to look at what they call C RAND, which is Cloud RAND, which would be the integration of the base station into a cloud. And they’ve also done a press release with Altera, saying that they have been working with our FPGAs during this period of time that they are doing the development of that technology. Generally, though it’s much further out in time before you would see anybody in the communications industry start to move to cloud for any of the types of equipment for which we ship into. In terms of servers one point to make is we are not going to be deployed and spend broadly in every server available. We are going to be in servers where people need to do acceleration of mathematics algorithms. So this is going to be supercomputer applications, which are used for geological. It’s going to be used for financial for acceleration. It’s going to be used for search for compression and encryption and that will be more targeted towards companies that are deploying some of their own data centers. And so, I would expect you are going to see the Microsoft's as an example and I can mention them because they are public. Where they are building out their own data centers, they would buy some servers to incorporate our FPGAs. Others like them will do the similar things. But where Altera buys servers to run our database applications, we would never buy a server that has an FPGA because we don’t need the database to run any faster than it already does. So it’s in a subset, but it’s a large enough subset that – and it’s a new market obviously for us that it drives a lot of growth potential. And the other thing with it that we’ve never seen in any of the markets that we participate is that those servers get refreshed on a three-year basis. And so we have an opportunity to continually sell FPGAs into existing customers, just to replace the equipment for which we are already in. And that’s a great growth opportunity for as well going forward. Generally, these are very high end FPGAs big, very expensive. So the ASPs are very high. And, again for these math algorithms where people are looking at how do I accelerate it and run my data center at lower power, that would be the type of thing that we are in. Now, you’ve seen some announcements out of the traditional server companies that they have options with FPGAs integrated. We are also hearing some companies have designed their own hardware that they are incorporating FPGAs. So I think it will be on both sides. Christopher Rolland – FBR Capital Markets: Okay, great. Also, from some of the work that we’ve done on the data center, it seems like you guys have more share here than your competitors. I mean this is just a small sample size on my part, but I guess first of all, is that true? And then secondly, why would you guys have an advantage there?

We believe it’s true because we started work on this earlier in terms of developing the software flow necessary to allow customer to program this in a language for which they are familiar. And I think our work on open CO? We have the only open CO compiler still available in the industry and I think this work allowed us to engage in data center applications much earlier. Have people actually run a lot of benchmarks against GPUs and CPUs on a number of algorithms and start developing on our technology very early. And as you know in our industry, generally, once people start working with a vendor they tend to stay with that vendor for a long period of time. So I do think we got in early. I do think we have a leadership position. I don't think we are going to be alone, certainly we do see GPUs, certainly CPUs are still great for broad number of applications. So we do have competitors. But within the FPGA space, I would say we have a couple year lead on this. Christopher Rolland – FBR Capital Markets: Thanks, guys. Nice quarter.

Thank you very much. Next question, please.

(Operator Instructions) We will go next to David Wong with Wells Fargo. David M. Wong – Wells Fargo Securities LLC: Thanks very much. I'm sorry I got cut off just now. I am not sure if I misunderstood your comment earlier on about 28 nanometers, but calculating from the numbers do you mean to imply that you did about 70 – $65 million to $70 million in 28 nanometers in June and that you expect 28 to grow in September?

Yes, we did over $70 million, David in the June quarter. And we do expect that to grow into September as well. David M. Wong – Wells Fargo Securities LLC: Great. And can you give us any idea of what percent of your total revenues are associated with wireless in China as of the June quarter?

David, we’ve never broken out wireless by any particular geography. So, I can’t provide any of that data for you. It is challenging to do. I mean a little bit easier perhaps with the TD equipment, but remember the FTD equipment once you sell it to one of our end customers, they could ship it into China Telecom. They could also ship that same equipment into AT&T. So, it becomes a little bit more blurry for us, which is why we’ve never broken out which geography the equipment is being shipped into. We just don’t have that level of data or granularity to be accurate enough and so we’ve always resisted providing that level of data. David M. Wong – Wells Fargo Securities LLC: Okay, fine. My final question. When – what is your current schedule for getting first 14 nanometer for silicon?

So, again, our schedule is tapeout in for production product in Q1 and then, sampling to customers mid-year, we have software out, now with early access partners to evaluate the technology and the architecture, and we will be introducing new reps of that over the next year, as we engage more broadly with customers. So, we are very early in 2014. Obviously it is a node ahead of the rest of the industry and it’s a technology, which we believe is going to be well ahead of what the competition has to offer. David M. Wong – Wells Fargo Securities LLC: Excellent. Thanks very much.

Thanks, David. Next question please.

And at this time, there are no questions remaining from the phone line. I will turn the call back to our moderators.