Q4 FY2022 Earnings Call
AVGO · Preprocessing Report
2022-12-08
Quality
100%
62
Turns
18
Speakers
5
Sections
14
Exchanges
400
Claims

Entities by group 34

company executives 5
BroadcomcompanyHock TanpersonKirsten SpearspersonC.J. MusepersonTimothy Arcuriperson
sell-side analysts 12
Edward SnyderpersonRoss SeymorepersonStacy RasgonpersonWilliam SteinpersonChristopher RollandpersonPierre FerragupersonVivek AryapersonAaron RakerspersonToshiya HaripersonMatt RamsaypersonHarlan SurpersonJoseph Mooreperson
storage RAID controllers 1
MegaRAIDproduct
sell-side analyst firms 2
Morgan StanleycompanyTruistcompany
compute offload ASICs 1
ASICproduct
pandemic impacts 1
COVIDevent
data center networking ASICs 1
Tomahawk 4product
networking switch/router platforms 1
Jerichoproduct
broadband access 1
DOCSIS 3.1technology
target/partner company 1
Brocadecompany
regulators 1
SECcompany
interconnect standards 1
PCIetechnology
storage data protection 1
RAIDtechnology
wireless connectivity 1
Bluetoothtechnology
radio frequency 1
RFtechnology
Ungrouped 3
CRDotherVMwarecompanyWi-Fiproduct
REPORTING 98PROJECTING 32POSITIONING 112EXPLANATORY 27ANALYST 79

Topics 74

revenue×34backlog×33order×20storage×16wireless×14china×12demand×10booking×8dividend×8semiconductor×7software×7gross margin×7shipment×7networking×6lead time×6guidance×6product×6asic×6operating×5renewal×5

Themes 221

semiconductor×14revenue×11growth×10infrastructure×8enterprise×8hyperscale×7wireless×6industrial×5product mix×5strategic accounts×4operating×4shipment-demand gap×4non-cancelable×4visibility×4year over year growth×3shipping×3storage×3q1 guidance×3profitability×3outlook×3withheld×3customer request dates×3crd×3china lockdown impact×3record fiscal 2022×2annual growth×2consolidated contracts×2q4 fy2022×2gross×2adjusted×2depreciation excluded×2free×2resumption×2fiscal 2023 outlook×2broadband×2fiscal 2023 trends×2full year visibility×2committed×2payout ratio×2year-over-year increase×2compute offload growth×2business trends×2clarification×2china weakness×2divergence with networking×2q1 forecast×22023 capacity×2fiscal 2022 review×1technology adoption×1per share growth×1record quarter×1end market strength×1data center switching deployments×1edge and core upgrades×1custom compute offload×1cloud customer wins×1content increases from product adoption×1server storage connectivity growth×1company-wide q4 result×1deployment tailwind×1solutions revenue×1recurring subscriptions and maintenance×1at end of q4×1core software guidance×1brocade enterprise and business guidance×1consolidated guidance×1full-year visibility×1regulatory clearance×1review timeline×1closing timeline×1multi-cloud innovation×1regulatory approval×1reportable×1segment reporting change×1capital allocation×1days sales outstanding×1build×1first-quarter guidance×1spending×1fiscal year recap×1cost growth×1fiscal 2022 spending×1authorization remaining×1quarterly increase×1quarterly target×1annual guidance×1increase streak×1holding up across segments×1relative resilience in infrastructure×1backlog scrub×1same-quarter consumption×1current acceptance×1near-term strength×1product demand×1scrubbing×1inventory management×1sequential growth×1composition change×1sustainability outlook×1inventory reduction×1channel inventory control×1discipline×1high level and business impact×1seasonality×1end markets×1shipment mix×1strong order book×1end demand×1full capacity×1implied guidance×1trend×1forecasting×1full-year outlook×1level disclosure×1company disclosure×1yearly growth×1product scope×1near-term growth×1server connectivity×1market sizing×1form factor mix×1system-level shipping×1broadcom comparison×1content mix×1broad-based performance×1overall business growth×1demand scrubbing and shipment planning×1gap question×1quantification×1sequential decline×1mix-related pressure×1customer concentration×1shipment timing×1covid impact×1inter-quarter shipment shifts×1year-on-year comparison×1no q2 indication×1no q2 visibility×1networking products×1networking to broadband shift×1shipments×1guidance flat despite inventory increase×1booked orders in place×1documented committed orders×1fully booked×1recession risk×1annual outlook×1adaptive response×1current demand×1good results and outlook×1unchanged policy with changed tactics×1share repurchases resume×1reason for decisions×1vmware close timing concerns×1timing×1capital return×1remaining authorization×1compute offload franchise revenue×1historical revenue trend×1customer mix and volume×1custom and semi-custom offload compute programs×1custom and semi-custom programs at hyperscalers×1offload compute deployment as a tailwind×1offload compute ramp uncertainty×1large and lumpy offload compute programs×1programs remain lumpy×1long-term trend visibility×1hyperscaler adoption risk×1forecast uncertainty×1customer forecast horizon×1backlog disclosure×1unchanged practice×1detail withheld×1lead-time discussion×1customer-request dates×1forecast withheld×1limited end-customer visibility×1consumption trends across customer types×1fiscal 2022 headwind×1end-customer sentiment×1china slowdown×1china underperformance×1regional strength×1it slowdown×1limited growth impact×1improvement×1it improvement outlook×1reopening×1conditions uncertainty×1outperformance×1demand downturn and inventory build×1china enterprise weakness×1broad-based portfolio×1product coverage×1broad-based business×1mixed outlook×1company guidance×1retail demand pressure×1guidance stability×1firm order book details×1model-year projections before firm orders×1firm order book characterization×1change timing×1customer mix and product shift×1on paper×1demand scrubbed×1intended to ship×1highly committed×1increase over time×1increase over years×1north american customers×1technology-led focus×1selective portfolio focus×1competitive logic×1competition×1competitive landscape×12023 growth and slowdown×12023 guidance×12023 dynamics×1first quarter fiscal 2023 report×1conference call webcast×1

Key Metrics 57

revenue×62backlog×26orders×16gross margin×11demand×11bookings×8shipments×8inventory×5delinquencies×5renewal rate×4operating expenses×4free cash flow×4dividend×4guidance×4growth×4lead times×4operating margin×3adjusted ebitda×3it spending×3share repurchases×3revenue growth×2operating income×2capital expenditures×2lead time×2unit growth×2product mix×2forecast×2order book×2it budget×2r&d investment×1operating profit×1free cash flow per share×1cross-selling×1renewal value×1arr×1research and development×1cash flow×1days sales outstanding×1gross debt×1r&d spending×1depreciation×1cash dividends×1authorized share repurchase program×1diluted share count×1cash dividend×1dividend per share×1customer demand×1spending×1backlog growth rate×1forward-looking metrics×1customer request dates×1share repurchase authorization×1tape-out×1shipment date×1order visibility×1revenue visibility×1visibility×1

Entities 590

Broadcom×327Hock Tan×143Kirsten Spears×24Edward Snyder×8Ross Seymore×6Stacy Rasgon×6William Stein×6C.J. Muse×5Timothy Arcuri×5Christopher Rolland×5Pierre Ferragu×5MegaRAID×4CRD×4Vivek Arya×4Aaron Rakers×4Toshiya Hari×4VMware×3ASIC×3Matt Ramsay×3Wi-Fi×2Harlan Sur×2COVID×2Joseph Moore×2Morgan Stanley×2Truist×2Tomahawk 4×1Jericho×1DOCSIS 3.1×1Brocade×1SEC×1PCIe×1RAID×1Bluetooth×1RF×1

Business Segments 145

Semiconductor Solutions×124Infrastructure Software×21

Sectors 157

semiconductor×78cloud computing×20wireless communications×19data storage×14industrial×8enterprise software×4telecommunications×4broadband telecommunications×2automotive×2it services×2infrastructure software×1consumer electronics×1data center switching×1hard disk drives×1

Regions 39

China×23North America×6Europe×4global×2Brazil×1Canada×1South Africa×1Asia×1

Metadata Distributions

Sentiment
positive 120negative 21neutral 207
Temporality
backward 102forward 65current 181
Certainty
definitive 127confident 97moderate 71tentative 53
Magnitude
major 91moderate 193minor 64
Direction
improvement 40decline 9flat 4mixed 13none 282
Time Horizon
immediate 106near_term 140medium_term 28long_term 2unspecified 72
Verifiability
quantitative 120event 19qualitative 209
Analyst Intent
probing 30challenging 4confirming 13seeking_detail 28seeking_guidance 4

Speakers

Executives
HTHock TanCEOKSKirsten SpearsCFO
Analysts
ARAaron RakersanalystCMC.J. MuseanalystCRChristopher RollandanalystESEdward SnyderanalystHSHarlan SuranalystJMJoseph MooreanalystMRMatt RamsayanalystPFPierre FerraguanalystRSRoss SeymoreanalystSRStacy RasgonanalystTATimothy ArcurianalystTHToshiya HarianalystVAVivek AryaanalystWSWilliam Steinanalyst
Other
JYJi YooirOPOperatoroperator

Sections

TypeLabelSpeaker
preamblePreambleJi Yoo
prepared_remarksPrepared RemarksHock Tan, Kirsten Spears
qa_sessionQ&A Session—
closing_remarksClosing RemarksJi Yoo
operator_signoffOperator Sign-offOperator

Q&A Exchanges 14

#AnalystFirmTurns
1
CMC.J. Muse
Evercore ISI3
2
RSRoss Seymore
Deutsche Bank3
3
SRStacy Rasgon
Bernstein10
4
HSHarlan Sur
JP Morgan3
5
TATimothy Arcuri
UBS3
6
VAVivek Arya
Bank of America3
7
JMJoseph Moore
Morgan Stanley3
8
WSWilliam Stein
Truist5
9
MRMatt Ramsay
Cowen3
10
ARAaron Rakers
Wells Fargo3
11
THToshiya Hari
Goldman Sachs5
12
CRChristopher Rolland
Susquehanna3
13
ESEdward Snyder
Charter Equity Research5
14
PFPierre Ferragu
New Street Research3

Claim Taxonomy 348

REPORTING98
resultFinancial outcome for a completed period78
metricNon-financial quantitative fact18
operationalDiscrete completed event2
PROJECTING32
guidanceQuantitative expectation with number + time20
commitmentPromise with binary verifiable outcome11
targetLong-term aspirational quantitative goal1
POSITIONING112
strategyPriority, direction, or initiative88
competitiveCompany's position or advantages0
opportunityMarket condition framed as growth driver13
riskHeadwind, constraint, or uncertainty11
EXPLANATORY27
attributionWhy a specific outcome happened3
contextNon-company macro/industry fact24
FRAMING0
thesisFalsifiable belief about how the world works0
ANALYST79
questionInterrogative seeking information43
observationRestates a fact or data point29
concernFlags a risk or challenge3
estimateAnalyst's own projection or calculation3
sentimentOpinion, praise, or critique1

Transcript

Preamble
OP
Operatoroperator
Welcome to Broadcom Inc. Fourth Quarter and Fiscal Year 2022 Financial Results Conference Call. At this time, for opening remarks and introductions, I would like to turn the call over to Ji Yoo, Head of Investor Relations of Broadcom Inc.
JY
Ji YooirBroadcom Inc.
Thank you, Sherri, and good afternoon, everyone. Joining me on today's call are Hock Tan, President and CEO; Kirsten Spears, Chief Financial Officer; and Charlie Kawwas, President, Semiconductor Solutions Group. Broadcom distributed a press release and financial tables after the market closed, describing our financial performance for the fourth quarter and fiscal year 2022. If you did not receive a copy, you may obtain the information from the Investors section of Broadcom's website at broadcom.com. This conference call is being webcast live and an audio replay of the call can be accessed for one year through the Investors section of Broadcom's website. During the prepared comments, Hock and Kirsten will be providing details of our fourth quarter and fiscal year 2022 results, guidance for our first quarter as well as commentary regarding the business environment. We'll take questions after the end of our prepared comments.
Please refer to our press release today and our recent filings with the SEC for information on the specific risk factors that could cause our actual results to differ materially from the forward-looking statements made on this call. In addition to U.S. GAAP reporting, Broadcom reports certain financial measures on a non-GAAP basis. A reconciliation between GAAP and non-GAAP measures is included in the tables attached to today's press release. Comments made during today's call will primarily refer to our non-GAAP results. I'll now turn the call over to Hock.
Prepared Remarks
HT
Hock TanCEOBroadcom Inc.
Well, thank you, Ji. And thanks, everyone, for joining us today. Before I provide color on our Q4 results, let me put in perspective what we achieved in fiscal year '22. For the year, I'm pleased to report that consolidated revenue hit a record of $33.2 billion, growing 21% year-on-year, yet another year of double-digit organic growth. This growth was driven by our strong partnerships with customers and increased R&D investments, which enable accelerated adoption of our next-generation technologies. With our robust business model, we grew our fiscal 2022 operating profit by 28% year-on-year and our free cash flow per share by 25% year-upon-year. Now to discuss details of our fiscal Q4. In our fiscal Q4 '22, consolidated net revenue was a record $8.9 billion, up 21% year-on-year. Semiconductor solutions revenue increased 26% year-on-year to $7.1 billion, and infrastructure software revenue grew 4% year-on-year to $1.8 billion. In Q4, our semiconductor business continued to perform well across hyperscale, service providers and enterprise. On top of this, wireless grew sequentially as we ramp up the new platform and our North American customer. In reporting these results, I'd like to emphasize, we demonstrate our continued discipline in shipping our strong backlog only as and when needed by our end customers. So, in contrast to weak consumer electronics spending today and despite concerns of a global recession, we believe overall infrastructure spending remains strong, and we continue to experience sustained demand in most of our end markets, and this is what we continue to see in Q1. So, let me expand on this.
Starting with networking. Networking revenue was a record $2.5 billion and was up 30% year-on-year, representing 35% of our semiconductor revenue.
We see strong growth from deployment of Tomahawk 4 for data center switching at hyperscale customers. And we see upgrades of edge and core routing networks with our next-generation Jericho portfolio at cloud and service providers. And at multiple cloud customers, we continue to lead in delivering custom solutions for compute offload accelerators and actually surpassed the $2 billion amount in revenues in fiscal '22.
Looking into Q1, we do expect networking revenue to be strong and grow about 20% year-over-year. Next, our storage connectivity revenue was a record $1.2 billion or 17% of semiconductor revenue and up 50% year-on-year. As we have mentioned in previous earnings call, we are benefiting here from substantial content increases as both, cloud and enterprise customers adopt our next-generation MegaRAID and storage adapters. This trend will continue in Q1, and we expect server storage connectivity revenue to grow above 50% year-on-year. Moving on to broadband. Revenue of $1 billion grew 20% year-on-year and represented 15% of semiconductor revenue.
Our broadband business is benefiting from ongoing multiyear deployments by North American and European service providers of 10-gigabit PON and DOCSIS 3.1 with embedded Wi-Fi 6 and 6E. In Q1, we expect the secular drivers behind broadband to continue and our business to be strong at about 30% year-on-year growth. Moving on to wireless.
Q4 revenue of $2.1 billion represented 29% of semiconductor revenue with the 13% year-on-year increase coming largely from higher content. And in Q1, we expect wireless revenue to be sequentially flat and up low single digits year-on-year. Finally, Q4 industrial resale of $234 million grew 1% year-over-year as softness in China mostly offset the strength in North American and European automotive. In Q1, we forecast industrial resales to continue the trend of low single-digit percent growth year-on-year. And so in summary, Q4 semiconductor solutions revenue was up 26% year-on-year. And in Q1, we expect semiconductor revenue growth to sustain at approximately 20% year-on-year. Moving on to software. In Q4, infrastructure software revenue of $1.8 billion grew 4% year-on-year and represented 21% of total revenue. Core software revenue grew 5% year-on-year. In spite of adverse ForEx impact in dollar terms, consolidated renewal rates averaged 117% of expiring contracts.
And in our strategic accounts, we averaged 128%. Within our strategic accounts, annualized bookings of $357 million included $101 million of cross-selling of our portfolio of products to these customers. Over 90% of the renewal value represented recurring subscriptions and maintenance. Over the last 12 months, consolidated renewal rates averaged 120% over expiring contracts. And in our strategic accounts, we averaged 135%.
Because of this, our ARR, which is annual recurring revenue, the indicator of forward revenue, at the end of Q4 was $5.4 billion, which was up 4% from a year ago. And in Q1, we expect our infrastructure software segment revenue to be flat year-on-year, reflecting core software revenue growth of mid-single-digit percent year-over-year, offset by a year-on-year decline in the Brocade enterprise and business. In summary, we're guiding consolidated Q1 revenue of $8.9 billion, up 16% year-on-year. While we are fully booked for fiscal 2023, in this environment, we are not providing you guidance for the year. Before Kirsten tells you more about our financial performance for the quarter, let me provide a brief update on our pending acquisition of VMware. We are making progress with our various regulatory filings around the world, as we very much expect having received merger clearance in Brazil, Canada and South Africa. We anticipate that time line for the review process would be more extended in other key regions, especially given the size of this transaction. Having said that, we're still confident that this transaction will close and be completed in our fiscal 2023. The combination of Broadcom and VMware is about enabling enterprises to accelerate innovation and expand choice by addressing their most complex technology challenges in this multi-cloud era. And we are confident that regulators will see this when they conclude their review. With that, let me turn the call over to Kirsten.
#1
#2
strategy#3
result#4
result#5
result#6
attribution#7
result#8
result#9
#10
result#11
result#12
result#13
result#14
strategy#15
result#16
strategy#17
context#18
opportunity#19
#20
#21
result#22
result#23
result#24
strategy#25
strategy#26
result#27
strategy#28
guidance#29
result#30
result#31
result#32
attribution#33
guidance#34
#35
result#36
result#37
opportunity#38
guidance#39
#40
result#41
result#42
result#43
guidance#44
guidance#45
result#46
result#47
result#48
guidance#49
result#50
guidance#51
#52
result#53
result#54
result#55
metric#56
metric#57
result#58
metric#59
metric#60
metric#61
metric#62
result#63
result#64
guidance#65
guidance#66
guidance#67
guidance#68
guidance#69
strategy#70
#71
commitment#72
commitment#73
commitment#74
strategy#75
strategy#76
#77
KS
Kirsten SpearsCFOBroadcom Inc.
Thank you, Hock. Let me now provide additional detail on our financial performance.
Revenue was $8.9 billion for the quarter, up 21% from a year ago. Gross margins were 75% of revenue in the quarter and up 10 basis points year-on-year. Operating expenses were $1.2 billion, up 3% year-on-year, driven by investment in R&D. Operating income for the quarter was $5.5 billion and was up 25% from a year ago. Operating margin was 62% of revenue, up approximately 240 basis points year-on-year.
Adjusted EBITDA was $5.7 billion or 64% of revenue. This figure excludes $129 million of depreciation. Now, a review of the P&L for our two reportable segments.
Revenue for our semiconductor solutions segment was $7.1 billion and represented 79% of total revenue in the quarter. This was up 26% year-on-year. Gross margins for our semiconductor solutions segment were approximately 71%, up 70 basis points year-on-year driven by product mix and adoption of next-generation products across our extensive product portfolio. Operating expenses were $825 million in Q4, up 4% year-on-year. R&D was $731 million in the quarter, up 4% year-on-year. Q4 semiconductor operating margins were 59%. So, while semiconductor revenue was up 26%, operating profit grew 33% year-on-year.
Moving to the P&L for infrastructure software segment. Revenue for infrastructure software was $1.8 billion, up 4% year-on-year and represented 21% of revenue. Gross margins for infrastructure software were 91% in the quarter and operating expenses were $348 million in the quarter, down 1% year-over-year. Infrastructure software operating margin was 72% in Q4, and operating profit grew 6%.
Moving to cash flow. Free cash flow in the quarter was $4.5 billion, representing 50% of revenue.
We spent $122 million on capital expenditures. Days sales outstanding were 30 days in the fourth quarter compared to 29 days in the third quarter. We ended the fourth quarter with inventory of $1.9 billion, up 5% from the end of the prior quarter because we expect the mix of revenue in Q1 to have a higher cost of materials. We ended the fourth quarter with $12.4 billion of cash and $39.5 billion of gross debt, of which $440 million is short term. Based on current business trends and conditions, our guidance for the first quarter of fiscal 2023 is for consolidated revenues of $8.9 billion and adjusted EBITDA of approximately 63% of projected revenue. In forecasting such operating profitability, we would like to point out that because of product mix changes, our non-GAAP gross margin could be down roughly 100 basis points from Q4 and R&D spending could be up sequentially as we step up hiring of engineers for multiple critical projects. Let me recap our financial performance for fiscal year 2022.
Our revenue hit a record $33.2 billion, growing 21% year-on-year. Semiconductor solutions revenue was $25.8 billion, up 27% year-over-year. Infrastructure software revenue was $7.4 billion, up 4% year-on-year. Gross margin for the year was 76%, up 110 basis points from a year ago. Our operating expenses were $4.8 billion, up 6% year-on-year. Fiscal '22 operating income was $20.3 billion, up 28% year-over-year and represented 61% of net revenue. Adjusted EBITDA was $21 billion, up 27% year-over-year and represented 63% of net revenue. This figure excludes $529 million of depreciation. We spent $424 million on capital expenditures. And free cash flow grew 22% year-on-year to $16.3 billion or 49% of fiscal '22 revenue.
Turning to capital allocation. For fiscal '22, we spent $15.5 billion, consisting of $7 billion in the form of cash dividends and $8.5 billion in repurchases and eliminations. We ended the year with $13 billion of authorized share repurchase programs remaining and expect to resume our repurchase of common stock as soon as we can under SEC rules. Excluding the potential impact of any share repurchases, in Q1, we expect the non-GAAP diluted share count to be $435 million. Aligned with our ability to generate increased cash flows in the preceding year, we are announcing an increase in our quarterly common stock cash dividend in Q1 fiscal 2023 to $4.60 per share, an increase of 12% from the prior quarter. We intend to maintain this target quarterly dividend throughout fiscal '23, subject to quarterly Board approval. This implies our fiscal 2023 annual common stock dividend to be a record $18.40 per share. I would like to highlight that this represents the 12th consecutive increase in annual dividends since we initiated dividends in fiscal 2011. That concludes my prepared remarks. Operator, please open up the call for questions.
#78
strategy#79
result#80
result#81
result#82
result#83
result#84
result#85
result#86
strategy#87
result#88
result#89
result#90
result#91
result#92
result#93
result#94
commitment#95
result#96
result#97
result#98
strategy#99
result#100
result#101
metric#102
result#103
result#104
guidance#105
guidance#106
strategy#107
result#108
result#109
result#110
result#111
result#112
result#113
result#114
result#115
result#116
result#117
strategy#118
result#119
result#120
commitment#121
guidance#122
guidance#123
commitment#124
guidance#125
metric#126
#127
#128
Q&A Session
Q&A 1/14
OP
Operatoroperator
Thank you. [Operator Instructions] And today's first question will come from C.J. Muse with Evercore ISI. Please go ahead.
CM
C.J. MuseanalystEvercore ISI
You talked about infrastructure holding up well across most segments. I guess, I was hoping you could speak more to why infrastructure to date has been so immune from the weakness we've seen elsewhere in semis. Specifically, can you speak to trends you're seeing perhaps in hyperscale versus enterprise? Any differences there? And also, can you speak to how you see these trends throughout all of fiscal '23? Thanks so much.
observation#129
question#130
observation#131
observation#132
question#133
#134
HT
Hock TanCEOBroadcom Inc.
All right. Great question. What we see now, last quarter and this current quarter as we progress is hyperscale spending continues strong; enterprise consumption continues strong; and broadband deployment across North America, Europe and even parts of Asia continues their multiyear trend of growth simply because out of COVID-19, there was a lot of invest — there was a lot of plans to invest, and these are multiyear. So, exactly as I said, all these areas currently continue to be very much on track as we've seen it. Now, keep in mind, as I said in previous earnings call and I'd just reemphasize here today, again, it's — I just want to assure you, we don't believe we are shipping beyond true demand. We continue to scrub — to basically judge orders, the backlog we have, and we also take pains to only ship to customers who can consume it pretty much within the same quarter before we do it. And so, as far as we can tell, based on what we see as a willingness of our customers to accept and consume the products we ship, that's what we see right now.
Asking me for the rest of '23, no, I tend to be more careful in being able to answer that. I don't know the answer to that is my opinion. I do not know whether the strength in acquisition and consumption of our products will continue to sustain for the rest of '23.
What we do see is over the next several months, we see those orders still in place. We see customers willing to take the products. We have — talking to multiple, multiple CIOs among largest enterprise customers we have out there. We have not seen them talk about a reduction in their IT spending. We've seen many said it will grow and others saying it will at least remain flat. So, I guess, I'm cautiously positive about trends looking forward.
#135
#136
opportunity#137
opportunity#138
opportunity#139
opportunity#140
strategy#141
operational#142
risk#143
metric#144
context#145
context#146
context#147
opportunity#148
opportunity#149
context#150
opportunity#151
opportunity#152
strategy#153
Q&A 2/14
OP
Operatoroperator
Thank you. One moment for our next question. That will come from the line of Ross Seymore with Deutsche Bank. Please go ahead.
RS
Ross SeymoreanalystDeutsche Bank
Hock, I want to follow on C.J.'s and maybe ask similar question but in a slightly different way.
Last quarter, you talked about actively scrubbing your backlog. And clearly, that's helped to avoid some of the inventory pitfalls that some of your peers have seen. But have you noticed since last quarter's call a change in either the rate of your backlog growth? I think it was up about 7% sequentially last quarter, the composition of your backlog or how actively and aggressively you need to scrub it? Any sort of changes in those forward-looking metrics that would alter your view on kind of the sustainability of demand, the duration of it, et cetera?
#154
observation#155
sentiment#156
question#157
observation#158
observation#159
question#160
HT
Hock TanCEOBroadcom Inc.
It comes down very simply to we continue to scrub our backlog in a manner this quarter, last quarter, no differently than we did it six months or a year ago. We haven't changed our focus on ensuring that we do not ship products to the wrong people who just put it on the shelves. That is still very much, very, very intact in our view. Our backlog continues to be way up there, and you're right, makes us change.
As you can see, one quarter, it would be broadband growing 20% year-on-year and networking growing 30% year-on-year, and the following quarter is broadband growing 30% year-on-year and networking growing 20%. And it impacts not just from hyperscale bearing their purchases in — for one of a better word, seasonal manner; it's also the particular end markets it goes to. So there's a mix of backlog and products we ship in any particular quarter will vary, and they all change. But it doesn't change the fact that we have still a very, very strong backlog. And what we're shipping, which is most important in the current quarter, we believe, is what we are reflecting as end demand for our products.
strategy#161
strategy#162
strategy#163
risk#164
result#165
result#166
context#167
context#168
context#169
opportunity#170
context#171
Q&A 3/14
OP
Operatoroperator
One moment for our next question. That will come from the line of Stacy Rasgon with Bernstein.
SR
Stacy RasgonanalystBernstein
So Hock, I guess just to ask the question explicitly.
Last quarter, I think you said your semiconductor backlog was $31 billion and your lead times were still 50 weeks, give or take. What are those numbers now? Like, where is backlog and where are lead times?
#172
observation#173
observation#174
question#175
question#176
KS
Kirsten SpearsCFOBroadcom Inc.
Stacy, this is Kirsten Spears. We're not going to guide the year. So, we're not providing that…
#177
strategy#178
strategy#179
SR
Stacy RasgonanalystBernstein
I'm not asking you to guide the year. I'm not asking you to guide the year.
#180
#181
KS
Kirsten SpearsCFOBroadcom Inc.
Right. We're fully booked for the year. So, if I give you the backlog number, I'm effectively guiding you to the year. So, we've chosen not to provide that data at this time.
#182
commitment#183
strategy#184
strategy#185
SR
Stacy RasgonanalystBernstein
Okay. I guess, can you just tell me, has it gone up, flat or down?
#186
question#187
HT
Hock TanCEOBroadcom Inc.
Our forecast for the year, if you want to call it, forecast base — our backlog, it's not our forecast. We'll continue — for the year, we'll continue to grow. Other than that, I'm not telling you what it is. We don't guide.
strategy#188
strategy#189
strategy#190
strategy#191
SR
Stacy RasgonanalystBernstein
Got it. But you think that backlog will grow for the year is what you're saying?
#192
question#193
HT
Hock TanCEOBroadcom Inc.
Our year forecast will grow.
guidance#194
SR
Stacy RasgonanalystBernstein
Got it. Got it. Thank you.
#195
#196
#197
Q&A 4/14
OP
Operatoroperator
Thank you. One moment for our next question. That will come from the line of Harlan Sur with JP Morgan. Please go ahead.
HS
Harlan SuranalystJP Morgan
Hock, your server storage connectivity business has been extremely strong, right, up 50% plus in fiscal '22. And more importantly, that business continues to sustain based on the January quarter outlook. We typically tend to think about HDD controllers and preamps, but your business is much more diverse than this. So, can you just, first of all, walk us through like what percentage is MegaRAID, PCIe or what I call overall storage connectivity versus your storage controller business, which is primarily HDD controller and preamps? And maybe what's driving the near-term growth in the storage franchise when many of your storage competitors and customers are seeing major weakness in this segment?
observation#198
observation#199
observation#200
question#201
question#202
HT
Hock TanCEOBroadcom Inc.
Well, that's an interesting question. It's — our server storage connectivity — and you're right, which includes nearline hard drives, which includes some, what we call, on-prem server storage connectivity, host bus adapters included is broad. And I don't have the numbers on my mind exactly what it is.
Just broad-based, particularly from the MegaRAID business, as I said, a big part of the growth, the big dollar — the big percentage growth, as I indicated before, is due to the fact that the new generation of products are all subsystems, our boards. We're not just shipping chips. So, that counts for a big part of the growth. Notwithstanding, unit [ph] growth is up, but not as much as the 50% we announced, obviously. A big part of 50% is content growth as we ship subsystems and boards versus chips. But even then unit growth is up, and it's across the board, and it's not everything that grows. But enough said that overall, it grows.
#203
strategy#204
strategy#205
strategy#206
strategy#207
commitment#208
strategy#209
metric#210
metric#211
metric#212
strategy#213
Q&A 5/14
OP
Operatoroperator
One moment for our next question. That will come from the line of Timothy Arcuri with UBS.
TA
Timothy ArcurianalystUBS
Hock, you keep on scrubbing demand and you're shipping to what you think is consumption. So I guess I take it to believe that there's still a gap between what you're shipping and what customers want in any given quarter, I guess we could call that delinquencies, some others call that delinquencies. Obviously, you haven't changed your approach, but I would imagine that this delinquency or this gap between what you're shipping in a quarter and what your customers want, that's probably declining. So I guess the question is, can you quantify the gap? And is the gap getting smaller? Thanks.
estimate#214
observation#215
estimate#216
question#217
question#218
#219
HT
Hock TanCEOBroadcom Inc.
That's an interesting question.
And we don't really try to quantify the gap. And a big part of it is — I don't want to get you guys overly excited, but customer — you know backlog is — sometimes it's very often categorized or characterized under CRD or customer request dates. Our customer requests date in this particular quarter, for instance, our last particular — last quarter was much, much higher than what we actually shipped, and it was the same way six months ago. Has it got better from six months ago? I can only guess, and in this forum is the last thing I want to do. But there's still a big amount of CRD's backlog in excess of what we actually ship up.
strategy#220
strategy#221
strategy#222
metric#223
metric#224
context#225
context#226
metric#227
Q&A 6/14
OP
Operatoroperator
Thank you. One moment for our next question. That will come from the line of Vivek Arya with Bank of America.
VA
Vivek AryaanalystBank of America
Thank you. I actually have two very quick clarifications. First, Hock, have you seen the impact or you expect to see any impact of China lockdowns in your wireless business in Q2? I know there's nothing — doesn't seem to be anything in Q1. I was just wondering if there's something we should be prepared for in Q2. And then on the gross margin, I thought I heard gross margin goes down sequentially in your semiconductor business in Q1. Is that really all mix-related, or is there a like-to-like impact that we should keep in mind?
#228
#229
question#230
observation#231
question#232
question#233
question#234
HT
Hock TanCEOBroadcom Inc.
Okay. Let's take your first question first and then go to a more interesting second question, which is interesting, because it connects a few dots here. On the first one, as you know, our wireless is one single customer, and the COVID shutdown and all that does slow down inter-quarter shipments. But nothing — we don't see — Q2 is too far away for me to really give you any sense and our accuracy of what is like, but that's obviously movements between Q4 and Q1 as our numbers does kind of reflect. But — which is why year-on-year is a pretty good measure. As you see there, Q4 year-on-year was just 13% — and I shouldn't say just — was 13%, and Q1 was actually still 1% up, but there's obviously some movements in between, but — and I'm sure that has something to do with COVID logistics — impact on logistics chain of our largest customer, but I can't really tell in the bigger picture. Now switching and certainly on Q2, I'm not positioned to give you any indication. We don't have visibility.
Now turning to the second part of your question on gross margin, it's all product mix. And it's all product mix because there are some — depending on the particular products we ship, as I've said many times before, the margin, product margin, gross margin does vary, simply because it's the nature of the market conditions, the ecosystem that we have in each of those markets, those niche markets we participate in.
But broadly, to give you a sense, perhaps that gives you more color, networking tends to have some of the highest margins collectively of our products and much higher than broadband; and of course, wireless has the lowest. And when you look at Q4 to Q1, the mix shifts away from networking somewhat and more to broadband, and wireless still remains a big chunk of it, even though it hasn't receded as a percent. So, that's why we see that impact on gross margin sequentially. Nothing more than just the mix of products we ship and the natural gross margin on those products vary one from the other. And you can actually see it with the way our inventory grew, too. As we — as Kirsten reported, our inventory ending Q4 grew about 5% from that ending Q3, the quarter before. And obviously, the Q4 inventory is positioned to ship in Q1, and you see that increase even as our guidance on revenue remains pretty flat.
#235
#236
strategy#237
metric#238
strategy#239
metric#240
strategy#241
result#242
result#243
context#244
context#245
strategy#246
strategy#247
result#248
result#249
strategy#250
strategy#251
context#252
context#253
context#254
result#255
commitment#256
guidance#257
Q&A 7/14
OP
Operatoroperator
One moment for our next question. That will come from the line of Joseph Moore with Morgan Stanley.
JM
Joseph MooreanalystMorgan Stanley
Great.
You talked about being booked for the whole year next year. How much visibility do you think that gives you really? And I guess, what's your philosophy going to be if customers with non-cancelable backlog come to you and try to make an adjustment in a potentially weaker economic period next year?
#258
observation#259
question#260
question#261
HT
Hock TanCEOBroadcom Inc.
Let's start with the first part.
I mean, when we're booked, we're really booked. I mean we got paper that says they have committed orders for us to ship. And as you know, our orders are non-cancelable orders. Customers know that. We have the paper.
And when we say we are fully booked, it means we have the backlog sitting there. Now, the second question you asked is a more interesting question. What if we all hit a massive recession, depression or recession, late next year, in the next 6 months, 9 months, and customers — and things really collapse around years, what would we do? My answer is I don't know, which is partly why we're not giving you annual guidance. We will react as and when circumstances require us to do. But at this point, we have the orders.
#262
strategy#263
strategy#264
strategy#265
strategy#266
strategy#267
strategy#268
#269
risk#270
strategy#271
strategy#272
strategy#273
Q&A 8/14
OP
Operatoroperator
And one moment for our next question. That will come from the line of William Stein with Truist.
WS
William SteinanalystTruist
Great. Thanks for taking my question, and congrats on the good results and outlook. The — it seems that the capital allocation policy in terms of the outlook — maybe the policy didn't change, but at least the tactics did. The payout ratio relative to free cash flow, you're setting that a little bit lower than the 50%, and you're resuming the buyback. And I'm hoping you can just discuss why these decisions were made. Does it reflect an indication or a changing view about the timing of the VMware close, or is it related to concerns around macro or anything else? Thank you.
#274
observation#275
observation#276
estimate#277
observation#278
question#279
question#280
#281
KS
Kirsten SpearsCFOBroadcom Inc.
Well, I would say that we are — policy-wise, we've always said we would pay out approximately 50% of the preceding year's free cash flows. And in this economic environment that we're all seeing, we believe that a 12% increase year-over-year is a robust dividend. And so yes, we're quite happy with that.
result#282
result#283
result#284
HT
Hock TanCEOBroadcom Inc.
And don't forget, we're going to start buyback once the rules allow us to do that. And so, that's another return of cash to shareholders, and we fully intend to get that going as soon as we could.
strategy#285
strategy#286
strategy#287
KS
Kirsten SpearsCFOBroadcom Inc.
As soon as we can, and we still have $13 billion under that program.
result#288
Q&A 9/14
OP
Operatoroperator
And one moment for our next question. And that will come from the line of Matt Ramsay with Cowen. Please go ahead.
MR
Matt RamsayanalystCowen
Hock, I think in some of the prepared script that you guys disclosed that you're now sort of in the compute offload ASIC franchise, the fiscal year was $2 billion. And I think that's maybe a third higher than it was last year. It looks like some of the — you guys did an event on that business earlier in the year, and things really jumped up in fiscal '18 and then kind of leveled off a bit in terms of revenue. And this is a pretty big, I guess, acceleration in that compute offload business.
Maybe you could talk a little bit about the trends there. And are you seeing a broadening of the customer base or maybe higher volumes per tape-out as you go down the node stack? I'd just be interested in seeing some of the trends there. It seems like hyperscale really wants custom silicon at this point. Thanks.
observation#289
observation#290
observation#291
observation#292
question#293
question#294
question#295
concern#296
#297
HT
Hock TanCEOBroadcom Inc.
Yes, you're right in that regard that we have multiple programs from the hyperscalers on custom or semi-custom silicon, or largely collectively we call as offload compute. And they all have — do their own. So, that's — in one way that's very positive and very opportunistic for our technologies to be deployed. On an ongoing basis, the tricky thing in all this is more will come on, the rate of ramp is harder for us to predict. These are very lumpy programs, fairly large and lumpy, which is why we can get to $2 billion and a raise — an increase of like, as you correctly say, a third from a year ago. But it's lumpy.
And the trend is very hard for me to chart out unless you ask for it over the next five years. And even then, if you look it five years, it becomes a question now, would these hyperscalers revert to merchant silicon versus continuing to use custom ASICs, and that poses another issue for me to figure it out. But if you ask for me over the next year or two, where it will go, I'd be honest and say I'm not positioned to give you really a good forecast.
strategy#298
context#299
strategy#300
strategy#301
result#302
strategy#303
context#304
risk#305
strategy#306
Q&A 10/14
OP
Operatoroperator
And one moment for our next question. That will come from the line of Aaron Rakers with Wells Fargo.
AR
Aaron RakersanalystWells Fargo
Hock, I wanted to go back to the prior comment you had made, and I want to make sure I'm clear on it.
I think possibly within the context of lead times, you talked about customers, I think it was giving you forecast that were notably longer. I just want to understand a little bit of the context behind that comment earlier. Any kind of — appreciating that you're not giving backlog, any kind of context around that lead time discussion would be helpful.
question#307
question#308
question#309
question#310
HT
Hock TanCEOBroadcom Inc.
We haven't in any major substantive way changed our lead times by any means, as I've said before, and we kind of go along on that practice mode.
And we have forecast, but we're really not talking about forecast either as it relates to the previous comment. I think I was referring to backlog and paper that we use. And as I said before, even on those papers, we have with customer request dates for shipments, we scrub that date and then scrub each of those demands before we ship it out in the current quarter or the preceding quarter, depending on what it is. But we don't — we have forecast. But obviously, we're not giving you any indication of our forecast at this point simply because we are still grinding our way through the backlog.
strategy#311
strategy#312
strategy#313
strategy#314
strategy#315
risk#316
Q&A 11/14
OP
Operatoroperator
One moment for our next question. That will come from the line of Toshiya Hari with Goldman Sachs.
TH
Toshiya HarianalystGoldman Sachs
Hock, I was hoping you could talk a little bit about your business in China, not so much from a ship to perspective from — end consumption perspective. I know you don't have perfect visibility into being what's consumed at the end customer level. But if you can kind of talk about what you're seeing in terms of trends across enterprise, cloud and service providers, that would be helpful. How significant of a headwind was China in fiscal '22? And what are your expectations going forward? And what are you hearing from your end customers? Thank you.
observation#317
observation#318
observation#319
question#320
question#321
question#322
#323
HT
Hock TanCEOBroadcom Inc.
Well, to answer your question directly is China has slowed down in terms of consumption of products across industrial, across even infrastructure. It has slowed down, and we see that. They're still not totally collapsed, but they have slowed down compared to what they were taking a year ago. But that's — and we see that particularly in our industrial business, which as we — I indicated in my prepared remarks, strength in Europe, strength in North America especially in automotive, but weakness in China, which is a big part of our industrial business slowed it down.
But beyond that, in the IT side, yes, we have seen a slowdown. But keep in mind, China represents just less than 10% of our total revenues today. So, while it obviously has some level of offsetting effect, it's not sufficiently launch to have that much impact on our overall growth trend for the entire company.
risk#324
risk#325
risk#326
risk#327
opportunity#328
risk#329
result#330
strategy#331
TH
Toshiya HarianalystGoldman Sachs
And any signs of improvement going forward, Hock, on the IT side, or is it too early to tell?
question#332
HT
Hock TanCEOBroadcom Inc.
I think it's too early at this point for me to make a call. It's — there's a sense of some reopening. But if I make a call, good chance I could be wrong in a month's time when things might shut down again.
context#333
opportunity#334
risk#335
Q&A 12/14
OP
Operatoroperator
One moment for our next question. That will come from the line of Christopher Rolland with Susquehanna.
CR
Christopher RollandanalystSusquehanna
Congrats on bucking the trend on semis here, Hock. So, my question, it was kind of addressed on the last one, but I wanted to talk about the divergence, particularly between storage and maybe China enterprise networking. You had — there's a lot — your other competitor in, call it, core hard disk drive, talked about a downturn in demand, in storage, a large inventory build, and something similar happening in China networking as well, and you guys have seemingly such a big divergence there. And I was wondering if perhaps you had an explanation for some of that and why the difference.
observation#336
question#337
observation#338
question#339
question#340
HT
Hock TanCEOBroadcom Inc.
The only explanation to an earlier question was our portfolio in service storage is pretty broad-based. Now, with a couple of areas that are very large areas like RAID, MegaRAID, particularly pretty much, but they are more than MegaRAID we have. You're correct. It's pretty broad-based. And there are some puts and takes, obviously. But overall, we see what we tell you.
strategy#341
strategy#342
#343
strategy#344
strategy#345
strategy#346
Q&A 13/14
OP
Operatoroperator
One moment for our next question. That will come from the line of Edward Snyder with Charter Equity Research.
ES
Edward SnyderanalystCharter Equity Research
Hock, I'd like to talk a little bit about your wireless business, which is more retail-focused and probably will be the first one to see any recessionary pressures if you him them.
I know you guide this really solid. First, give us some idea of your firm order book. I know you get a projection when the model year starts on what the total number would be for the year, but you don't get a firm order for that for some time. So just kind of what is — what would you — how would you characterize firm order book for that or orders per se?
Is it a 30-day, 60-day? So help anticipate if you see a change when would that be. And then maybe if you could touch on how we should think about overall content at your largest customer in the next year or so because there's obviously increased competition in some of your core areas, and I was wondering if you're looking to shift more of your focus there into some of the mixed signal custom stuff and maybe wait for some of the RF. Thanks.
concern#347
observation#348
question#349
observation#350
question#351
question#352
question#353
question#354
#355
HT
Hock TanCEOBroadcom Inc.
Okay. Interesting question. Let me try and address that. First, I assume you imply when you say orders or forecast on shipments, we only guide Q1, so I can only give you Q1. And it's all — we have been all on paper, orders. These are real orders, non-cancelable. So, we're giving you numbers that we intend to ship that we think the customer needs as far as we can scrub. And we have it.
These are committed orders. These are not forecasts at all, especially when you talk about Q1, which ends, by the way, end of January. We have orders beyond end of January as it is. So, these are very committed orders. And in that — by that same token, pretty committed revenue forecast. Just to make it clear. You're right — and by the way, we have pretty good visibility for — from that particular customer, too.
Now beyond that, to the second part of your question, yes, we're very pleased with content increase that we have experienced, not every year necessarily, as you know. But over a period of years, we always see this content increase. And we're still very, very well positioned in our product line — in those few product lines that are, I call it, almost franchise in our North American customers. And this is Wi-Fi, Bluetooth, this is RF front end, and this is touchscreen controllers, high performance, mixed single. And that's — we can only — and that's all we focus on because these are areas where we are the best, we believe we have the best technology and delivering value to our customers. There's no reason to find something else where you're not the best and hope to gain share from someone else. I could apply the same to my competitors in their thinking.
#356
#357
#358
strategy#359
strategy#360
strategy#361
strategy#362
strategy#363
strategy#364
strategy#365
strategy#366
strategy#367
guidance#368
operational#369
context#370
strategy#371
strategy#372
strategy#373
strategy#374
strategy#375
strategy#376
context#377
ES
Edward SnyderanalystCharter Equity Research
But you don't see the competitive landscape shifting and making things more difficult for you in that, especially in the RF section in the next coming year or so, you think your franchises or your franchises and you…
question#378
HT
Hock TanCEOBroadcom Inc.
Answer is no.
context#379
Q&A 14/14
OP
Operatoroperator
And our last question of the day will come from the line of Pierre Ferragu with New Street Research.
PF
Pierre FerraguanalystNew Street Research
Hock, you mentioned you're fully booked for 2023. You've had a lot of questions on that one. So, I apologize in advance for squeezing in one last one.
And I was wondering, if you look at the year as you see it books today, if you could tell us in this like booking dynamics, where do you see for the full year 2023 the most growth and the least growth? I know you can't give us like numbers, and you don't want to guide. I completely accepted that. But if you could give us like a kind of idea of where things keep growing very fast, where things are slowing down in your order dynamics over the full year.
question#380
observation#381
#382
question#383
concern#384
#385
question#386
HT
Hock TanCEOBroadcom Inc.
Infrastructure is still holding up very well, as we have said in this call so far. We see — we continue to see infrastructure. And infrastructure, by looking at it, comes from hyperscale, in building their data centers and components to their data centers; in service providers, like telcos, where we see our strength in broadband access, gateways and broadband.
And I know people are finding hard to imagine, we're seeing it even in enterprise, where we do not — where — that's why I made a comment earlier, we do not see across a cross-section of large enterprises, reduction in the IT spending for 2023. We have not seen — we have not come across too many enterprise customers, and I'm talking real end-use customers, end-user enterprise customers who are seeing their IT budget drop below '22. For most that we have asked, it's either flat or even up as they all continue to have the compelling need to keep modernizing their platform and workloads and digitizing their business model. And I think that is the only — that was the only explanation given to me why there was no such clear reduction even as we all hear every day the likelihood, possibility of a global recession.
strategy#387
strategy#388
context#389
target#390
metric#391
context#392
attribution#393
Closing Remarks
OP
Operatoroperator
Thank you. As there are no further questions in the queue at this time, I would now like to turn the call back over to Ji Yoo for any closing remarks.
JY
Ji YooirBroadcom Inc.
Thank you, Sherri.
Broadcom currently plans to report its earnings for the first quarter of fiscal '23 after close of market on Thursday, March 2, 2023. A public webcast of Broadcom's earnings conference call will follow at 2 p.m. Pacific. That will conclude our earnings call today. Thank you all for joining. Sherri, you may end the call.
#394
commitment#395
commitment#396
#397
#398
#399
#400
Operator Sign-off
OP
Operatoroperator
Thank you. Thank you all for participating. This concludes today's conference call. You may now disconnect.