INITIATING COVERAGE REPORT

William C. Dunkelberg Owl Fund

October, 3
rd
2014

Nathan Clark: Lead Analyst
nclark@theowlfund.com
Ryan Rinaldi: Associate Analyst
rrinaldi@theowlfund.com
Sector Outperform
Recommendation: BUY

Key Statistics:
Price $43.17 52 Week Low $39.12
Return 21.35% 52 Week High $55.59
Shares O/S (mm) 268.5 Yield 2.69%
Market Cap (mm) $11,547 Enterprise
Value
$10,624

1 Year Price Graph



Earnings History:
Quarters EPS Rev. YoY Price
2Q14 $0.55 10% -3.28%
3Q14 $0.54 15% 2.27%
4Q14 $0.55 16% -9.08%
1Q15 $0.62 6% -14.31%

Earnings Projections:
Year Q1 Q2 Q3 Q4 Total
2013 $0.47 $0.46 $0.38 $0.47 $1.78
2014 $0.56 $0.58 $0.55 $0.56 $2.23
2015(Q2,3,4E) $0.63 $0.55 $0.59 $0.63 $2.39
2016e $0.64 $0.65 $0.64 $0.67 $2.59


All prices current at end of previous trading sessions from date
of report. Data is sourced from local exchanges via CapIQ,
Bloomberg and other vendors. The William C. Dunkelberg Owl
fund does and seeks to do business with companies covered in
its research reports.

COMPANY OVERVIEW
Xilinx, Inc. (XLNX) designs and develops programmable devices
and associated technologies of semiconductors. The company
develops associated technologies that include integrated circuits (ICs)
in the form of programmable logic devices (PLDs). Xilinx designs
and engineers these semiconductors so that other companies can
program them to the liking of the consumer. The company also
develops software design tools to program the PLDs. In addition to
its programmable platforms, the Company provides design services,
customer training, field engineering and technical support. Xilinxs
has multiple end markets for its products. Its communications and
data center end market makes up 50% of total revenue, industrial,
aerospace and defense make up of 31%, while broadcast, consumer
and automotive account for 16% of revenue. The Company sells its
products and services through domestic and foreign distributors and
through direct sales to original equipment manufacturers and
electronic manufacturing service providers. About 43% of Xilinxs
revenue comes from the Asia Pacific region, while just over a quarter
(26%) comes from operations in North America. Xilinx has 21% of
its business in European markets and the final 10% of revenue is
from its operations in Japan.
INVESTMENT THESIS
XLNX is currently trading at a 4.35% discount to its own 3 year
historical P/E average, as well as a 21% discount to the historical
spread between XLNX and its main competitor, Altera (ALTR).
This discount was created by two sharp price drops of 9% (Q4 FY
2014) and 14% (Q1 FY 2015). The first drop was due to low top
line guidance of only 0 4% growth, mainly caused by
aerospace/defense. This was caused by the inability to close deals in
time with governments. The more recent miss was due to slowed
orders from the wireless segment. China Mobile decided to slow
down the speed at which wireless base stations were being built,
hurting XLNXs growth. The near term slowdown in China wireless
and aerospace/defense end markets caused slowed growth and
inventory to increase with days inventory outstanding increasing
over 15% in FY 2014. Going forward, China Mobiles transparency
regarding its new plans for the 4G LTE build out, the overall PLD
market trends, and the partnership with China Mobile for a 5G
network, will drive XLNX to our discounted cash flow valuation of
$51.21 with an implied P/E multiple of 21.7x yielding a dividend
adjusted return of 21.35%.



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Xilinx, Inc.
Exchange: NasdaqGS Ticker: XLNX Target Price: $51.22


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CATALYSTS/POSITIVES
China Wireless 4G LTE Build Out. Earlier this year, China
Mobile decided it was going to slow down its wireless base
station build out for its 4G LTE network. This caused poor
earnings numbers and subsequently, an inventory backlog at
XLNX. However, on September 17
th
, the Chairman for China
Mobile announced that the company now has plans to build
700,000 base stations by the end of 2014. China Telecom and
China Unicom are following suit. China Mobile had completed
400,000 base stations prior to this announcement. This news
shows the pause in the build out is over and the Chinese
telecommunications companies will be rapidly building out 4G
LTE in the next two years. The initial plan was to only build
500,000 base stations for 2014 and now China Mobile is saying
they aim to build an extra 200,000 (700,000 in total). It should
be noted that not all of these wireless stations involve new
hardware. So far in 2014, 60% of the base stations were
upgraded to 4G while 40% involved hardware build outs.
XLNX gains revenue from both changes but more so on the
hardware build out. We see XLNX taking advantage of this
trend more than ALTR because of the companys early release
of its 28nm product (approximately 1 year earlier than ALTR).
The early release of this product has enabled XLNX to obtain
70% market share which is then followed by high switching
costs. Investor Relations is confident that the 28nm product
will grab more business than ALTRs products. The 28nm will
drive margins in coming years since older products have higher
margin than new products. The market is currently not
factoring in XLNXs market share with its 28nm product and
its ability to drive revenue and margins in the China build out.

PLD Market. Analysts are bullish on the PLD market due to
the economics of these semiconductors in comparison to
ASICs. The upfront costs associated with ASICs are
continuing to increase the amount of semiconductors that must
be sold in order to break even. The PLDs have key advantages
in the amount of volume that must be moved, longer product
cycles, faster time to market, and high switching costs. Some
analysts see the PLD market growing at 8% - 9% in the long
run, representing 1.5 to 2 times faster growth than the broader
semiconductor industry. With a 51% market share, XLNX will
capitalize on this trend.

China Mobile 5G Deal. On September 15
th
, XLNX signed a
deal with China Mobile to begin working on 5G infrastructure.
China Mobile realizes that users on a 5G network may face
congestion and are looking for XLNX to create semiconductors
that help the scalability of these 5G base stations. ALTR also
signed a deal with China Mobile to work on network function
virtualization (NFV). We believe that deal to be smaller than
XLNXs since ALTR will only be focusing on semiconductors
that enable NFV, not the overall wireless base station. This is a
long term catalyst since the 4G build out has not yet been
completed but we do believe this deal shows China Mobiles
confidence in XLNX and bodes well for obtaining 4G business
from China Mobile, the largest carrier in China.
ECONOMIC MOAT

High Switching Costs/Market Share: It is
difficult to switch PLD suppliers do to the nature of
the product. Since PLDs need to be programmed
by an engineer, it is difficult for an engineer to switch
from one PLD supplier to another. This stickiness is
the reasoning for the formation of the duopoly
between XLNX and ALTR and has prevented any
major competitors from stealing market share away
from the two leaders. XLNX in particular takes
advantage of this switching cost due to its early
product launch of the 28nm semiconductor. This
product launch led to early market share gains and
enabled XLNX to further widen its moat.

RISKS

Cyclical Nature of Semiconductors: Xilinx
operates in a cyclical semiconductor business.
Companies in this segment will face booms and
busts in demand for its products. There is a
correlation between demand for semiconductors and
demand for personal electronics like phones and
computers. When demand is high, it is sometimes
hard for companies to meet it, conversely when
demand is low. The ASIC market is especially
susceptible to cyclicality since these semiconductors
are used in more consumer electronics. PLDs tend
to be less cyclical since they are not used in many
consumer products.

China: China has a track record for not trusting
American companies when it comes to hardware
products. The country is known for being skeptical
of American companies after the NSA scandal.
XLNX has not had problems in the past when it
comes to regulations and hurdles in China but it
should be noted that if China becomes
uncooperative, there could be problems for XLNX
going forward with its wireless business.

Dependence on Major Distributor: Xilinxs largest
distributor, Avnet, accounted for 42% of the
companys revenue in FY 2014. This poses a risk as
XLNX is heavily dependent on one distributor. That
being said, this seems to be common industry wide.
Altera, XLNXs main competitor, has its largest
customer accounting for 38% of its revenue. Issues
with the financial health of Avnet could cause
distribution problems for XLNX going forward.



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INDUSTRY OVERVIEW
PLD vs ASIC
Programmable Logic Devices (PLDs) are expected to grow at 1.5 to 2 times the overall semiconductor index. This is
mostly due to the cost benefits that are arising between PLDs and Application-Specific Integrated Circuit (ASICs).
ASICs are much more advanced than PLDs because they are fully programmed and used in consumer products like
smartphones and tablets. The use of ASICs also means that the semiconductor must be of relatively small size, further
driving up its cost. PLDs are essentially blank semiconductor that can easily be programmed to compute logic
functions and are used in wireless base stations, medical devices, aerospace, defense, and automobiles. Therefore,
ASICs are only used over PLDs if the amount of volume needed is going to be substantial and size is critical.
Otherwise, the upfront costs would not be absorbed. The development costs for ASICs have been outpacing the
upfront costs for PLDs. The development cost for a 65
nanometer (nm) semiconductor (new in 2007) was $35 million
while the required revenue from that cost was $175 million.
The latest ASIC semiconductor, the 20nm, however, had
development costs of $156 million and a revenue requirement
of $780 million. This increased development cost has
outpaced the PLD development costs, making the PLDs more
affordable on an economic standpoint. Analysts and our team
see this as a tailwind for the PLD market with revenue
expected to grow at about 8%, while the rest of the
semiconductor market is only expected to grow at 5%.
Other benefits regarding PLDs vs ASICs include:
Faster time from design and engineering to mass production. Enables fast product releases. See Chart above.
Lower chance of inventory buildup due to the ability to sell a single design across multiple end markets
Lower cyclicality since end market customers are normally large telecommunications companies, governments,
industrial, and medical companies instead of the everyday consumer
Longer product cycles

The PLD Market
The PLD market is a duopoly where XLNX has
dominant market share with 51% for the calendar year of
2013. Its biggest competitor in this duopoly is Altera
with 38%. The rest of the market is shared by Lattice
Semiconductor and Microsemi. This duopoly has been
formed due to the high switching costs involved with
retraining engineers and programmers. Another
important factor regarding market share for PLDs is the
timing of product releases. The company that can release
the newest version of a semiconductor has an advantage
when it comes to obtaining market share. The newer
products gain the most market share but new products
tend to be much lower margin. Therefore, players in the
PLD market look to innovate the fastest, knowing
market share gains are essential, but that these new
products will not yield high margins till years later.

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FINANCIALS

Revenue

Top line grew at 9.9% in FY 2014 YoY, after reporting
negative 3.2% growth in 2013 YoY. Sales had a five year
(2009 2014) CAGR of 5.48%. FY 2013 was a down year
for XLNX due to the macroeconomic conditions the
company experienced in relation to the wired
communications/data center end market losing share on
older products. New products latched on during this period
but as mentioned earlier, new products are less profitable than
older products. Comparing wired communications/data
center numbers to previous years is also difficult due to the
3G build out that occurred in China in FY 2011. During FY
2011, XLNX saw revenue grow 29.2%, with most of that business coming from the China build out. This same trend
can be seen with ALTR. ALTR had strong revenue growth (at 63.5%) due to the China build out but then suffered in
the coming years with -13.6% top line growth in FY 2012. XLNX has now entered another bull run on top line due to
the China 4G LTE build out. This is causing top line growth to be reinvigorated with predicted growth at 6.5% in FY
2015 and 8.5% in FY 2016. We are seeing the wired communications/data centers as a major driver of revenue going
forward, with incremental revenue growth coming from aerospace/defense end markets. The 28nm semiconductor will
gain extra market share on the wireless stations due to its earlier release in comparison to ALTR. The early release of the
28nm allowed XLNX to gain early market share, which is now predicted to be around 70% for that particular
semiconductor. The widespread use of this semiconductor in the wireless stations, combined with the high switching
costs will allow XLNX to outpace ALTR when it comes to this 4G LTE build out. Other end markets that XLNX
serves include Industrial, Aerospace/Defense, Broadcast, Consumer and Automotive. See
Chart on the right for breakdown. XLNX also breaks out its products by New,
Mainstream, Base, and Support products. New products include semiconductors that have
recently been released. These products are lower margin than the other product categories
because these semiconductors are in the early stage of the product life cycle and suffer from
larger unit costs and lower volumes. Mainstream products tend to be older and run at full
production. Base products have the highest margin, as they are older and running on older
systems with high volumes. Support products/services help customers design and program
the PLDs. See Appendix for XLNX product portfolio breakdown. Going forward, we see
revenue growing at a five year (2014-2019) CAGR of 6.19%, driven by China and the
aerospace/defense end market closing orders that were deferred in previous quarters.


PEER GROUP IDENTIFICATION
All of these companies are direct competitors in the niche, semiconductor
market that designs and manufactures programmable logic devices
(PLDs).
Altera Corporation (ALTR)
o 38% market share for Calendar Year 2013
o Market Cap of 11,129 Million
Lattice Semiconductor (LSCC)
o 7.4% market share for Calendar Year 2013
o Market Cap of 893 Million
Microsemi Corporation (MSCC)
o 4.4% market share for Calendar Year 2013
o Market Cap of 2,392 Million
TARGET PRICE

XLNX is currently trading at a 4.35% discount to its own
historical 3 year P/E multiple. The company is also trading at a
21% discount to its 3 year historical spread to Altera, the other
competitor in the PLD duopoly. Using the long term corporate
goals for margins and % of sales numbers provided by investor
relations, our discounted cash flow valuation gave a target price
of $51.22. We used a modest 0.63% perpetuity growth. This was
derived from an average of the Return on Invested Capital times
the Investment Rate for the 7 year projections.

Growing Perpetuity Discounted Cash Flow
Valuation Price Target= $51.22
Implied Target Multiple: 21.7x



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Margins/Profitability

Historically, XLNX has been improving its gross and net income
margins. Gross margin was 63.4% in 2010 and has grown to 68.8%
for FY 2014, representing an increase of 5.4%. We see gross
margin continuing to expand as the 28nm semiconductor
(introduced in 2011) ages and becomes a larger portion of revenue
through its implementation in the China wireless build out. Going
forward, we forecast the gross margin expanding to 69% in 2015
but then settling off to a management projected, long run average
of about 66%. Altera has seen margin contraction since FY 2010.
For FY 2010, ALTR had a gross margin of 71% but it has since
come down to 68.4% for FY 2013. Part of the reasoning behind
ALTRs high margin in FY 2010 was due to the companys ability to take advantage of the 3G China build out. We also
see ALTRs margins settling off at a long run average of 66% as this company does not have pricing power over XLNX.
XLNX has enjoyed higher net income margins than its biggest competitor, ALTR. XLNX has grown its margin to 26.5%
from 19.5% in FY 2010. This increased efficiency has been seen by ALTR but not to the same degree. ALTR enjoyed
high margins during the 3G build out but since then margins have been compressing. FY 2010 had a margin of 40.1%
but FY 2013 had a margin of only 25.4%. XLNX has higher profit margins because less of its current product portfolio
is classified as New compared to ALTR. See Appendix for ALTR product portfolio breakdown. Newer products
have lower margins than older products. Many analysts are predicting margin expansion for ALTR and we believe that is
due to the Intel deal the company has signed. After speaking to investor relations at XLNX, we do not view the Intel
deal as a catalyst for growth or margin expansion. XLNX turned down the chance to work with Intel because of good
relations with Taiwan Semiconductor Manufacturing Company (TSMC), its main manufacturer. We are also skeptical
about Intels ability to prove itself in the PLD space as its business model focuses more on microprocessors. XLNX
does not disclose margins across different end markets. The only guidance the company gives is that older products
have higher margin than newer products. Since New products are currently 45% of the product portfolio, overall
margin expansion will occur in the coming years as these products age.

XLNX has higher profitability metrics than ALTR when it comes to Return on Assets, Return on Equity, and Asset
Turnover as well. ROA has increased from 11.92% in FY 2010 to a current level of 13.18%. This has mainly been
driven by increasing profit margins. Asset turnover has decreased over the past couple years due to inefficiencies
regarding inventory. Altera has experienced the same trend with asset turnover falling to 0.35 after being at 0.65 in FY
2010. However, XLNXs higher profit margin has enabled the company to have a higher ROA than ALTRs (current
ROA of 8.64). ROE for XLNX has also outpaced ALTR. XLNX has grown ROE to 23.42% from a level of 17.57% in
FY 2010. Meanwhile, ALTR has seen its ROE compress to a 13.51% from a FY 2010 level of 45.93%. The reasoning
for XLNXs higher ROE is a better ROA, driven by profit margins, and a higher degree of leverage. We see XLNX
continuing to outpace ALTR in regards to these metrics due to high market share in its 28nm product, further driving
revenue and margin expansion over ALTR. See Comparables Table for metrics.

Earnings

XLNX has missed on EPS 4 of the last 10 quarters. The most recent
EPS miss was Q4 2014, with a -2.10% surprise. This was caused by
weak numbers coming from China, leading to high inventory. Price
dropped 9.08% on this miss. Even with this large miss, XLNX has
been able to grow earnings by 72% since FY 2010. Going forward,
analysts are predicting EPS to grow another 31.8% by FY 2017. Our
model is more conservative with EPS only growing 22.14% by FY
2017. The reason for this slowed growth going forward is due to the
3G build out causing historical numbers to be abnormally high. This time period experienced rapid revenue growth,
inflating EPS in the near term. Analysts are predicting the 4G build out will bring more modest growth to XLNX.
ALTR has also seen rapid EPS growth with earnings growing 58.14% from FY 2009. Going forward, analysts see
ALTR growing earnings by 80.15% in FY 2017. The reasoning behind ALTRs high earnings predictions is that some
analysts are bullish on the Intel deal and believe that will drive ALTR, going out past FY 2015. We believe the market is
discounting XLNX because of the Intel deal, leading to slower expected growth from XLNX.


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Cash Flow

Depreciation

XLNX has had depreciation higher than capital expenditures every year since FY 2008, with the exception of FY 2011.
We view this trend as unsustainable and unrealistic going forward. Eventually depreciation will run off and capital
expenditures will be higher than depreciation. Since we view this trend as unsustainable, we reversed it in the model.
Going forward, we forecast depreciation being smaller than capital expenditures. We believe analysts are doing the same
in their models. Smaller depreciation in comparison to capital expenditure numbers will adversely affect FCF and CFFO.

CFFO/FCF

XLNX reported CFFO for FY 2014 as $804.9M and we are modeling CFFO to be $726.4M in FY 2015, mostly affected
by a lower depreciation number and other minor changes on the balance sheet. FCF was $760M in FY 2014, with our
model predicting FCF to be $718.4M for FY 2015. Once again, low depreciation numbers are hurting cash flow
numbers going forward. Our model has the same trend as Bloomberg estimates. Although low depreciation is hurting
near term FCF, we have modeled FCF to have a 5 year (2014 2019) CAGR of 1.72%. In the past, FCF grew at a 4
year (2010- 2014) CAGR of 9.63%. These growth rates are difficult to compare because FCF saw a 43.7% increase in
FY 2012 due to abnormal net income growth. We are not concerned about FCF growing at a slower rate than in the
past because our model predicts depreciation will correct itself. We believe analysts are doing the same, as Bloomberg
estimates show the same trends in terms of FCF going forward. In the past, CFFO grew at a 5 year (2009 2014)
CAGR of 12.71%. We see CFFO being adversely affected by depreciation, leading to a 5 year (2014 2019) CAGR of
1.01%. Once again, we are not worried about cash flows going forward as we believe all analysts are modeling out a
reverse in the depreciation capital expenditure trend. ALTR has seen CFFO grow 81.8% since FY 2009 and FCF
grow 76% over the same period. ALTR does not have the same depreciation capital expenditures relationship trend
occurring. Therefore, it is easier for analysts to model out the depreciation for this company. This also means that
ALTR is predicted to have rising CFFO and FCF because depreciation numbers will not have adverse effects on cash
flow. Analysts are also predicting higher long run top line growth for ALTR, which leads to higher net income and FCF.

Debt

We are confident in Xilinxs ability to repay its debt, which totals $1.5B. While XLNX has a higher debt/equity to ratio
of 55.8% to that of Alteras 44% (its competitor in the PLD duopoly), XLNX has a higher interest coverage ratio of
14.9x compared to the 13.5x ratio of Altera. Our forecasts show that XLNX will be able to cover all of these debt
payments through CFFO alone. Both XLNX and ALTR hold an A- credit rating from S&P. This shows confidence
in the PLD market in that it is not as cyclical as the broader semiconductor market. XLNXs debt schedule allows the
company to pay off its small amount of debt in increments. This will allow XLNX to combat any macro conditions that
may arise of the next few years. The maturities occur in 2017, 2019, and 2021.





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SHAREHOLDER RETURNS

Xilinx has a history of giving back to its shareholders through a combination of a growing dividend and share buybacks.
From 2008 to 2013, Xilinx has repurchased $2.5B of the companys shares. While the company does not currently have
an active repurchase program, Xilinx bought back $750M of the companys outstanding shares ending in the September
quarter of 2013. This past quarter (Q1 FY 2015) the company reported another $100M repurchase that was previously
unannounced. Xilinx has historical given back to its shareholders through a solid dividend too. XLNX has a dividend
yield of 2.42%, higher than Alteras 1.67%. Xilinx has a dividend payout ratio of 44.7%, higher than Alteras payout ratio
of 36.7%. This shows that XLNX is providing a higher return to shareholders through its dividend in comparison to
ALTR.

VALUATION

Xilinx has had two price drops in the previous 12 months. The first was on April 23
rd
, 2014 after the company reported
revenues of $618M and EPS of $2.19, beating analyst expectations on revenue but slightly missing on EPS by $.02 per
share. The drop was also in response to lowered guidance for the current quarter citing flat expected growth in the
companys wired communications and industrial & aerospace segments. Comparatively, Xilinxs main competitor Altera
also fell on struggling numbers in the industrial & aerospace segments. The second price drop occurred on July 22
nd
,
2014 after the company reported revenue of $612M, missing analyst projections by 3%. Xilinx did report solid EPS
numbers with a 2.77% beat. CEO Moshe Gavrielov noted that the decline in revenue was a result of a very weak quarter
in the defense and wireless businesses. This is an industry trend with Altera, Xilinxs main competitor, also facing
decreases in these segments. Xilinx lowered guidance on revenue to a range between $588M- $612M due to uncertainty
of its immediate future with Chinese business. Since then, collaboration on work in China has resumed and we expect
the value of Xilinx to appreciate as positive numbers are released from the Chinese business. Defense and aerospace
business is due to return in the coming quarters, with the company citing deals not being closed in time for the previous
quarter. This revenue was simply deferred to later quarters. These price drops have left XLNX undervalued to
themselves, ALTR, and the broader semiconductor index on a P/E and EV/EBITDA basis. See Appendix for graphs.
Discounted Cash Flow Valuation
Assumptions and Drivers of Free Cash Flow
For sales growth, we projected 6% and 8.5% growth for FY 2015 and FY 2016, respectively. This projection is higher
than some analysts but we are taking the position that the sales growth in the China wireless segment will outpace what
analysts are currently modeling out. When it came to operating margin, gross margin, R&D, and SG&A, we used long
term projections provided by investor relations. See Appendix for numbers from investor relations. We increased R&D
expense because early innovation is key to gaining market share and we believe XLNX will continue to invest heavily in
R&D. For the model, we put in some bullish margins and growth for the first 3 years but then brought numbers down
to meet the XLNX long term model provided by IR. We believe our projections are modest, considering we undershot
Operating Margin in relation to the guidance provided by IR. Other important factors relating to Free Cash Flow were
Capital Expenditures, Depreciation, and the Tax Rate. In past years, XLNX had higher depreciation than CAPEX. We
built into the model that this would reverse since that trend is unsustainable. CAPEX for XLNX has historically been
relatively low in comparison to sales with it only equaling 1.9% of sales in FY 2014. XLNX is not in a capital intensive
industry with FY 2014s expenditures coming from offices being built. We built a gradual tax rate increase into our
model in order to be more conservative. Historically, XLNX has paid a tax rate of 10.9% but we forecasted it to
increase to 15% from 2018 on. We modeled the tax rate this way in order to be modest with our projections. For
irregular items like intangible amortization and accumulated other comprehensive income, we modeled out constant
numbers due to the inability to properly predict these categories.


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Price Targets
Finding an accurate Exit Multiple for a cyclical industry is difficult. Taking an average of the historic multiple is not an
accurate representation of where the multiple will be 7 years out. The multiple on the DCF is the average of XLNX and
ALTRs EV/EBITDA multiples over the past 10 years. We found that the PLD duopoly traded at a much different
level than the broader semiconductor market. Therefore, using a semiconductor industry Exit Multiple would not
properly capture the PLD market and its trends. This method yielded a dividend adjusted return of 5.3%.
The Growing Perpetuity rate was calculated through ROIC times the Investment Rate. We took an average of this rate
of the 7 years of projections. We believe a growth rate of 0.6% to be modest but accurate as it helps catch the cyclicality
of the business. This method leaves us with a price target of $51.21 and an implied P/E of 21.7x. The Growing
Perpetuity method yields margin expansion of 14.27%, as XLNX currently trades at 19.02x. We find this method to be
much more realistic due to the relatively modest inputs and transparency that investor relations provided with long term
corporate targets.
WACC

The WACC of 8.75% was calculated using 5 year average weights of 92% for equity and 8% for debt. XLNX is
relatively unlevered. For the cost of equity, we used a risk free rate of 2.47%, expected market return of 7.38% and beta
of 1.06. These numbers, along with short term and long term debt rates were taken from Bloomberg estimates. Cost of
equity was 7.67% while cost of debt was 2.26%. We rounded our WACC to 9.00% from 8.75%. The Bloomberg
estimate for WACC is 9.10%.




Peer Group Valuation
The PLD market is a duopoly with XLNX having 51% market share and ALTR having 38% as of 2013. Lattice
Semiconductor (LSCC) and Microsemi (MSCC) also compete in the PLD market but have significantly smaller market
share at around 12% market share combined. It will be difficult for these two competitors to gain market share from
XLNX and ALTR because of the high switching costs involved with teaching engineers how to program the
semiconductors. Valuing XLNX against LSCC and MSCC on a P/E basis proved to be difficult as those two companies
are small and do not have consistent EPS numbers. On an EV/EBITDA basis however, XLNX is trading 8% below
its 3 year historical spread to a custom index of ALTR, LSCC, and MSCC. When comparing to ALTR on a 3 year
historical spread, XLNX is trading at a 21% discount to its average. To the broader semiconductor index, XLNX is
trading at a 27% discount to its 3 year historical average spread. We do not believe this method is an accurate way to
value XLNX though because PLDs trade higher than the broader semiconductor industry. See Appendix for charts
regarding discounts. As mentioned earlier, XLNX enjoys higher margins and profitability ratios than its all of its direct
competitors. We believe this trend will continue as the 28nm semiconductor will win more business in the China
wireless build out and further drive margins as the product ages.
WACC

9.00%
EM Method
EM: 14.4x
$44.30
GP Method
GP: 0.6%
$51.22

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APPENDIX
PRODUCT PORTFOLIO FOR XLNX AND ALTR (XLNX ON LEFT, ALTR ON RIGHT)
Note: High roughly equals New; Mainstream Mid-range; Low - Base

DCF ASSUMPTION


Xilinx Comparables Analysis
($ in millions except per share)
Stock Equity Enterprise Revenue EBITDA EPS Gross EBITDA Debt/
Price Market Market Growth Growth Growth Margin Margin Equity
Company (TICKER) 9/24/14 Value Value LTM NFY LTM NFY NTM NTM NTM LTM LTM MRQ
Xilinx (XLNX) 43.82 $ $11,764 $10,842 19.31 18.37 12.94 12.29 4.8% 5.3% 7.0% 69.2% 34.7% 26.8% 55.8% 14.89 (923) A-
Altera (ALTR) 36.26 $ $11,202 $9,888 24.83 23.88 16.79 16.19 11.5% 8.8% 11.6% 67.6% 31.8% 24.9% 44.0% 13.47 (1,310) A-
Lattice Semi (LSCC) 7.56 896 649 22.18 20.71 9.82 13.3% 73.8% 54.8% 17.7% 10.5% 0.0% 0 (247) N/A
Microsemi (MSCC) 25.43 2,426 2,969 95.7 11.96 16.01 13.12 16.5% 57.0% 78.7% 53.7% 17.1% 0.4% 68.1% 0 543 BB
Median 24.8 20.7 16.0 14.7 13.3% 32.9% 73.8% 54.8% 17.7% 10.5% 44.0% - (247) N/A
Mean 47.6 18.9 14.2 14.7 13.8% 32.9% 54.7% 58.7% 22.2% 11.9% 37.4% 4.5 (338) N/A
Source: Bloomberg
Capitalization Valuation Multiples Leverage
Profit
Margin
LTM
Margins
P/E Multiple EBITDA
Interest
Coverage
S&P
Credit
Rating
Net
Debt
MRQ
Growth Rates

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MANAGEMENT PROJECTIONS

XLNX P/E MULTIPLE W/AVERAGE LINE OVER THE LAST 3 YEARS

XLNX 3 YEAR HISTORICAL P/E SPREAD VS ALTR


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XLNX 3 YEAR HISTORICAL P/E SPREAD VS S5SSEQX INDEX
Note: The only PLD companies in this index are XLNX and ALTR.


XLNX 3 YEAR HISTORICAL EV/EBITDA SPREAD VS ALTR, LSCC, AND MSCC







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DISCLAIMER
This report is prepared strictly for educational purposes and should not be used as an actual investment guide.
The forward looking statements contained within are simply the authors opinions. The writer does not own any
Xilinx, Inc. stock.
TUIA STATEMENT
Established in honor of Professor William C. Dunkelberg, former Dean of the Fox School of Business, for his
tireless dedication to educating students in real-world principles of economics and business, the William C.
Dunkelberg (WCD) Owl Fund will ensure that future generations of students have exposure to a challenging,
practical learning experience. Managed by Fox School of Business graduate and undergraduate students with
oversight from its Board of Directors, the WCD Owl Funds goals are threefold:
Provide students with hands-on investment management experience
Enable students to work in a team-based setting in consultation with investment professionals.
Connect student participants with nationally recognized money managers and financial institutions

Earnings from the fund will be reinvested net of fund expenses, which are primarily trading and auditing costs
and partial scholarships for student participants.