We recently emerged from a three-year recession that was one of the longest and deepest in our history, yet things are getting better. The semiconductor industry typically moves in a two-year cycle, unless it is influenced by events such as the 9/11 tragedy. Therefore, after two years of growth, an overbuilding of capacity will likely occur, with another market correction in 2006. This is a normal and predictable cycle; it’s the way our industry usually works.

These capacity-driven recessions tend to be shallow and short – the last one was in 1996 and lasted about 18 months. For Xilinx® during that period, we had a few negative growth quarters, with an overall 1% growth. The market recovery is still fragile, driven primarily by the U.S. and China. And not all of the industries that we deal with are yet in recovery, which I think is good because it helps us maintain a steady growth pattern as they begin to improve later in the year.

Overall, Xilinx is in an extremely good position – our business processes, our manufacturing technology, our circuit innovation, and our software are poised to take full advantage of the current market conditions.

The Growing Asian Markets
A significant and quickly growing segment of our business comes from the Japanese and Asia-Pacific markets – our business there is now more than three times higher than it was just four years ago. This comes both from systems that are designed and manufactured there as well as from manufacturing outsourced from other countries. Plus, Japanese business is starting to expand and is beginning to help drive the world economy forward.

I believe our business in Asia will continue to grow over the years to come. We see a big shift taking place, driven primarily by the next big trend in our industry – digital consumer electronics. The core of this business will be in Asia, and we are putting a lot of our resources there to help meet the demand. We recently began staffing a facility in Singapore that will eventually house more than 200 employees.

Going Mainstream
Eight years ago, when I joined Xilinx, I said that we will put a programmable chip in every system, and it’s now becoming a reality. Our ability to shrink our products into smaller and smaller geometries at lower costs, coupled with the recession (which means that many of our customers can no longer afford the high costs of designing and building ASICs) is moving more and more of our customers to take full advantage of the many benefits of programmable logic.

Market forces, combined with our lowcost technology advances, are driving programmable logic into the mainstream – our devices are now used in all types of products and the trend continues to grow. Over the next two or three years, when these new designs go into production, our business will expand significantly. Programmable logic is indeed taking over; it is becoming mainstream and finding new markets where it’s never been used before.

Beating Moore’s Law
Semiconductor technology typically follows Moore’s Law, which states that every two years the number of transistors that can be fabricated on a chip will double – this law has held true for many years. As we approach finer and finer process geometries, moving from 130 nm to 90 nm and down to 65 nm, it becomes increasingly difficult to manufacture devices. Xilinx is leading the industry in the development and use of these advanced technologies, which means that we are often the first to solve difficult process problems – that’s both the good and the bad news. We usually get to market first with the most advanced manufacturing processes, but we also put a lot of effort into getting it right.

We also have a strategy for significantly improving performance through innovative architectural designs – the best example is our new Virtex-4™ family. In fact, most of our performance improvements in the Virtex-4 family come from circuit enhancements. The Virtex-4 ASMBL architecture allows us to create devices that are optimized for specific applications, providing just the features and performance that are needed at the lowest possible cost. As you can see, our innovation is not just in CMOS technology – we are way ahead of our competition in both device manufacturing technology and architecture.

Reducing Design Costs with IP
Our marketplace is changing rapidly, and our customers must operate differently today than they did four years ago. Their own customers are much more cost-conscious, and thus they are much more worried about return on investments. Our customers have fewer engineers because of the recession, so they demand more from us – it’s one of the reasons why we are increasing our investments in IP and cores.

Because cores allow us to provide a more complete solution, our customers have to do less work to produce more and better designs. And they want to buy cores from Xilinx because they want to have the assurance of ongoing long-term support. We are in fact increasing our investments in IP and cores to meet the increasing demand. We already have many more cores than our competitors, and thus we are very well positioned to take advantage of these trends.

Xilinx Strategy for the Future
Here are some of the long-term objectives that define our strategy for the next five to 10 years.

Setting the Standard
We will continue to set the standard for how to manage a high-tech company. I think we have already done a phenomenal job – we’re admired as a company that manages its people well, treats its people well, and at the same time is innovative and wins in the market. And of course, the core of our culture is innovation. We want to continue to bring new technologies, new circuitries, new innovative marketing programs, and new channels of distribution.

This will continue to be the core of our strategy because it’s what makes Xilinx excel in everything we do.

Leading Manufacturing Technology
We will continue to reduce our manufacturing costs. We made a lot of progress in the last year and now we need to move on to the next step. My intention is to make sure that all of our organizations are focused on low-cost, high-volume capabilities. The consumer electronics and automotive industries require us to reduce costs and ramp production faster than ever before. We will continue to innovate within all of our organizations to achieve this ongoing objective. For programmable logic to achieve its full potential in mainstream electronics, we must become even more efficient and productive – and we will.

Yet, while we continue to develop more high-volume strategies and products, we will continue to lead the high-end, highperformance market that has traditionally been the core of our business. We are doing a phenomenal job with our Virtex product line, with 70% to 80% market share, and that will continue as well.

Creating Partnerships
Partnerships are a key strategy that allow us to focus on what we do best while allowing other companies to provide the products and services they do best – we call it our Partner Ecosystem. We will continue to build strong partnerships not only with our suppliers but with our customers as well.

We want to engage our customers early in their design process so that we can provide the best possible service and support throughout their entire design and manufacturing cycle. This requires a broad range of services from a number of ecosystem partners, and that requires a well coordinated and comprehensive approach. We have been successful with our partnership program in the past and we intend to strengthen it by making it easier for our customer partners – and our technology partners – to work more closely together for the benefit of all.

Expanding Our Markets
We are already the leader in programmable logic technology, and now it’s time for us to become a leader in all programmable technology, including DSP and embedded processing. Our technology already provides significant advantages in these areas, and it’s time for us to capitalize on these strengths. We want to be the champion of programmability because we are the only company that can provide the advantages of programmable logic, high-performance DSP, and embedded processing all on one device.

We are the largest company in programmable logic, with 50% market segment share. However, the embedded processor market and the DSP markets also offer significant market opportunity.

Brand Recognition
Xilinx is already well respected and recognized in our marketplace, and we will continue to build our brand worldwide. Our success in the first 10 years was based on two innovations: FPGAs and fabless manufacturing. When we started in 1985, neither of these ideas was credible. Only the Xilinx founders believed they would work. Yet we made them possible and we made them credible.

Our second 10 years were based on two things: becoming the technology leader in our industry and establishing a unique business culture that fosters innovation. In that we have also been very successful.

For the next 10 years, we want to extend our brand and establish Xilinx as a global leader, recognized not only by the engineering community but also by the financial community. We want to be recognized not only for our innovative culture but also for our financial stability, management depth, the global reach and diversity of our products, and by the brand name we create.

Going Global
We will continue to expand globally and place our resources close to the markets they serve. If 20% of our business is in Asia, we will strive to place 20% of our resources there because we want to be close to our customers and understand their needs. That’s why we opened up a new factory headquarters in Singapore and a new design center in India. We want to have a presence in Asia just like we have in Europe and the United States.

Conclusion
Innovation remains the core of Xilinx. I believe innovation is the only thing that matters because if you innovate, there is no competition. That’s the reason why we have gained market share every single year in the last six years.

As you can see I’m very excited about our current situation, and I’m even more excited about our future.

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