Earnings Call Transcript - AMD Q1 2020

Operator, Operator

Good afternoon. My name is Kathryn, and I will be your conference operator. I would like to welcome everyone to the Xilinx Q1 FY20 Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. I would now like to turn the call over to Matt Poirier. Thank you. Mr. Poirier, you may begin your conference.

Matt Poirier, VP of Investor Relations

Thank you Kathryn and good afternoon, everyone. With me are Victor Peng, CEO and Lorenzo Flores, CFO. We will provide a financial and business review of the June quarter and the business outlook for the September quarter. 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 documents 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 amortization of intangibles and certain one-time items related to acquisition. 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. Please note that we have also posted a document to our IR website that contains five quarter historical data for the new end market classification we adopted in May 2019. 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, CEO

Thanks, Matt, and good afternoon, everyone. I'm pleased to share our results today as they exemplify the durability and resilience of our business. We saw solid growth in our WWG, AIT, and ABC end markets, which enabled us to achieve the midpoint of our Q1 fiscal 2020 revenue guidance despite unexpected challenges. I'm proud of the tremendous effort by our employees to achieve our target despite the Huawei shipping restrictions that occurred midway through the quarter, as well as the general uncertainty in the current global trade environment. Now let me share some highlights around our business units in core vertical markets. I'll start with WWG. Despite our complete suspension of shipment to Huawei in the middle of the quarter, we saw continued strong demand from many of our wired and wireless customers in support of global 5G deployment. We remain well positioned during this initial wave of the 5G cycle, which we continue to believe will be a factor larger than the 4G cycle. Following the deployment in South Korea last year, we are seeing the beginning of deployments in China, albeit more measured given the Huawei action. We are actively ramping sales of products supporting radio applications in addition to baseband. As we noted in our Analyst and Investor Day, we anticipate a mix shift to radios as the portion of our baseband revenues converts to ASICs. We've been monitoring the market closely and to-date have not seen unusual inventory building at wireless customers, but we will of course continue to watch it very closely. Moving to DCG. Our business did not grow as expected, largely due to the suspension of shipments to Huawei for their FFAF deployment, as well as a slowdown in orders due to a product transition at a significant memory customer, the latter of which we expect to meaningfully recover next quarter. That said, we continue to make good progress with multiple hyperscalers, both on FAAF and internal acceleration applications. Our hyperscale customers have begun deploying our platforms in production for accelerating applications such as search, streaming video, as well as network acceleration with SmartNIC. Alveo continues to make progress with numerous proof of concept with top-tier OEM end customers. We are anticipating revenue contribution to be meaningful later this fiscal year as customers move those POCs into production. Lorenzo will be sharing additional details of our core vertical markets later in the call. So now, I'm going to turn over to other highlights in the quarter. Revenue from advanced products grew 53% year-over-year and was 69% of total sales in Q1. We saw broad-based demand for our 60-nanometer UltraScale+ family, which continues to be a strong revenue driver for our business. Last year, we introduced an extension to that family with industry-leading 58 gig PAM4 SerDes. These products enable customers in the wired, TME, and A&D markets to double the bandwidth of existing 25 Gig systems without deploying new infrastructure. Our new Vertex UltraScale+ 580 Gig devices will be shipping in production soon. In addition, based on our strong customer demand, we extended our Vertex UltraScale+ high bandwidth memory or HBM family by adding 16 gigabyte HBM capacity to that sale. These high-capacity HBM products are ideally suited for workloads that process larger datasets, such as adaptable AI Inference, database acceleration, data analytics, video transcoding, and security processing. The 4 gigabyte and 8 gigabyte products are already in production, and we're sampling the 16 gigabyte products today. The 16 gigabyte products will go into production later this year. Demand for our Zynq platform remains strong, driven by the adoption of our MPSoC family in wireless, and across our core vertical markets. Revenue from our Zynq family grew 68% year-over-year, which represented approximately 23% of total revenue in Q1. In fact, cumulative revenue from our 28-nanometer Zynq product has crossed the $1 billion mark. We see our 16-nanometer Zynq products growing at an even faster pace. In terms of our progress in Q1 with our adaptive computing strategy, we started sampling our first 7-nanometer Versal AI Core and Versal Prime Series products with select customers. We will be expanding our early access customer engagement throughout this quarter, Q2. Our Versal silicon testing to date indicates that we're solidly on track to deliver a 10x increase in performance, and significant power efficiency gains for a number of applications compared to the latest generation FPGAs and general-purpose processors. We will be showcasing our Versal platform in a new unified software development environment that will greatly enhance the user experience at our XDF this October. I hope to see many of you there. Now shifting to M&A activity. We announced the acquisition of NGCodec that adds a differentiated video compression software to our portfolio to support our data centers. This product has already gained traction with key cloud customers, including Twitch and Alibaba. Video acceleration will be one of the key growth drivers for the DCG users. We are also on track to close the acquisition of Solarflare in Q2. Recall that this acquisition brings a new class of SmartNIC to hyperscalers, enterprise, and telco networking customers. These new SmartNICs will eliminate network bandwidth bottlenecks, free up CPU cycles, enable network and data centric implementations, as well as customizations to unique customer needs. Now, before I hand off to Lorenzo for a detailed view of our Q1 financials and our Q2 outlook, I want to provide some additional comments related to Huawei. Xilinx is committed to ensuring full compliance with all U.S. export control regulations. Upon the Commerce Department's addition of Huawei and its non-U.S. affiliates to the Bureau of Industry and Security entity list in mid-May, Xilinx immediately suspended shipment of all products to Huawei. After reviewing the export administration regulations and entity list restrictions, we determined that we can lawfully resume shipping select products. We've recently begun fulfilling orders from Huawei during our current quarter. These products are mostly 28-nanometer or older products not designed into 5G applications. We have also submitted requests to the Commerce Department for licenses to sell additional products to Huawei. Xilinx will continue to comply with all government and legal requirements across our global operations. I want to emphasize that we cannot predict whether additional government actions may further impact our ability to ship to Huawei as the situation remains dynamic. We hope a resolution of these issues that led to U.S. and China trade actions is reached as quickly as possible, so market-driven trade can resume. In conclusion, we are focused on executing our strategy and remain very confident in our significant and unique long-term growth opportunities, driven by 5G, data center and automotive disruptions, and our transformation to platforms. Thank you. And now I'll turn it over to Lorenzo.

Lorenzo Flores, CFO

Thank you, Victor. Overall, our business performed quite well this quarter even with the challenges Victor just described. Total revenue was in line with guidance at $850 million, up 24% year-over-year and 3% sequentially. Our results are a testament to the resilience of our revenue base from our broad set of end markets and diverse customer set. The continued 5G build-out drove the growth in wired and wireless groups with revenue expanding 66% year-over-year and 2% quarter-over-quarter. Quarter-to-quarter, wireless declined slightly, and wired grew. Our broad customer base drove this growth in the quarter, although less than expected due to the Huawei shipping restrictions. Revenue from the data center group was below our guidance, declining 13% year-over-year and 4% quarter-over-quarter. We showed growth in multiple hyperscalers and broader accounts, but the Huawei ban did have an effect on DCG. In addition, one of our memory-related customers is going through a product transition, and had an inventory-related slowdown. In AIT, all markets outperformed expectations with strength in industrial and less than anticipated decline in aerospace, defense, and TME. AIT grew 10% year-over-year and 2% quarter-on-quarter. In the quarter, aerospace and defense, industrial, and TME were broadly strong, and we had a modest amount of accelerated orders by some industrial customers. In ABC, we continue our long-term growth trend with 10% year-over-year growth. Quarter-to-quarter, we grew 8%, though we were weaker than expected in auto. The other decline was due primarily to slower auto sales in China, stemming from trade-related factors. Broadcasting consumers were stronger than expected in the quarter. Gross margin was in line with guidance with GAAP margin of 66.2% and non-GAAP gross margin at 66.6%. The difference between GAAP and non-GAAP is due to M&A related amortization. Operating expense, with GAAP OpEx at $312 million and non-GAAP at $306 million, was slightly lower than our guidance. GAAP operating income was $251 million, or 29.5% operating margin. Non-GAAP operating income was $260 million, or 30.6% operating margin, better than expected as gross margin was slightly higher and operating expense was slightly lower. Our GAAP to non-GAAP tax rates were approximately 8%. One detailed note here: Some of you may be aware of the altercation related to the tax impact of share-based expenses and cost-sharing agreements. We have not recognized any impact on our tax rate from the recent Ninth Circuit Court decision as we view this matter as unsettled. Please refer to our 10-Q for more disclosure. GAAP net income was $241 million and diluted earnings per share at $0.94. GAAP EPS grew 27% year-over-year. Non-GAAP net income was $249 million, yielding a record non-GAAP diluted EPS of $0.97 a share, a 29% growth over last year. Diluted share count decreased slightly to 258 million shares. Next, I'll cover a few points on the balance sheet and cash flow. Gross cash was $2.9 billion with $1.2 billion in long-term debt. Accounts receivable declined to $306 million and is at 33 days. Inventory increased by $21 million to $337 million as we build for future demand, particularly in 16-nanometer. Overall, we generated $298 million in operating cash flow. We continue to implement our capital allocation strategy as discussed during our Analyst and Investor Day. We made multiple investments in our ecosystem and continued our strategic M&A activities. During the quarter, we also repurchased approximately 3 million shares at an average price of $105.50 per share and paid dividends of $94 million. Now onto our guidance for the second quarter of FY 2020. We expect our revenue to be between $800 million and $850 million. The midpoint and wider than usual guidance range reflect a full quarter impact from the shipping restrictions for Huawei, other current trade-related uncertainty, and our usual business variability. More specifically, our guidance range includes an estimate of revenue from the resumption of shipments of currently permissible products to Huawei and contribution from other products that are pending government approvals for shipping licenses. On Huawei, while we aren't quantifying their revenue contribution, our expectation for Huawei this year has been reduced by more than half. Building on that point, our outlook for the WWG business is for a slight decline. Wired is expected to decline and wireless is expected to grow slightly. Again, we do anticipate a headwind from the Huawei situation, but we expect strength across our broad customer base to provide some offsets. The data center is expected to rebound strongly. Our backlog is healthy and indicates significant growth that's coming from our advanced memory architecture-related business. We are expecting growth from the expansion of business at other hyperscalers as well. Finally, we expect some growth from crypto, although that business remains volatile and relatively small. For AIT, we expect the business to decline in Q2. This is primarily a result of an anticipated pause in a customer-specific program, driving a decline in TME. Industrial is expected to be negatively impacted by order timing and macro issues. A&D is expected to grow, providing a partial offset. Our ABC business is expected to grow in Q2. We forecast growth in auto and broadcast, and we expect consumer to remain steady. To recap, we are guiding our Q2 modestly downward, mainly due to the shipping restrictions on Huawei. That said, we believe that outside of the trade-related issues, our revenue outlook continues to demonstrate the breadth and resilience of our business model. Gross margin is expected to be between 65% and 66% on a GAAP basis, and 66% and 67% on a non-GAAP basis. Non-GAAP gross margin is essentially flat from Q1 as expected. The decline in GAAP gross margin is due primarily to incremental acquisition related amortization expenses. As we discussed at our Analyst Day, GAAP operating expense will grow in Q2 and is expected to be $326 million. The increase is primarily due to increases in employee compensation and acquisition-driven expenses. The growth in compensation reflects our annual focal process including stock grants and organic and inorganic growth to our employee base. Non-GAAP operating expense will be approximately $322 million. While we expect Solarflare to close this quarter, precise timing of the close is uncertain. Therefore, we have not included revenue or expense estimates in our outlook for Q2. Depending on the timing of the close, additional non-GAAP OpEx could be between $10 million to $15 million for the quarter as we onboard Solarflare employees. We also expect to have incremental revenue of mid to high single-digit millions in the quarter. This revenue would be slightly higher than corporate gross margin. GAAP and non-GAAP other income is expected to be approximately $11 million. Our tax rate is expected to be approximately 0% for Q2. This low rate is a one-quarter phenomenon due to the tax accounting rules for share-based compensation. We expect the quarterly tax rate to normalize in the second half of the year to a range between 7% and 10%. We expect the share count to decrease slightly in Q2, which is the net result of our share repurchases offsetting our annual stock grants. As I close, Victor and I realize there will be a great interest in our outlook beyond Q2. At this point in time, we are monitoring the China trade situation and the overall economic environment. Given the uncertainty regarding these important factors, we are not reiterating or updating our full year guidance today. We expect to provide an update on our fiscal '20 outlook at our October earnings call. Overall, we believe our long-term growth drivers remain very much intact. Although our FY20 revenue expectations have been somewhat moderated by trade-related concerns, we continue to believe that the second half of our fiscal year will be better than our first half. Let me now turn the call back to the operator for Q&A.

Operator, Operator

The floor is now open for questions. Your first question comes from Vivek Arya with Bank of America.

Vivek Arya, Analyst

Thank you for taking my question. Victor, since Huawei is of so much importance to investors, I was really hoping you could give some rough sense of how large it was as a customer in your last fiscal year. I realize that it's not 10%, so you have not disclosed that. But any rough sense would be really helpful. And then how much of a headwind was it in June and how you are thinking about it in the September quarter, just because it's such a large variable in thinking about the business in the near-term? Thank you.

Victor Peng, CEO

Well, look, Huawei is a very important customer to us. But as you said, we had no 10% customer in FY19 nor in the first quarter of FY20. Huawei is important. That said, we are able to hit the midpoint of our guidance, because we were able to offset that through performance in other areas. But as I said, the resilience of the business in all the other markets remains strong, particularly AIT also seeing some more strength in the wireless, as well as the wired growth. As we expected and have communicated, a lot of hard work allowed us to achieve our results. I think you should look at the fact that at our Analyst Day we indicated that Q2 would be flattish to Q1, and now we're guiding slightly down from that, which clearly shows the impact despite achieving the mid-range. And just in terms of the general size, I mean, clearly as Lorenzo said, this range that we provided for Q2 indicates that our current expectation is well less than half of what we initially thought. So consider this aspect of volatility managed as we adapt to the market.

Operator, Operator

Your next question comes from the line of Joe Moore with Morgan Stanley.

Joe Moore, Analyst

I'm curious about how you view operating expenses in light of the variability expected in the second half of the year. Is there a possibility for operating expenses to decrease if revenue expectations decline, and what flexibility do you have in that regard?

Victor Peng, CEO

If you take a step back and say, aside from the trade situation, our main thesis of everything we said during the Analyst and Investor Day remains intact. That's what Lorenzo closed with. The fact that we still have strong growth drivers in 5G remains unchanged. Yes, Huawei influences the situation but the rest of 5G, data center, automotive, and long term opportunities remain. So we are still moving forward with our investments but, of course, we're monitoring the situation very carefully.

Operator, Operator

Your next question comes from the line of CJ Muse with Evercore.

CJ Muse, Analyst

I guess a gross margin question. Revenues guided modestly lower, but gross margin is also lower. And I think we all thought that wireless, particularly Huawei in the mix, was the headwind. And therefore, if that's getting pulled out, why are our gross margins at the midpoint guided lower? And then what gives confidence that you can get back to that 69% territory in the second half of the fiscal year?

Lorenzo Flores, CFO

So CJ, a couple of points. First, you should look at the non-GAAP gross margin guide as it is more relevant to your question. Non-GAAP gross margin is flat quarter-over-quarter. How that becomes a bit more complex is due to the mix, as we also mentioned that the wireless part of our business is expected to grow slightly despite the Huawei shipping restrictions. Also, AIT will see a decline, which generally benefits gross margin. Does that help?

Victor Peng, CEO

I would add that it isn't the Huawei situation that's being the only influencing factor, but the wireless sector in general. While wireless is down a bit, it's still a meaningful part of our business. So the key consideration is we still have a robust wireless business alongside what Lorenzo mentioned about the other segments.

Lorenzo Flores, CFO

Just to clarify, when I gave my prepared remarks, I indicated that from Q1 to Q2, our wireless business, despite Huawei shipping restrictions, is going to increase slightly.

Operator, Operator

Your next question comes from the line of Ambrish Srivastava with BMO.

Ambrish Srivastava, Analyst

I wanted to return to the datacenter topic, which is a key element of the investment case for Xilinx. Can you give us a general breakdown? You've shared figures for the past three years and more recent quarters. What is the composition of the business, Victor, particularly in terms of the traditional core area for Xilinx, which was storage servers, compared to the new sectors you are entering? Regarding your full-year guidance, I understand there are uncertainties, but do you still anticipate that the datacenter, which was expected to be the main growth driver — around 55% to 65% as mentioned on Analyst Day — will meet that target, or has that changed?

Victor Peng, CEO

So Lorenzo is going to clarify on the traditional versus new. What I would say is that, following the ongoing Huawei situation, we still expect the datacenter business to be one of our big growth drivers. Yes, it may be compounded by some restrictions, but we also have strong opportunities in other areas. We just want to ensure we're capitalizing on those opportunities while managing the existing risks. So, we won't be providing a re-guidance for the year at this moment.

Lorenzo Flores, CFO

I actually don't have the breakdown of the traditional and new businesses on hand, Ambrish. But what I can share is that the core datacenter business growth that Victor alluded to from Q1 to Q2 is almost entirely attributed to the new business.

Operator, Operator

Your next question comes from the line of Blayne Curtis with Barclays.

Blayne Curtis, Analyst

Hey, guys, thanks for taking my question. Maybe two related ones: Just on the wireless side. You've guided back up, close to peak levels without, I guess, a portion of Huawei. Just curious if you could comment on the strength? And while geographic breakdown of revenue isn't always reliable, Asia was up significantly. Is there something you can speak to regarding that?

Victor Peng, CEO

I think this speaks to the overall strength of 5G, which hasn't changed. Obviously, Huawei is important for us, but our overall thesis remains. We're in the early phases of 5G deployment. Korea started last year, but we still see momentum in deployment trends. The situation in China remains less clear due to ongoing trade matters. It's important to recognize that while Huawei is a key customer, we have other major players in wireless as well, which helps mitigate the risk.

Lorenzo Flores, CFO

Yes, I would agree. The strength in Asia aligns with our growth story, especially in industrial end markets.

Operator, Operator

Your next question comes from the line of John Pitzer with Credit Suisse.

John Pitzer, Analyst

Victor, just relative to the September guide for wireless to be up slightly, I understand the headwind coming from Huawei. I'm curious if that increase factors in baseband ASIC displacement with radio growth? Or is the ASIC displacement more something we see as a headwind in the second half of the fiscal year? How should we think about your ability to grow the business sequentially?

Victor Peng, CEO

Regarding the ASIC displacement, as I mentioned in my opening remarks, we’re aware of potential shifts. But to date, this hasn’t weighed heavily on our reported performance. Looking ahead, we do factor this into our planning while still maintaining optimism for growth in the second half of the year.

Operator, Operator

Your next question comes from the line of Ross Seymore with Deutsche Bank.

Ross Seymore, Analyst

Let me ask about the AIT segment. You provided some insights into why that was better than expected. However, I wanted to check two parts. Was there an inventory dynamic that benefited this quarter, or was that simply driven by underlying demand trends? Looking at the September quarter guidance, it seems like it has to decline pretty substantially on a sequential basis. Can you elaborate on what's happening in the September guide for that segment?

Lorenzo Flores, CFO

Let me start with some historical context. There was some inventory build in the strength of industrial in Q1. As we look towards Q2, we were aware of significant customer program timing that would cause a pause in this quarter’s revenue. Specifically, that has significant implications for TME.

Victor Peng, CEO

We expect it to rebound in the second half of the year.

Operator, Operator

Your next question comes from the line of William Stein with SunTrust.

William Stein, Analyst

Great, thank you for taking my question. I'm hoping to dig into the 5G dynamics a little bit. The way you're describing this market almost sounds like, well, if our customers can't buy from Huawei, they can source from other vendors. I'm surprised to hear that and might be misinterpreting. Can you comment on your customers' trends, and what their customers or carriers are telling you about their ability to adjust?

Victor Peng, CEO

No, I don't think we were trying to convey that at all. It's not like customers can just swap suppliers easily. We're in the early phases of 5G deployments. There are initial deployments in China with limited changes. The major players, including Huawei and ZTE, dominate, and we don’t have clear visibility on later deployments. Conditions can change quickly, and replacements are not as simple as they may seem.

William Stein, Analyst

There has been speculation that Huawei might have built as much inventory as they could. What is your perspective on Huawei's potential build of more products?

Victor Peng, CEO

We have received this question numerous times during the Analyst Day, and we reiterate that we do not foresee any significant inventory build-up at Huawei. To achieve advancements in 5G technology requires our most advanced parts, which cannot be sourced from elsewhere.

Operator, Operator

Your next question comes from the line of Tristan Gerra with Baird.

Tristan Gerra, Analyst

Looking at the potential displacement of your FPGAs in baseband against ASIC. How should we evaluate the trajectory of your average content per base station, in terms of magnitude, a year from now? Are we anticipating maybe a 50% cut on average to a large China customer?

Victor Peng, CEO

At our Analyst and Investor Day, we provided insights regarding this transition, and I cannot provide new details today. The factors involved in market growth vary by OEM. For China and Huawei, the inability to ship is affecting this supply chain in a significant way. We remain committed to our strategies amidst all of this.

Operator, Operator

Your next question comes from the line of Toshiya Hari with Goldman Sachs.

Toshiya Hari, Analyst

Victor, could you expand on the automotive business? You mentioned some weakness in the quarter due to unit trends, but how fast does the business grow on a year-over-year basis? What's the outlook into September and beyond? I recall you discussed design wins that ramp up over the next year or two. Are there any changes to that outlook, especially related to automotive?

Victor Peng, CEO

As mentioned, there is softness in the auto sector. The slowdown is significantly correlated to the situation in China, where we encounter many challenges. However, our design momentum with next-generation ADAS, in-cabin systems, and autonomous driving remains robust. Growth is still expected in this segment, but with moderated expectations.

Lorenzo Flores, CFO

We did observe slightly lower performance this quarter as we anticipated growth. The drop can primarily be attributed to our business and customer segments selling autos in China. Nonetheless, our long-term growth trajectory remains strong, as we've seen greater than 5% growth year-over-year and double-digit percentage growth over the past trailing 12 months.

Operator, Operator

Your next question comes from the line of Chris Caso from Raymond James.

Chris Caso, Analyst

I wanted to revisit your earlier comments about 5G and the advanced parts you're shipping there. What options do your customers have regarding sourcing components if they can't procure from U.S. based suppliers? How long could that risk persist, and do you consider alternatives a competitive threat?

Victor Peng, CEO

In the near-term, customers such as Huawei have a choice of using their ASICs. However, this change won't happen quickly as designing any system takes time. Regarding any domestic replacements, other local firms focus on lower-end products that could never rival our offerings in 5G. In the near-term, we feel confident in maintaining our competitive edge.

Operator, Operator

Your next question comes from the line of Christopher Rolland with SIG.

Christopher Rolland, Analyst

On 5G, you've touched on Korea and the beginnings of deployment in China. Can you provide insights into what you've observed regarding North America and Japan, and whether there are any upticks in activity?

Victor Peng, CEO

Japan is beginning to start, but we predict a more gradual ramp compared to what we've seen in Korea. North America has historically moved slowly, which seems to be consistent, and we do not see anything imminent. There is substantial activity occurring, but it's hard to predict what will happen in the next few quarters.

Operator, Operator

Your next question comes from the line of David Wong with Instinet.

David Wong, Analyst

You mentioned that you are applying for licenses to ship the remaining products that Huawei wants. Are there any guidelines the Commerce Department provides for the types of licenses and when you might expect a decision?

Victor Peng, CEO

I would clarify that it wasn't licenses for all remaining products but specifically for select products we recently began shipping. Our licenses request relates to some additional products, certainly not all of them due to the imposed restrictions. Factors surrounding the government’s decision status remain dynamic and uncertain. Typically, responses to licensing requests occur within 69 days. However, there are indications of expedited processing for companies currently under review.

Operator, Operator

Your next question comes from the line of Chris Danely with Citi.

Chris Danely, Analyst

Just two quick clarifications: Victor, you mentioned you're trying to restore portions of the lost Huawei business. How much of that business do you think is gone forever? And how big was the memory customer going through the product transition in the data center group?

Victor Peng, CEO

I don't believe we've lost anything that we cannot fully recover. There's a significant ongoing interest in 5G that we cannot ignore. If we see further prolonged trade issues, that could alter competitive dynamics in the market. For the memory-related customer, we’ll keep it as less than 10% for disclosure, but they are substantial in relation to our total data center business.

Operator, Operator

Your next question comes from the line of Vijay Rakesh with Mizuho.

Vijay Rakesh, Analyst

Just on the wireless growth, it's encouraging to see you're growing from Q1 to Q2 despite Huawei. Is it fair to conclude you're growing that wireless business not just despite Huawei but because your ASICs or your baseband exposure is coming down? Could you also provide some color on the ramp for your 7-nanometer Versal?

Victor Peng, CEO

Regarding the baseband, we've always anticipated some replacement dynamics, but they are not presently affecting our overall business performance. Huawei’s influence is notable but should be viewed within the broader context of the industry. As for the 7-nanometer Versal, we’re pleased with how sampling is progressing. There’s already a high level of engagement from customers involved in the early access program, and we have solid feedback on our performance thus far.

Operator, Operator

Your next question comes from the line of Quinn Bolton with Needham.

Quinn Bolton, Analyst

I wanted to clarify that coming out of the Analyst Day, you discussed WWG being flattish to down on a quarterly basis into the second half of FY. On the call tonight, you mentioned that you expect WWG to be up in the second half despite the Huawei shipment ban. How do we reconcile those comments? Is the base business in 5G or wire simply better than 90 days ago, or did I miss something?

Lorenzo Flores, CFO

Quinn, we didn't specify anything definitely on this call about the second half wireless trajectory as we are reserving our comments until we get clearer insights on the Huawei situation and the larger trade context.

Victor Peng, CEO

What we said is that we expect our second half overall could be. The broader business trends suggest potential for strength. However, this optimism is moderated by uncertainties related to the Huawei trade situation. We plan to clarify these aspects further at the close of the quarter.

Operator, Operator

Your last question comes from Matt Ramsay with Cowen.

Matt Ramsay, Analyst

Victor, I wanted to ask a broader question regarding ACAP Versal as you're starting to sample and ramp up the product. Can you provide insight into the software ecosystem you've developed for it, customer engagement levels, and any NRE funding for software that you're pursuing?

Victor Peng, CEO

That's a great question. ACAP Versal is highly innovative, and we're fully committed to enhancing its software ecosystem. As we plan to announce improved development environments at the XDF in October, we also aim to enhance user experiences significantly. This is more than just ensuring a seamless transition; it's about expanding our efforts in optimizing libraries, and driving overall ecosystem momentum. We’re investing heavily to improve the software for greater accessibility. Stay tuned for more details at the upcoming XDF event.

Matt Poirier, VP of Investor Relations

Thank you for joining us today. We'll have a playback of this call beginning at 5:00 p.m. Pacific, 8:00 p.m. Eastern Time today. For a copy of our earnings release, please visit our Investor Relations website. Our next earnings release date for the second quarter of fiscal year 2020 will be on Wednesday, October 23rd after the market close. Please note that during the quarter, Xilinx will be attending the KeyBanc Investor Conference on August 15th. We are also excited to host our Xilinx Developer's Forum on October 1st to 2nd in San Jose, and we look forward to seeing many of you there. This completes our call, and thank you very much for your participation.

Operator, Operator

Ladies and gentlemen, thank you for your participation. This concludes today's conference call. You may now disconnect.