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Xilinx Inc (NASDAQ:XLNX)
Q2 2020 Earnings Call
Oct 23, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon. My name is Sheryl, and I'll be your conference operator. I would like to welcome everyone to the Xilinx Second Quarter Fiscal Year 2020 Earnings Release Conference Call. [Operator Instructions]

I would now like to turn the call over to Matt Poirier. Thank you. Mr. Poirier, you may begin your conference.

Matt Poirier -- Senior Vice President, Corporate Development and Investor Relations

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 September quarter and a business outlook for the December quarter and full year fiscal 2020.

Let me remind everyone that during our conference call today we may make projections or other forward-looking statements regarding future events or the future financial performance of the company. We wish to caution you that such statements are predictions based on information that is currently available and that actual results may differ materially. We refer you to the documents that 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 the 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. It can be accessed from our Xilinx Investor Relations website.

Let me now turn the call over to Victor.

Victor Peng -- President and Chief Executive Officer

Thanks Matt, and good afternoon everyone. I'm pleased to report our results for the second quarter fiscal 2020 and provide an update on our expectations for the third quarter and the remainder of the year. For Q2, we achieved sales of $833 million, which exceeded the midpoint of our revenue guidance despite the impact of continuing trade restrictions with Huawei. DCG business bounced back as expected and had a very strong quarter with record revenue of $81 million, which represented 92% sequential and 24% year-over-year growth. This result was primarily driven by growth in sales to storage customers with some additional hyperscale customer demand and limited growth from cryptocurrency customers.

In our core vertical markets, ABC revenues were in line with expectations, while AIT revenues were better than expected. WWG revenues were weaker than anticipated due to minimal sales of permissible products to Huawei. While we expedited our application process to the Department of Commerce in early Q2, we have not received any license approvals to expand the product set permissible to sell to Huawei. Through the first half of fiscal 2020, we recognized revenue of approximately $50 million from Huawei, with the vast majority of that coming -- that total coming in Q1, before restrictions were announced.

Multiple research analysts had estimated our full-year revenue exposure to Huawei at approximately 6% to 8% of our total revenue, which is in the range of what we are anticipating at the beginning of the fiscal year. Considering the continued trade restrictions with Huawei and the uncertainty presented to our business, we believe it is prudent to remove all remaining revenue expectations related to Huawei from our fiscal 2020 outlook. Huawei is an important customer, and we hope that an agreement between the US and Chinese governments is reached as soon as possible, so we can resume engaging in a manner consistent with an important customer.

Now I'll turn to some additional highlights for the second quarter. Revenue from our advanced products grew 29% year-over-year and represented approximately 74% of total sales. We saw broad-based demand for our 16 nanometer UltraScale Plus family, which continues to be a strong revenue driver for our business. Demand for our Zynq platform also continues to be strong, driven by the adoption of MPSoC in wireless applications as well as across our core vertical markets, particularly in our auto business. Our RFSoC is also deployed with multiple wireless customers and is being evaluated by many customers in other end markets. Overall, revenue for our Zynq family grew 61% year-over-year, which represented approximately 26% of total revenue in Q2.

Customer feedback related to our Zynq family has been remarkable and gives us significant confidence in our transformation to a platform company. We hosted over 1,300 attendees at our Xilinx Developer Forum in San Jose earlier this month. At this sold-out event we announced a breakthrough in a new unified open source software platform called Vitis. We expect that over time Vitis will drive significantly more Xilinx platform engagements with software developers and data scientists. We continue to make good progress building out our global ecosystem of partners, customers, developers and applications, which now has reached nearly 7,000 developers, over 750 ISVs and includes more than 90 applications now in production.

We announced the engagement with Microsoft Azure, which further demonstrates the breadth of hyperscale/hyperscaler relationships, which include Amazon, Alibaba, Baidu, Huawei and Tencent. Microsoft announced that it will be deploying Alveo U250 accelerator cards in its Azure cloud. Amazon announced that it has expanded is EC2 F1 instances, and additionally, they are adapting SageMaker Neo to run on Xilinx technology. Samsung shared a collaboration on leveraging Versal ACAP to enable their next generation of 5G solutions. We also saw many key ecosystem partners demonstrate examples of FPGAs in use for workload acceleration in the data center with increased presence of SmartSSDs and SmartNICs.

Considering a challenging business environment, I'm pleased with the progress we continue to make with our strategy and platform transformation.

I'll pause here and hand the call over to Lorenzo to walk you through the financials for the fiscal second quarter.

Lorenzo Flores -- Chief Financial Officer

Thank you, Victor. Before I go into the results, I want to take this opportunity to thank all of you with whom I have had the pleasure of working with over the last decade. I sincerely wish all of you, and of course the great team here at Xilinx, all the best in the future. Now, on to the fiscal second quarter results. Overall, our business performed well this quarter and we were able to exceed the midpoint of our revenue guidance. Total revenue was in line with guidance at $833 million, up 12% year-over-year, but down 2% sequentially. Wired and wireless group grew revenue 24% year-over-year but declined 8% quarter-over-quarter. Quarter-to-quarter, wireless was flat as our diverse customer base showed strength despite the Huawei shipping restrictions.

Wired business declined significantly quarter-to-quarter due to Huawei and softness from other customers. Note we had one communications customer that represented approximately 12% of the quarterly revenue in Q2. Revenue from the Data Center Group increased 24% year-over-year and 92% quarter-over-quarter. We saw better-than-expected strength from one of our storage customers. We also had growth in multiple hyperscalers and broader accounts, despite the Huawei ban.

Finally, we had approximately $5 million in revenue from Solarflare this quarter. AIT grew 7% year-over-year but declined 9% quarter-on-quarter. Year-over-year, we saw significant strength in A&D and flatness in industrial. TME did decline significantly. This was as expected and is due to a specific customer program we have highlighted previously. Quarter-on-quarter, our decline was primarily due to TME and industrial, partially offset by the strength in A&D. In ABC, we continue our strong long-term growth trend with 9% growth year-over-year. Quarter-to-quarter, we grew 6%. Both year-over-year and sequential growth were driven by double-digit growth in our auto business. Broadcast also grew both on a quarterly and year-over-year basis, although consumer was down sequentially and year-over-year. Gross margin was lower than expectations with GAAP gross margin of 65% and non-GAAP gross margin of 66%. Gross margin was impacted by product and customer mix in AIT and customer mix in DCG. As a reminder, the difference between GAAP and non-GAAP is due to M&A related amortization.

GAAP opex at $337 million and non-GAAP opex at $331 million were both below expectations. Non-GAAP operating expense excluding Solarflare was $321 million, below our guide of $322 million. Solarflare, which closed on July 31, contributed around $10 million to opex in Q2. GAAP operating income was $204 million, or 24% operating margin. Non-GAAP operating income was $217 million, or 26% operating margin. Our GAAP and non-GAAP tax rates were approximately negative 5%. We had expected a low rate this quarter due to the tax accounting rules for share-based compensation. GAAP net income was $227 million and diluted earnings per share were $0.89. GAAP EPS grew 6% year-over-year. Non-GAAP net income was $240 million and non-GAAP diluted EPS was $0.94 a share, yielding an 8% growth over last year. Diluted share count decreased to 255 million shares.

Next, I'll cover a few key points on the balance sheet and cash flow. Gross cash was $2.5 billion with $1.2 billion in long-term debt. Accounts receivable increased to $335 million and is at 37 days, still within our normal operating range. Overall, we generated $224 million in operating cash flow. During the quarter, we also repurchased approximately 1.5 million shares at an average price of $103.60 per share, and paid dividends of $93 million. Finally, the Board of Directors of Xilinx have approved a new share repurchase authorization of $1 billion. Note that we aren't providing details on the timing and exact number of common shares to be purchased, as that will depend upon prevailing market conditions and other factors.

Now let me turn the call back to Victor for comments regarding the business outlook. Victor?

Victor Peng -- President and Chief Executive Officer

Thanks Lorenzo. And let me take this opportunity to express to you on behalf of the company and personally our appreciation and gratitude for all your contributions and accomplishments over the last decade at Xilinix. Thank you so much, Lorenzo.

Lorenzo Flores -- Chief Financial Officer

Thank you, Victor.

Victor Peng -- President and Chief Executive Officer

And now turning to our outlook. For fiscal Q3, we expect revenue between $710 million and $740 million, which is a decrease of 9% year-on-year and 13% sequentially. This drop is due to several headwinds that coincide in the quarter that I'll explain. That said, we're expecting Q3 to be a bottom with strong rebound in Q4. For DCG, revenue is expected to be slightly down in Q3 with more meaningful growth resuming in the fourth quarter. We are seeing a pause in hyperscale customer orders in Q3, but expect growth to resume in Q4 as customer POC transitions to production.

We also expect continuing contributions from storage and networking customers, including those from Solarflare. We expect crypto contribution to moderate over time from the low-teens of millions to single-digit millions that we move into Q4. For WWG, we expect revenues to be meaningfully lower in both the third and fourth quarters. This is principally due to the removal of revenue expectations from Huawei in addition to the expected transition to ASICs for select baseband products previously discussed. We expect our revenue from our wired business to recover somewhat in the fourth quarter, while wireless remains weak.

Lastly, we are seeing global trade uncertainty causing some customers to exercise caution in ordering, as well as some slower than expected customer ramps. For our core vertical markets, revenue is expected to be flat in the third quarter and up in the fourth quarter. Q3 revenue will be lower than prior expectations primarily due to macroeconomic related headwinds. The increasing growth in Q4 is expected to come from a broad base of customers, including TME, aerospace and defense, automotive and industrial customers. Fiscal Q3 non-GAAP gross margin is expected to be between 67% to 69%, which is a return to our historical range with a less wireless heavy product mix. Non-GAAP operating expense is expected to be approximately $33 million. Non-GAAP other income is expected to be approximately $1 million, and our tax rate is expected to be between 4% to 6%.

Now turning to FY20 outlook, we expect total revenue to be between $3.21 billion and $3.28 billion. We expect the second half of FY20 to be down relative to the first half of the year, with an expectation of for strong sequential growth in fiscal Q4 following the bottom in fiscal Q3. This represents approximately 6% year-over-year growth following a record FY19. This performance is a testament to the durability of a model given that we haven't been able to ship fully to an important customer since mid-Q1 and the current global trade uncertainty and macroeconomic headwinds.

We expect in FY20 non-GAAP gross margin range between 66.5% to 68.5%. Non-GAAP operating expenses are expected to be approximately $1.3 billion for the year. This is approximately $50 million lower than prior expectations at Analyst Day, and reflects the active expense management that we put in place for the second half of the year given the current business conditions. Note that when normalizing for the incremental expense of recent acquisitions, our operating expense is now expected to be approximately $80 million lower than our expectations at the start of the fiscal year. Non-GAAP other income is expected to be approximately $25 million, our tax rate is expected to be between 4% to 5%.

Now I'll take a few minutes to provide some additional color on business units and core vertical markets as we head into the back half of the year. For DCG, we expect FY 20 revenues to grow approximately 30% relative to FY 19 revenue. We have continued to build out our capabilities as we address a dynamic data center market that has continued to evolve as customers are evaluating the use of FPGAs for compute, network, and storage acceleration. Despite a slower start in the first half of the year and learning the impact of Huawei trade restrictions, we are expecting stronger growth in the second half that builds on the progress we made with other hyperscale customers both in the US and in China.

Now in compute, we continue to expand our FaaS platform with all the key Hyperscale customers. We have built deep engagements with both enterprise and hyperscalers to bring real-time video streaming and database acceleration programs to production. Now in some cases the qualification time needed to reach production deployments is taking longer than expected. This has moderated the revenue growth rate we had anticipated at the start of FY20. These expanded timelines weren't in our original model, but we have now factored that into our outlook going forward. With the launch of Vitis, we expect that over time customers will be able to develop and deploy our boards into production more rapidly.

In storage, we expect the computational storage and SmartSSD market to continue to be a significant growth driver, with key customers including Micron and Samsung. At the Flash Memory Summit in August, we showcased 14 separate partners with computational storage platforms each using Xilinx products. In networking, we have meaningfully integrated our Solarflare team and we have strong engineering engagements with multiple hyperscalers. We believe we are well -positioned to compete in the early stages of a growing SmartNIC market. Last thing on DCG, we expect revenue volatility to abate over time as the diversity of our customer base increases and our revenue reaches a higher run rate.

Now for WWG, we expect revenue to be flat year-over-year relative to FY19, including the impact of the Huawei trade restrictions. Without the Huawei impact, our WWG business has performed roughly in-line with the expectations we shared at Analyst Day in May. Our first half wireless revenue benefited from early 5G deployments, mainly in South Korea and China, and a modest amount in other markets. Our second half is more challenged given the expected baseband ASIC transition and unexpected program delays with some communication customers. That said, this ASIC transition will be largely completed in the fourth quarter. Keep in mind that we are just at the beginning of the Global 5G rollout, which remains a significant opportunity for Xilinx over the coming years, but will continue to be somewhat lumpy. Going forward, given our market leadership position versus the competition, and our capabilities in RF design, we are well-positioned to grow our wireless business as intended density increases in the radio head with new 5G deployments.

For our core vertical markets, we now expect FY20 revenue to grow high single digits year-over-year. While revenue in the first half of FY 20 grew close to our expectations, we are seeing macroeconomic related headwinds impacting customer demand in both AIT and ABC markets in Q3. Additionally, we are expecting revenue from a planned program ramp at a key emulation and prototyping customer, but that will extend over somewhat longer period beyond FY20 and into FY21. However, we expect strong customer demand from a broad range of customers TME, ISM, A&D and auto coming in Q4. We also expect modest growth in distribution channel demand in Q4 in anticipation of some growth in our broad markets heading into FY 21.

So in closing, we are executing the strategy we outlined at our Analyst Day in May, as we believe it's the right long-term path for Xilinx despite some near-term headwinds. Xilinx remains well-positioned to capitalize on the secular growth trends that will continue to driving our business for years to come. We will continue to invest in growth aligned with our strategy, but we're actively moderating our R&D and overall operating expenses, given the current business environment.

We will now open the call for questions.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from Ambrish Srivastava of BMO. Please go ahead, your line is open.

Ambrish Srivastava -- BMO Capital Markets Corp. -- Analyst

Hi, thank you. I just wanted to stick with the full-year fiscal year guidance. Victor, what gives you the confidence -- this is pretty large Q-over-Q embedded in the 6% growth. So, and notoriously turns requirements are higher for the business. So sitting here, how can you -- what gives you the confidence on that growth for the fourth quarter?

Victor Peng -- President and Chief Executive Officer

Yeah, I think from a sequential perspective, right, Q3, as I said in my prepared remarks that had a coincidence of a bunch of headwinds occurring sort of at the same time, right? Some of which as, as we candidly said, we expected, some of which were not expected. So I would say, one thing is just the contrast of that. But we do have strong confidence in Q4 because it is broad across a number of things including some strong wins that we have, that we are tracking very closely and clearly are going to move as expected, right? So I mean, obviously, I think it's really a contrast of the Q3 to the Q4, but we feel we have good visibility into Q4.

Operator

Your next question comes from Tristan Gerra of Baird. Please go ahead, your line is open.

Tristan Gerra -- Robert W. Baird -- Analyst

Hi. What are you seeing in terms of the base station build activity in China given the US ban? Is that still ongoing or has that changed significantly in the quarter? And where do you see meaningful diversification with shipments in base station outside of Huawei?

Victor Peng -- President and Chief Executive Officer

So you know, from what we see that we do think that they are approximately on the path of the base stations deployment they said they were initially going to do in China. Clearly, the Huawei has significant impact, but they're not our only customer in China. So we are still participating in China deployment, clearly though Huawei has a big impact. I think there are some second order things too, but I think it's probably simple to say is that overall I think it sounds like the first point is about on track, but we are participating, but not with one of the top players.

Tristan Gerra -- Robert W. Baird -- Analyst

Great, thank you.

Operator

Your next question is from Chris Danely of Citigroup. Please go ahead, your line is open.

Chris Danely -- Citigroup -- Analyst

Hey guys, just a question on taking Huawai to zero. It seems like most of the other SME companies have kind of restored anywhere from two-thirds to three-fourths of their shipments to them. Can you just elaborate on why you're not doing that versus, it seems like most of the SMEs have already started to reship?

Victor Peng -- President and Chief Executive Officer

Again, I can't really speak to how other customers justify how they believe they can ship. We obviously have been tracking this extremely carefully with our internal and external counsel. We talk to the Department of Commerce. We applied, as I said in our prepared remarks, our licenses. None of those have come through. I guess one thing I would say is that, many people supply Huawei because they have a very diversified business, 5G being explicitly cited as a security issue. There could be differences there. But all I can say is that we're following all the rules and regulations. But we're carefully monitoring this and we put in licenses, and we just haven't had anything approved yet.

Chris Danely -- Citigroup -- Analyst

Okay, thanks for the color.

Operator

Your next question is from Chris Caso of Raymond James. Please go ahead your line is open.

Chris Caso -- Raymond James -- Analyst

Yes, thank you. Just a little bit of color on what's going on with the DCG. And I guess with the lowered guidance as compared to the Analyst Day, maybe you can break out what's changing and thinking how much of that was attributed to Huawei, because I believe that was a customer in DCG. And how much of it is just customers being a little bit slower to adopt solutions or perhaps this is indicative of the economic environment as well? Thanks.

Victor Peng -- President and Chief Executive Officer

So actually, you did a fairly good job hitting some of the points. I mean, I -- in complete candor, as I said in the prepared remarks, we're seeing great traction. The opportunity is still continuing to be really great. But we have learned that in some cases, getting to that production from proof of concepts, what I refer to as POCs, and also just qualification of some of them, that is taking a bit longer than we expected, and just we hadn't anticipated. But as I said, we have now folded that into our go-forward. So that's one thing.

The other thing as you hit it, exactly right. Huawei did – has an FPGA as a Service, FaaS program, and we had to stop that. We're still working through things around that, but that had an impact. And then I would say that there was, as we expressed, some digestion, some pullback.

Having said all of that, our second half is quite a bit stronger than our first and 30% growth is our estimate if we come in midpoint to our guide, is a strong guide. It's an emerging market. We clearly feel good about this a long-term opportunity in being over $1 billion. But sometimes in the emerging market, it's a little challenging to get the timing exactly right. But yeah, that's -- those are the points, to the degree you kind of hit on them.

Chris Caso -- Raymond James -- Analyst

Okay, thank you.

Operator

Your next question comes from C. J. Muse of Evercore. Please go ahead, your line is open.

J. Muse-- Evercore ISI -- Analyst

Yeah, good afternoon. Thank you for taking the question. I guess one of the key questions out there is the ability for your wireless business to grow into fiscal '21. So I guess now that you've pulled Huawei 100% out of the numbers and you're guiding WWG flat, what are the core assumptions that we need to kind of assume into fiscal '21 to have the confidence on that growth? Both in terms of I guess ASIC replacement on the base band processor as well as rising content [Technical Issues] decide. Thank you.

Victor Peng -- President and Chief Executive Officer

Yeah, C. J. so let me say that first of all, just to reiterate like you said is that we -- for the remainder of FY 20, I think we've de-risked everything that we're aware of. Right. I don't want to give any specifics for FY 21, but just the broader picture, our view has not changed from the Analyst Days. 5G is definitely going to be a bigger deployment overall. It's a bigger opportunity for us, because we're not just doing the same old thing. We're innovating, delivering more value to our customers with things like our RFSoC, with things like Versal. So we still feel good about that. Obviously, the big variance from that day and Analyst Day has been the whole trade situation.

But I guess what I would say is that we're still in early -- early innings on deployment. So as those other innings come through, and as some of the things, the trials, the things we have RFSoC go into production and we get wins in Versal and so forth. And even the wins we have in MPSoC, we still think this is a strong opportunity. And of course, we will give you FY 21 in the usual time frame, right after this fiscal year.

J. Muse-- Evercore ISI -- Analyst

Great, thank you.

Operator

Your next question comes from Ross Seymore of Deutsche Bank. Please go ahead, your line is open.

Ross Seymore -- Deutsche Bank -- Analyst

Hi guys, thanks for all the color on segments in the fiscal year, and Lorenzo best of luck with your next move. So Victor, I wanted to ask a question on the core vertical market side of things. It doesn't get as much attention, but it's still significant part of your business obviously. Overall, I just want to see what gives you the confidence in the flat -- in the fiscal third quarter outlook sequentially, and then up in fiscal fourth quarter and we can contrast that against TI last night, who I think surprised the vast majority of us with the weakness that they alluded to at least in the December quarter. So what gives you the confidence in being so much better than that broad based guy or broad based peers in general for both of those quarters?

Victor Peng -- President and Chief Executive Officer

Yeah, I guess again, I really can't speak for others. I guess what I would say is that we do -- we do see softness in macroeconomic-related, and some of that is probably also somewhat related to the whole trade situation we kind of expressed. I think we expressed even in Q1 that we have a -- we called it, I think I referred to it as a product transition with a key TME customer. I’ll give you a little more color on that. That ramp is happening, but it's going to happen a little bit more spread out. So that's an example and the emulation and prototyping of one instance. Our channel definitely has softened, especially in Europe, also in Asia, and auto a little pause.

But on the other hand, like let's take auto for instance. ADAS is where we play as you know. And even though near-term auto units are down, what we're hearing from a different signal that in calendar 2020 that is going to strengthen. So we see that, and we still have already shipping units that will just continue to ramp in ADAS as well as being designed into fully autonomous driving. So I guess what it is, is the confidence that we actually see the dip in Q3, but we are seeing from multiple markets, so it's kind of broad. I won't say that it's just one market, it is broad that we're seeing it coming back in Q4. And so, and then a few key things where we are very confident, just because of we know those programs very, very well.

Ross Seymore -- Deutsche Bank -- Analyst

Thank you.

Victor Peng -- President and Chief Executive Officer

Welcome.

Operator

Your next question comes from Matt Ramsay of Cowen. Please go ahead, your line is open.

Matt Ramsay -- Cowen & Co. -- Analyst

Thank you very much, good afternoon. Victor, I just wanted to ask a couple of questions on the -- the guide for the December quarter. Just a couple of moving parts. I know you guys I think called out in the commentary $50 million to Huawei in the first half of the year. I would assume that most of that was during the first quarter. So if we could understand a little bit about the sequential difference between Q2 and the Q3 guide there? and similar for the Solarflare revenue coming into the model.

I guess this will be a full quarter in December. Just trying to understand those moving parts, thanks.

Victor Peng -- President and Chief Executive Officer

Yes. I know this is a pretty packed prepared statements because we did want to give a lot of color. So just to reiterate, yes, you're exactly spot-on. With Huawei, the $50 million was predominantly in Q1, prior to the restrictions going in place. Last quarter, we had determined that even with the restrictions there is some older products that we could legally continue to ship. It turns out that revenue was very essentially negligible, which is why after one quarter of seeing that and not seeing any additional license approvals, we have decided that it's just prudent to take all the risk out for the remainder of the fiscal year. With regards to Solarflare that closed -- that only closed in July. So you're right, it's only the first full quarter of revenue in the December quarter. And it's what we expect, on the order of $10 million-ish. But we did the acquisition from a strategic perspective of they really bring the software and drive expertise in overall system expertise complementing our strength in silicon and the hardware. And so we are feeling very good about the integration and the engagements we’re having from that. The revenue is also what we expect. But I think really more important, the strategic pieces, now that they're part of us, we feel even better about.

Matt Poirier -- Senior Vice President, Corporate Development and Investor Relations

Yeah, Matt, it's – I’ll just point out one thing is we plan to consolidate obviously those results and not break those out in future calls. But that just gives you a sense with Victor's comments around what we expect primarily going forward from now.

Operator

Your next question comes from the line of David Wong of Instinet. Please go ahead, your line is open.

David Wong -- Instinet -- Analyst

Thanks very much. Can you clarify what you have applied for licenses for? Does this cover all of the revenues that you were previously shipping to Huawei? Or, if not, approximately what percent of prior revenues to Huawei do your current license applications cover?

Victor Peng -- President and Chief Executive Officer

Yeah, it's actually very detailed, I wouldn't want to give you -- I don't think it's appropriate to try to break down exactly. I would say it would be -- if what we had applied for in early July all got approved, it would be meaningful. I wouldn't -- I wouldn't necessarily say the entirety, but it would be meaningful. And clearly if that happened, we would continue to try and seek licenses. But unfortunately, like nothing has been approved. And as I said, the small set of mostly older products, it hasn't managed any kind of meaningful revenue. So we've just decided to de-risk it.

David Wong -- Instinet -- Analyst

Great, thanks.

Victor Peng -- President and Chief Executive Officer

You're welcome.

Operator

Your next question comes from Joe Moore of Morgan Stanley. Please go ahead, your line is open.

Joseph Moore -- Morgan Stanley -- Analyst

Great, thank you. You said that the baseband to ASIC transitional impact is kind of, winds down by the fourth quarter of your fiscal year. Is that, can you give us a sense for the wireless business that remains? How much baseband is still in there from from other customers, any transitional risk? And just I assume that the radio deployments are sort of starting to ramp up as we move beyond those, is that a fair way to look at it?

Victor Peng -- President and Chief Executive Officer

Yeah, I mean, we still have meaningful wireless business. But yes, the baseband ASICs which we had said even on Analyst Day that we expect that was going to happen, that has happened. We do still have some position, but I don't think it's very significant at this point in baseband. I think we've always said that even ASIC replacement, as you know Joe, is not -- not new to us. We've always said that our opportunity is bigger in the radio, but even in the future that we expect some degree of baseband revenue. But we had an outsized amount earlier, and I think we were upfront about that. But again, I would sort of say that you know we -- it is significant that it would be radio. But we still do baseband connectivity. Again, that's historically been the thing. We were in the heart of the overall baseband and the start of this early deployment.

Joseph Moore -- Morgan Stanley -- Analyst

Okay, got it. Thank you very much.

Operator

Your next question is from William Stein of SunTrust. Please go ahead, your line is open.

William Stein -- Suntrust -- Analyst

Great, thanks for taking my question. If we get some resolution to the tariff situation, but we still have a ban on Huawei going forward, Victor, I wonder if you could comment on expectation for relative to the longer-term growth you outlined at the Analyst Day, not what's it going to do next year? But you talked about the SAM growth of I think 35% in DCG and I think 16% in wired and wireless. Are those still realistic as share would shift to other customers of yours? Or do you think it would call those growth estimates in question?

Victor Peng -- President and Chief Executive Officer

Well, first of all, regarding tariffs, every time those things have occurred we've analyzed those things and the tariffs don't directly impact us in any way. There could be like secondary, tertiary things of just being a dampener on macroeconomics, but it doesn't impact us in a direct way. So if -- there was some relief there. But the restrictions on Huawei stayed intact for a prolonged period of time. That would be the bigger thing than tariffs, by far, -- that -- which is why I think I've been consistent in saying that we really hope that the governments can come to agreement and resolve the structural issues so we can continue to gauge with Huawei.

That said, we're still just again, I want to say that we're still participating in the China 5G, but clearly they are a very big player there. And I don't want to speculate on what happens in a long-term right. It's just -- it's just too difficult, and we certainly look at different scenarios internally, so we're prepared for things. But it's really clearly premature to speculate beyond FY 20.

William Stein -- Suntrust -- Analyst

Thank you.

Operator

Your next question comes from Quinn Bolton of Needham & Company. Please go ahead, your line is open.

Quinn Bolton -- Needham & Co. -- Analyst

Hey, Victor, I was just wondering if you could give us a little bit more color on where you saw the weakness in the wired business and what drives the recoveries we get into the fourth quarter? Is the weakness mostly the Huawei effect or is it broader than just that one customer?

Victor Peng -- President and Chief Executive Officer

Well, it's that was definitely an impact because people tend to think of Huawei as just purely wires, but actually they play in both places. And so they're, they're pretty substantial there. But it's not just the one customer. I think there has been some bonus in access in cable. I think that there is a particular situation where things, people initially started to deploy then they took a more cautious approach, because of course with 5G it's both wireless and then ultimately the wired network has to be upgraded as well. And I think with all this uncertainty there has been, as I said in my prepared remarks, some caution around that. So Huawei is definitely big deal, but it is not the only thing.

Operator

Your next question comes from Blayne Curtis of Barclays. Please go ahead, your line is open.

Blayne Curtis -- Barclays -- Analyst

Hey guys, thanks for taking my question. I guess I'm struggling a little bit with the March -- implied March guidance. Obviously if WWG is down, it suggests substantial growth in the two other segments to get anywhere near the sequential, and it will be record revenue across the board for all those segments. So I think I'm doing the math right, I guess I'm just trying to understand in this environment why you would be doing record revenue with this substantial double-digit increases into March?

Victor Peng -- President and Chief Executive Officer

Well, data center as I said, you know, we hit the midpoint of the guide, it will be about 30% year-on-year increase. And obviously the first half is a little softer. So DCG is definitely robustly growing in the second half, right? I mean, Q2 was a record, so Q3 is coming off of that a little bit, but that was a record. But then we said that we've resume sequential strength in DCG in Q4. So overall, Q4 -- DCG is growing very strong, and yeah, it will be a record. In some of the other markets, I think you know we -- I think we had said that TM&E had earlier because of some product transitions, that that was slowing down. And also earlier semis was a little weak, so in terms of semiconductor tests. So there’s a variety of different things, but we had already expected that in the second half things would strengthen. It's still going to strengthen, maybe a little more moderated than we had expected back in the spring for sure, because of some of the macro, and some of the other issues, but that's still happening. And as I said, auto, people are starting to see ADAS is still growing, auto is still going to pick up. It will be double-digit.

So it's actually in Q4 kind of broad, Q3 is just, it really is kind of a perfect storm of a bunch of things some expected, some unexpected, happening all at once. So you have this big contrast there. But, yeah, that's -- that's how we see it right now.

Blayne Curtis -- Barclays -- Analyst

Great, thank you.

Operator

Your next question comes from Vivek Arya of Bank of America. Please go ahead, your line is open.

Vivek Arya -- Bank of America -- Analyst

Thanks for taking my question, and thank you and good luck to Lorenzo on his next adventure.

Lorenzo Flores -- Chief Financial Officer

Thank you, Vivek.

Vivek Arya -- Bank of America -- Analyst

Victor, could you -- thank you. Maybe, Victor if you could help us differentiate your position in the radio side. I think you mentioned that you expect to have fairly resilient business in the radio side. What is unique to an FPGA in the radio that cannot be done within ASIC? I assume that some of your customers already use some ASICs in the radio side in China and other places, so why -- what gives you the confidence that there cannot be ASIC replacement on the radio side, at some point?

Victor Peng -- President and Chief Executive Officer

Well, again, first of all, what I would say is, if you look at our MPSoC and absolutely our RFSoC, those aren't just pure FPGAs, right? So I will -- I really want to go back to those have multi-core SoCs in them, they have a lot -- a number of other features that are hardened and yet still flexible and programmable. And of course the RFSoC has integrated RF quality ADCs in DACs. There are no products in the marketplace, even today after we've released this for quite some time out there. So what we could do is, we could be used in different geographies, support different standards with the same piece of silicon. Obviously, we get people to market very rapidly.

And there's just optimizations, particularly and the trend to O-RAN and where things is virtualization. That's a disruption and an opportunity and we definitely see that. In the long-range that's a big thing. Then I would say is -- as we announced, ACAP a year ago. And now we've delivered silicon and we're shipping that. We have development boards. That's, way not an FPGA. That's a whole new class of product and absolutely that's -- I've said that we feel like we have an even stronger position versus fixed architectures. And if you heard about XDF and in my prepared comments, Samsung was on the stage, talking about how we're collaborating, looking at how ACAP can intercept their 5G roadmap.

Vivek Arya -- Bank of America -- Analyst

Thank you.

Victor Peng -- President and Chief Executive Officer

You're welcome.

Operator

Your next question comes from Christopher Rolland of Susquehanna. Your line is open.

Christopher Rolland -- Susquehanna International Group -- Analyst

Hey, Victor. So for WWG, where do you see your biggest opportunity in the next 18 months coming from? Is it really the European guys at this point? And then I think you also mentioned some customer delays. So any thoughts on timing of resolution and relaunching those products? Thanks.

Victor Peng -- President and Chief Executive Officer

Yeah, I mean 18 months is pretty far out. I sort of feel that that's not something we can give guidance on at this point in time. We clearly have diverse everything that we've seen for the remainder of this fiscal year. We are in the early stages of deployment. So I would generalize your comments to say clearly there's going to be several generations, as well as geographical deployments. Right now it's South Korea and China and a little bit in Japan, but not very meaningful. So clearly there will be other geographies to deploy and there'll be multiple generations of 5G equipment. So we're engaged with all the OEMs worldwide, right, not just Samsung and Chinese OEMs, but also the European. So we're engaged in all of them. And so, yes, as these things deploy, we still feel, again, from a strategic perspective that opportunity is still great. Obviously, trade, we will have to see.

Operator

Your next question comes from Ambrish Srivastava from BMO. Your line is open.

Ambrish Srivastava -- BMO Capital Markets Corp. -- Analyst

Thank you for allowing me back in. Before I forget, I would be remiss if I didn't say thank you to Lorenzo and wish you all the best. It's a pleasure working with you. Thanks for all the transparency and help as this year for Xilinx. I had a question, I want to come back to the data center side, Victor, and maybe this should be a good times for us from our side to get a little bit recalibrated with how you think the longer-term opportunities are. So compute, network, and storage, and if you look out longer-term, which of those three are going to be the big drivers to get to the long-term targets you have given? And I had a quick one on datacenters, that I think I heard you mention that one of the reasons gross margin was weaker was because of data center mix, did I hear that correct? Does that imply that data center will be diluted to gross margin? Thank you.

Victor Peng -- President and Chief Executive Officer

Okay. So yeah I'll take the first part and then Lorenzo will work at the remainder of this call here. Yeah, look at the first part, I think all three sub-segments are going to be meaningful drivers. I mean, they are obviously different in nature. I mean, overall in the very long run, compute is still the largest segment, it's also in some respects. It is a long game because that's the place where we really we announced Vitis, we announced open source, where we're doing a lot of things to sort of give users that traditionally have not used our platform feel comfortable and work in their own environment, like the artificial intelligence, machine learning frameworks like TensorFlow and so forth, right. So that in the long run is the biggest opportunity, but it's also going to take time, because that's where ecosystem and all those tools and so on so forth is going to play a big role.

But both SmartSSD and SmartNIC, whereas they may not be so large and long, they are also still quite meaningful and there we don't have those issues, right. We're engaged with multiple hyperscalers. We're also have some OEM engagements and we have -- we've been setting up our channels, like VARs and SIs and so forth. And so we see some really good opportunities there. So again, it depends on your time frame, which is going to be big contributors. We see contributions from all of them quite frankly. And yeah, we're really excited, but in full candor, we've learned that it takes some time to get these POCs done, it takes some time to get all the requirements. But now that we have those learnings we're still going -- we're going to go after robustly.

Lorenzo Flores -- Chief Financial Officer

And so on the margin piece, I think, I'll start with the end of your question which is, do you expect growth in data center over long term to have a negative impact on our gross margin. I think the dynamic with data center over the long term will be similar to some of our other larger segments where we have large customers with relatively lower margins as would be expected and broad set of customers with relatively higher margins. And the overall impact on the mix as we expect it today is relatively neutral and close to our corporate average. In the short term, the exact opposite thing is happening, where we had customer concentration and which is actually a good thing in this case, because it showed very strong customer growth. And it wasn't that the net result was significantly off of corporate gross margin, it was just, that it was lower than our expectations. So that's why it pulled us down versus our forecast.

Ambrish Srivastava -- BMO Capital Markets Corp. -- Analyst

So maybe because of storage being a bigger driver, that led to lower gross margin?

Lorenzo Flores -- Chief Financial Officer

That's a good hypothesis.

Ambrish Srivastava -- BMO Capital Markets Corp. -- Analyst

Thank you.

Victor Peng -- President and Chief Executive Officer

Operator. I think we have time for one more.

Operator

There are no further questions at this time. I would like to turn the call back over to Matt Poirier for closing remarks.

Matt Poirier -- Senior Vice President, Corporate Development and Investor Relations

Great. Well, thanks everyone for joining us today. We'll have a playback of this call beginning at 5:00 PM Pacific Time, 8:00 PM Eastern today. For a copy of our earnings release, please visit our Investor Relations website. Our next earnings release date for the third quarter of fiscal year 2020 will be Tuesday, January 28th after the market close. Please note that we will be hosting a fireside chat at the Credit Suisse Conference and attending the Barclays Conference in December. The fireside chat will be webcast live and will be accessible through our IR website. This completes our call and thank you all for your participation.

Operator

[Operator Closing Remarks]

Duration: 50 minutes

Call participants:

Matt Poirier -- Senior Vice President, Corporate Development and Investor Relations

Victor Peng -- President and Chief Executive Officer

Lorenzo Flores -- Chief Financial Officer

Ambrish Srivastava -- BMO Capital Markets Corp. -- Analyst

Tristan Gerra -- Robert W. Baird -- Analyst

Chris Danely -- Citigroup -- Analyst

Chris Caso -- Raymond James -- Analyst

J. Muse-- Evercore ISI -- Analyst

Ross Seymore -- Deutsche Bank -- Analyst

Matt Ramsay -- Cowen & Co. -- Analyst

David Wong -- Instinet -- Analyst

Joseph Moore -- Morgan Stanley -- Analyst

William Stein -- Suntrust -- Analyst

Quinn Bolton -- Needham & Co. -- Analyst

Blayne Curtis -- Barclays -- Analyst

Vivek Arya -- Bank of America -- Analyst

Christopher Rolland -- Susquehanna International Group -- Analyst

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