Q4 FY2024 Earnings Call
AVGO · Preprocessing Report
2024-12-12
Quality
100%
61
Turns
16
Speakers
5
Sections
12
Exchanges
399
Claims

Entities by group 34

semiconductor and infrastructure software 2
BroadcomcompanyNVIDIAcompany
company executives 5
Hock TanpersonKirsten SpearspersonRoss SeymorepersonHarsh KumarpersonVijay Rakeshperson
sell-side analysts 6
Ben ReitzespersonToshiya HaripersonStacy RasgonpersonC.J. MusepersonBlayne CurtispersonJoseph Mooreperson
enterprise software 1
VMwarecompany
ai accelerators 1
XPUproduct
analysts 2
Vivek AryapersonWilliam Steinperson
accelerators 1
GPUproduct
networking switches 3
TomahawkproductJerichoproductJericho3-AIproduct
wireless connectivity 3
RFtechnologyWiFitechnologyBluetoothtechnology
networking 2
EthernettechnologyInfiniBandtechnology
artificial intelligence 1
AItechnology
investment banks 2
Morgan StanleycompanyJefferiescompany
virtualization platform 1
VCFproduct
enterprise infrastructure software 2
Brocade Fibre Channel SANproductCA Mainframe Enterprise Securityproduct
custom processors 1
ASICsproduct
Ungrouped 1
SAMother
REPORTING 95PROJECTING 46POSITIONING 92EXPLANATORY 26ANALYST 70

Topics 68

revenue×43xpu×16market×15ai×14software×14semiconductor×12debt×12cash×11tam×11acquisition×10vmware×9networking×8capex×8cluster×8customer×8operating×7ebitda×7infrastructure software×7guidance×7sam×7

Themes 250

ai growth×7revenue growth×7market×7share×5software×5year over year growth×4free cash flow×4operating×3segment×3spending×3revenue mix×3ramp×3infrastructure software×3capital allocation×3pushout issue×3strategy×3organic×2growth guidance×2end markets×2server storage×2recovery×2sam×2semiconductor guidance×2consolidated guidance×2gross margin×2profitability×2refinancing×2repayment×2annual growth×2customer mix×2serviceable addressable market×2customer concentration×2revenue timing×2fiscal impact×2cash return×2paydown×2deleveraging×2xpu and gpu clusters×2ai focus×2transformative year×1record growth×1excluding transition costs×1record shareholder distributions×1shareholder payouts×1fiscal 2024 drivers×1vmware deal closing×1data center virtualization×1vmware integration×1growth trajectory×1incremental adjusted and above prior target×1incremental adjusted target earlier than planned×1second driver of 2024×1ai mix×1record semiconductor sales×1excluding vmware×1timing delay×1cpu×1vmware cpu allocation×1annualized booking value×1customer adoption×1on-prem deployment×1pre-acquisition spending and margin×1q1 billings guidance×1ai shipment volume×1ai deployment momentum×1process node leadership×1hyperscale shipments×1seasonal launch×1product roadmap×1revenue guidance×1revenue trough×1revenue decline×1orders from service providers×1resales×1year-on-year decline×1q1 fiscal 2025×1long-term evolution×1non-ai cyclical bottom×1non-ai recovery×1opportunity×1custom chips and networking×1multi-year adoption cycle×1multi-generational roadmap×1cluster deployment target×1base×1variability×1customer selection×1advanced development×1customer conversion×1ai and non-ai mix×1sequential growth×1non-ai decline×1non-ai semiconductor recovery×1non-ai semiconductor decline×1guidance as % of revenue×1q4 financial performance×1q4 consolidated growth×1ex-vmware growth×1q4 spending×1acquisition impact×1adjusted profitability×1depreciation addback×1p&l review×1ai xpu mix×1r&d investment×1business shift×1margin decline×1collection efficiency×1inventory levels×1inventory management×1debt position×1fixed rate terms×1floating rate terms×1fiscal 2024 recap×1dividends and buybacks×1quarterly increase×1target maintenance×1record annual level×1consecutive annual increases×1length comparison×1standalone reporting×1product mix×1record guidance×1diluted count guidance×1sequential increase×1mix improvement×1non-gaap guidance×1tax and acquisition costs×1growth rebound×1strength and trends×1ai connectivity×1ai networking ramp×1fiscal 2027 outlook×1xpu and networking mix×1three hyperscale customers×1dollar content at scale×1xpus and connectivity at scale×1rack-scale connectivity×1hyperscale fabric architecture×1scale-up architecture×1scale-out architecture×1rack-to-rack architecture×1target deployment×1capacity roadmap×1architecture roadmap×1fiscal 2025 guide×1multi-year market opportunity×1data center spending×1hyperscale growth×1growth vs hyperscaler capex×1hyperscaler spending×1ai spending breakdown×1ai spend mix×1pushout roll-off timing×1full-year revenue and margin impact×1relative back-half weakness versus xpu strength×1elevated base easing in back half×1pushouts and margin implications×1growth reacceleration×1revenue levels×1full year×1q1 only×1positive×1clarity×1customer cumulative×1run-rate vs cumulative×1revenue potential×1customer inclusion×1customer sizing×1size comparison×1outlook clarification×12027 milestone×1deployment scale×1qualification×1counting methodology×1validation status×1customer exclusion×1integration progress×1deal hunting×1regulatory concerns×1acquisition capacity×1interest expense reduction×1term loan refinancing×1discussion resumes×1non-ai semiconductor mix×1baseline share and margin outlook×12024 baseline×1ai dilution×1ai leverage×1integration ahead of schedule×1ceo question×1xpus linkage×1vmware connection×1merchant silicon preference×1question order×1sovereign customer strategy×1sovereign customer capability gap×1merchant silicon and software approach×1ai ratio to xpus and compute×1xpu mix in ai clusters×1ai design ratios×1scale up and scale out×1single-fabric expansion×1ai silicon mix×1forecast vs tam×1within sam×1hyperscale value retention×1backup sourcing×1low-margin mix×1uncaptured opportunity×1company framing×1customer-driven×1customer road map×1bottoms-up then top-down×1customer-focused collaboration×1unknown share×1large opportunity×1competitive room×1fair share×1competitive advantage×1connectivity×1technology depth×1engagement depth×1multiyear customer×1core strengths×1silicon packaging and optical×1q4 fy2024 and full-year results×1growth profile shift×1ai capabilities×1focus areas×1acquisition targets×1deal criteria×1strong execution×1ai custom silicon forecast×1fiscal 2027 ramp×1limited visibility×1current quarter only×1ai semiconductor trajectory×1non-ai legacy×1non-ai growth×1ai roadmap×1ai visibility×1customer variability×1adoption pace×1quarter-to-quarter variability×1outlook visibility×1production readiness×1production timing×1production stage×1chip development×1

Key Metrics 62

revenue×72tam×13gross margin×11capex×8operating margin×7adjusted ebitda×7sam×7free cash flow×5market share×4debt×4dividend per share×4ratio×4operating expenses×3cash flow×3cash×3revenue mix×3guidance×3customer count×3addressable market×3operating profit×2cpu costs×2spending×2shipments×2sales×2inventory×2coupon rate×2dividend×2interest expense×2xpu count×2cluster size×2share×2cash returned to shareholders×1cash returns×1organic growth×1annualized booking value×1customers×1billings×1volume shipment×1orders×1clusters×1research and development×1operating income×1free cash flow margin×1capital expenditures×1days sales outstanding×1senior notes×1capital spending×1weeks×1diluted share count×1tax rate×1growth×1dollar content×1debt paydown×1share repurchases×1integration×1m&a×1term loans×1serviceable addressable market×1networking mix×1units×1adoption×1outlook×1

Entities 641

Broadcom×316Hock Tan×129Kirsten Spears×50VMware×28XPU×24Ben Reitzes×9SAM×8Toshiya Hari×8Stacy Rasgon×7Ross Seymore×7Vivek Arya×7Harsh Kumar×7Vijay Rakesh×6C.J. Muse×4GPU×4AI×3VCF×2Ethernet×2Blayne Curtis×2Joseph Moore×2Morgan Stanley×2William Stein×2Tomahawk×1Jericho×1Jericho3-AI×1RF×1WiFi×1Bluetooth×1Brocade Fibre Channel SAN×1CA Mainframe Enterprise Security×1Jefferies×1NVIDIA×1InfiniBand×1ASICs×1

Business Segments 198

Semiconductor Solutions×146Infrastructure Software×52

Sectors 227

semiconductor×115cloud computing×40software×38artificial intelligence×20data center×4data storage×3broadband×2telecommunications×2wireless telecommunications×1networking equipment×1optical technology×1

Regions 2

North America×1U.S.×1

Metadata Distributions

Sentiment
positive 98negative 20neutral 211
Temporality
backward 87forward 90current 152
Certainty
definitive 107confident 87moderate 72tentative 60speculative 3
Magnitude
major 117moderate 149minor 63
Direction
improvement 57decline 14flat 1mixed 10none 247
Time Horizon
immediate 82near_term 95medium_term 57long_term 6unspecified 89
Verifiability
quantitative 145event 18qualitative 166
Analyst Intent
probing 24challenging 3confirming 4seeking_detail 35seeking_guidance 4

Speakers

Executives
HTHock TanCEOKSKirsten SpearsCFO
Analysts
BRBen ReitzesanalystBCBlayne CurtisanalystCMC.J. MuseanalystHSHarlan SuranalystHKHarsh KumaranalystJMJoseph MooreanalystRSRoss SeymoreanalystSRStacy RasgonanalystTHToshiya HarianalystVRVijay RakeshanalystVAVivek 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 12

#AnalystFirmTurns
1
BCBlayne Curtis
Jefferies4
2
CMC.J. Muse
Cantor Fitzgerald3
3
JMJoseph Moore
Morgan Stanley4
4
HSHarlan Sur
JPMorgan4
5
SRStacy Rasgon
Bernstein9
6
BRBen Reitzes
Melius4
7
RSRoss Seymore
Deutsche Bank5
8
VAVivek Arya
Bank of America4
9
HKHarsh Kumar
Piper Sandler4
10
THToshiya Hari
Goldman Sachs4
11
WSWilliam Stein
Truist Securities4
12
VRVijay Rakesh
Mizuho5

Claim Taxonomy 329

REPORTING95
resultFinancial outcome for a completed period72
metricNon-financial quantitative fact10
operationalDiscrete completed event13
PROJECTING46
guidanceQuantitative expectation with number + time32
commitmentPromise with binary verifiable outcome10
targetLong-term aspirational quantitative goal4
POSITIONING92
strategyPriority, direction, or initiative74
competitiveCompany's position or advantages4
opportunityMarket condition framed as growth driver7
riskHeadwind, constraint, or uncertainty7
EXPLANATORY26
attributionWhy a specific outcome happened1
contextNon-company macro/industry fact25
FRAMING0
thesisFalsifiable belief about how the world works0
ANALYST70
questionInterrogative seeking information47
observationRestates a fact or data point17
concernFlags a risk or challenge0
estimateAnalyst's own projection or calculation3
sentimentOpinion, praise, or critique3

Transcript

Preamble
OP
Operatoroperator
Welcome to the Broadcom Inc. Fourth Quarter and Fiscal Year 2024 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, Cherie, 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 2024. If you did not receive a copy, you may obtain the information from the Investor section of Broadcom's website at broadcom.com. This conference call is being webcast live and then audio replay of the conference call can be accessed for one year through the investor section of Broadcom's website. During the prepared comments, Hock and Kirsten will be providing details of our fourth quarter and fiscal year 2024 results, guidance for our first quarter of fiscal year 2025, 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 financial results. I will now turn the call over to Hock.
Prepared Remarks
HT
Hock TanCEOBroadcom Inc.
Thank you, Ji. And thank you everyone for joining us today. Well, this has been a transformative year for Broadcom.
Our fiscal year 2024 consolidated revenue grew 44% year-over-year to a record $51.6 billion. Now, excluding VMware, our revenue grew over 9% organically. So fiscal 2024 operating profit, excluding transition costs grew 42% year-over-year. And we returned a record $22 billion in cash to our shareholders, up 45% year-on-year through dividends, buyback and eliminations. There were two significant drivers of this transformation this year.
First, we closed the acquisition of VMware in the early weeks of fiscal 2024 and have focused VMware on its technology leadership in data center virtualization. The integration of VMware is largely complete. Revenue is on a growth trajectory and operating margin reached 70% exiting 2024. We are well on the path to delivering incremental adjusted EBITDA at a level that significantly exceeds the $8.5 billion we communicated when we announced the deal. We are planning to achieve this much earlier than our initial target of three years. The second driver in 2024 was AI. Our AI revenue, which came from strength in custom AI accelerators or XPUs and networking, grew 220% from $3.8 billion in fiscal 2023 to $12.2 billion in fiscal 2024 and represented 41% of our semiconductor revenue. This drove semiconductor revenue up to a record $30.1 billion during the year. Okay, now let's move on to the fourth quarter and give you more color. Consolidated net revenue of $14.1 billion was up 51% year-on-year, excluding VMware. Organic growth was 11%, and operating profit of $8.8 billion was up 53% year-on-year. For the details on infrastructure software in Q4, this infrastructure software segment revenue was $5.8 billion, up 196% year-on-year, flat sequentially, even as multiple deals slip over into Q1. In VMware, we booked $21 million total CPU costs in a quarter versus $19 million a quarter ago. Of these, about 70% represented VMware Cloud Foundation or VCF, the full software stack virtualizing the entire data center. And this translated into Annualized Booking Value, or ABV as we call it, of $2.7 billion for VMware in Q4 up from 2.5 billion in Q3. Since closing the acquisition just over a year ago, we've signed up over 4,500 of our largest 10,000 customers for VCF. VCF enabled customers to deploy private cloud environments on-prem, as an alternative to running their applications in the public cloud. And in doing all this, we continued to drive down spending in VMware.
We brought spending down to $1.2 billion in Q4, down from $1.3 billion in Q3. By reference, VMware spending was averaging over $2.4 billion per quarter prior to the acquisition with operating margin less than 30%. Moving on to Q1 outlook for infrastructure software, we expect Q1 revenue to grow to $6.5 billion, up 11% sequentially and 41% up year-on-year. For VMware, ABV is expected to exceed $3 billion compared to $2.7 billion in the preceding quarter.
Turning to semiconductors, let me give you more details by end markets. Networking Q4 revenue of $4.5 billion grew 45% year-on-year. AI networking revenue, which represented 76% of networking, grew 158% year-on-year.
This was driven by a doubling of our AI XPU shipments to our three hyperscale customers and 4 times growth in AI connectivity revenue driven by our Tomahawk and Jericho shipments globally. In Q1, We expect the momentum in AI connectivity to be as strong as more hyperscalers deploy Jericho3-AI in their fabrics. Our next generation XPUs are in 3 nanometers and will be the first of its kind to market in that process node. We are on track for volume shipment at our hyperscale customers in the second half of fiscal 2025.
Turning on to server storage. From its bottom six months ago, Q4 server storage connectivity revenue has recovered some 20% to $992 million. And in Q4, we expect server storage revenue to continue to grow. Turning to wireless, as we expected, seasonal launch by our North American customer drove Q4 wireless revenue to $2.2 billion, up 30% sequentially.
This was up 7% year-on-year because of higher content. We continue to be very engaged with this customer in multi-year roadmaps across various technologies we have leadership in, including RF, WiFi, Bluetooth, sensing, and touch. In Q1, reflecting seasonality, we expect wireless to be down sequentially, but still be flat year-on-year. In Q4, Broadband reached bottom at $465 million, down 51% year-on-year. We have seen significant orders across multiple service providers during this quarter. And reflecting this trend, we now expect broadband to show recovery beginning in Q1. Finally, on to industrial, which only represents 1% of the total revenues. Measure on resales, Q4 industrial resales of $173 million declined 27% year-on-year. We only expect a recovery in the second half 2025.
Before I sum up and provide you Q1 fiscal 2025 guidance. Let me outline a longer-term perspective on how we see our semiconductor business evolving over the next three years. On the broad portfolio of non-AI semiconductors with its multiple end-markets, we saw a cyclical bottom in fiscal 2024 at $17.8 billion.
We expect a recovery from this level at the industry's historical growth rate of mid-single digits. In sharp contrast, we see our opportunity over the next three years in AI as massive. Specific hyperscalers have begun their respective journeys to develop their own custom AI accelerators or XPUs, as well as network these XPUs with open and scalable Ethernet connectivity. For each of them, this represents a multi-year, not a quarter-to-quarter journey. As you know, we currently have three hyper-scale customers who have developed their own multi-generational AI XPU roadmap to be deployed at varying rates over the next three years. In 2027, we believe each of them plans to deploy 1 million XPU clusters across a single fabric.
We expect this to represent an AI revenue Serviceable Addressable Market, or SAM, for XPUs and network in the range of $60 billion to $90 billion in fiscal 2027 alone. We are very well positioned to achieve a leading market share in this opportunity and expect this will drive a strong ramp from our 2024 AI revenue base of $12.2 billion. Keep in mind though, this will not be a linear ramp. We'll show quarterly variability. To compound this, we have been selected by two additional hyperscalers and are in advanced development for their own next generation AI XPUs.
We have line of sight to develop these prospects into revenue generating customers before 2027 and could therefore expand the SAM significantly. So the reality going forward for this company is that the AI semiconductor business will rapidly outgrow the non-AI semiconductor business. Recognizing this, we will now shift to guiding our semiconductor business by AI and non-AI revenue segments.
So summarizing Q4. Semiconductor revenue of $8.2 billion grew 12% year-on-year and 13% sequentially. Q4 AI revenue grew a strong 150% year-on-year to $3.7 billion. Non-AI semiconductor revenue declined by 23% year-on-year to $4.5 billion, but still a 10% recovery from the bottom of six months ago.
Now moving on to our outlook for Q1. We expect semiconductor revenue to grow approximately 10% year-on-year to $8.1 billion. AI demand remained strong and we expect AI revenue to grow 65% year-on-year to $3.8 billion. We expect non-AI semiconductor revenue to be down about mid-teens percent year-on-year. And so in total, summing this all up, we're guiding consolidated Q1 revenue to be approximately $14.6 billion, up 22% year-on-year, and we expect this will drive Q1 adjusted EBITDA to approximately 66% of revenue. With that, let me turn this call over to Kirsten.
#1
#2
strategy#3
result#4
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operational#10
strategy#11
operational#12
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guidance#15
guidance#16
context#17
result#18
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#21
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commitment#26
result#27
metric#28
result#29
operational#30
strategy#31
risk#32
result#33
result#34
guidance#35
guidance#36
strategy#37
result#38
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metric#40
result#41
strategy#42
commitment#43
commitment#44
strategy#45
result#46
guidance#47
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strategy#50
guidance#51
result#52
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metric#54
opportunity#55
result#56
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opportunity#59
strategy#60
strategy#61
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opportunity#64
operational#65
context#66
commitment#67
target#68
KS
Kirsten SpearsCFOBroadcom Inc.
Thank you, Hock. Let me now provide additional detail on our Q4 financial performance.
Consolidated revenue was $14.1 billion for the quarter, up 51% from a year ago. Excluding the contribution from VMware and — Q4 revenue increased 11% year-on-year. Gross margins were 76.9% of revenue in the quarter, up 260 basis points from the year ago quarter. R&D was $1.4 billion, and consolidated operating expenses were $2 billion, up year-on-year primarily due to the acquisition and consolidation of VMware. Q4 operating income was $8.8 billion and was up 53% from a year ago, with operating margin at 63% of revenue. Adjusted EBITDA was $9.1 billion or 65% of revenue. This figure excludes $156 million of depreciation. Now a review of the P&L for our two segments, starting with semiconductors. Revenue for our Semiconductor Solutions segment was $8.2 billion and represented 59% of total revenue in the quarter. This was up 12% year-on-year. Gross margins for our Semiconductor Solutions segment were approximately 67%, down 220 basis points year-on-year, driven primarily by a higher mix of AI XPUs. Operating expenses increased 11% year-on-year to $914 million on increased investment in R&D, resulting in semiconductor operating margins of 56%. The — now moving on to infrastructure software. Revenue for infrastructure software was $5.8 billion, up 196% year-on-year primarily due to the contribution of VMware and represented 41% of revenue. Gross margins for infrastructure software were 91% in the quarter and operating expenses were $1.1 billion in the quarter, resulting in infrastructure software operating margin of 72%. Excluding transition costs, operating margin was 73%. Moving on to cash flow.
Free cash flow in the quarter was $5.5 billion and represented 39% of revenues. Excluding cash used for restructuring and integration of $506 million, free cash flows of $6 billion were up 22% year-on-year and represented 43% of revenue. Free cash flow as a percentage of revenue has declined from the same quarter a year ago, due to higher cash interest expense from debt related to the VMware acquisition, higher cash taxes due to a higher mix of U.S. taxable income, the continued delay in the reenactment of Section 174 and — and recent proposed regulations on corporate AMT. We spent $122 million on capital expenditures.
Days sales outstanding were 29 days in the fourth quarter compared to 31 days a year ago. We ended the fourth quarter with inventory of $1.8 billion, down 7% sequentially. We continue to remain disciplined on how we manage inventory across the ecosystem. We ended the fourth quarter with $9.3 billion of cash and $69.8 billion of gross principal debt. During the quarter, we replaced $5 billion of floating rate debt with new senior notes. We use cash on hand to pay a mix of senior notes, which came due in Q4 and additional floating rate debt, reducing debt by $2.5 billion. Following these actions, the weighted average coupon rate and years to maturity of our $56 billion in fixed rate debt is 3.7% and 7.6 years, respectively. The weighted average coupon rate and years to maturity of our $14 billion in floating rate debt is 5.9% and 3.2 years, respectively. We expect to repay approximately $495 million of fixed rate senior notes coming due in Q1. Now let me recap our financial performance for fiscal year 2024.
Our revenue hit a record $51.6 billion, growing 44% year-on-year, including VMware, and 9% organically, excluding VMware. Semiconductor revenue was $30.1 billion, up 7% year-over-year. Infrastructure software revenue was $21.5 billion up 181% year-on-year and up 90% year-on-year, excluding VMware. Fiscal 2024 adjusted EBITDA was $31.9 billion and represented 62% of revenue. Free cash flow grew 10% year-on-year to $19.4 billion and up 22% year-on-year to $21.9 billion, excluding restructuring and integration costs.
Turning to capital allocation. For fiscal 2024, we spent $22.2 billion, consisting of $9.8 billion in the form of cash dividends and $12.4 billion in share repurchases and eliminations.
Aligned with our ability to generate increased cash flows in the preceding year and off of a larger share count base from the acquisition of VMware, we are announcing an increase in our quarterly common stock cash dividend in Q1 fiscal 2025 to $0.59 per share on a split-adjusted basis, an increase of 11% from the prior quarter. We intend to maintain this target quarterly dividend throughout fiscal '25, subject to quarterly board approval. This implies that our fiscal 2025 annual common stock dividend to be a record $2.36 per share on a split-adjusted basis, an increase of 12% year-on-year. I would like to highlight that this represents the 14th consecutive increase in annual dividends, since we initiated dividends in fiscal 2011.
Now moving on to guidance. From a year-on-year comparable basis, keep in mind that Q1 of fiscal '24 was a 14-week quarter and Q1 of fiscal '25 is a 13-week quarter. As we are now past one year following the close of the VMware acquisition starting in Q1 of fiscal 2025, we will no longer break out VMware revenue and costs on a stand-alone basis. We will continue to report infrastructure software segment revenue and profitability which includes Brocade Fibre Channel SAN, CA Mainframe Enterprise Security and VMware. Our guidance for Q1 is for consolidated revenue of $14.6 billion, with semiconductor revenue of $8.1 billion, up approximately 10% year-on-year and infrastructure software revenue of $6.5 billion, up 41% year-on-year. We expect Q1 adjusted EBITDA to be a record 66% and Q1 non-GAAP diluted share count to be approximately 4.9 billion shares. For modeling purposes, we expect Q1 consolidated gross margins to be up 100 basis points sequentially on the higher revenue mix of infrastructure software and product mix within semiconductors. Note that consolidated gross margins through the year will be impacted by the revenue mix of infrastructure software and semiconductors and product mix within semiconductors. We expect the non-GAAP tax rate in fiscal year 2025 to be approximately 14.5% as tax deductions related to interest expense are reduced, as we pay down and refinance debt under more favorable interest terms. GAAP net income and cash flows in Q1 will be impacted by higher taxes, restructuring and integration-related cash costs due to the VMware acquisition. That concludes my prepared remarks. Operator, please open up the call for questions.
guidance#69
competitive#70
guidance#71
risk#72
strategy#73
operational#74
operational#75
commitment#76
opportunity#77
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#80
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Q&A Session
Q&A 1/12
OP
Operatoroperator
Thank you. [Operator Instructions]. And our first question will come from the line of Blayne Curtis with Jefferies. Your line is open.
BC
Blayne CurtisanalystJefferies
Hi, thanks so much for taking my question. It's kind of a clarification question.
I thought I heard you say that AI networking revenue was 76% of networking. I just couldn't get that math right, but maybe the broader question is you've seen growth off that low point in April in AI. Can you just talk about ASIC strength versus networking, the trends you're seeing in kind of October into January?
#93
strategy#94
result#95
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result#97
HT
Hock TanCEOBroadcom Inc.
Well, that's a very interesting question. Both were growing, not at the same rate, but we've been shipping, I believe a lot more of network AI connectivity, networking components in the back half of this year, compared to the first half of this fiscal year. And we suspect a lot of that will continue in the first half of next fiscal year before more XPUs, as I indicated, more of the new generation of 3-nanometer XPUs will start ramping very much in the back half of '25.
result#98
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result#100
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BC
Blayne CurtisanalystJefferies
Very clear. Thanks a lot.
result#103
strategy#104
Q&A 2/12
OP
Operatoroperator
Thank you. One moment for our next question, and that will come from the line of CJ Muse with Cantor Fitzgerald. Your line is open.
CM
C.J. MuseanalystCantor Fitzgerald
Yeah, good afternoon. Thank you for taking my question. I guess, Hock I wanted to hit on the $60 billion to $90 billion revenue range for fiscal '27 for AI. I was hoping you could speak to the mix you see there between XPU and networking. And within that construct, are you including all kind of the customers that you see out there in hyperscale and vertically integrated consumers? Or any sort of help in terms of what you're including in that potential mix would be very helpful. Thank you.
#162
question#163
observation#164
observation#165
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strategy#167
metric#168
HT
Hock TanCEOBroadcom Inc.
Thank you. Well, thanks for the question.
Give me an opportunity here to clarify and be very specific. First, on the total dollars, [inaudible] revenue, by the way, is the revenue opportunity for us is what I call Serviceable Addressable Market, as we all term SAM. Not TAM, SAM, and is Serviceable Addressable Market for three of our hyperscale customers. That's it. It's a very narrow Serviceable Addressable Market we're talking about. And we're talking about XPUs and AI connectivity at that scale, AI connectivity could probably — we estimate to run approximately close to 15% to 20% of the dollar content.
commitment#169
#170
#171
Q&A 3/12
OP
Operatoroperator
Thank you. One moment for our next question. And that will come from the line of Joe Moore with Morgan Stanley. Your line is open.
JM
Joseph MooreanalystMorgan Stanley
Great. Thank you. I wonder if you could talk to the XPU market. How are your customers sort of reacting to some of the rack scale products from your — the merchant competitor from NVIDIA, how do they sort of get the connectivity to multiple XPUs inside the rack, just how does that present a competitive dynamic for you? Thanks.
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Hock TanCEOBroadcom Inc.
Well, everybody is trying to figure out when you start — when you connect a cluster on a single fabric of 10,000 XPUs or GPU, a GPU and scale it up to 100,000 and on to 500,000 and 1 million is a whole new game in terms of architecture. And so you guys hear the differences of when you do these racks, you have what you call scale up. And then you have joining rack to rack because you have no choice, you can't get to 1 million or for that matter 100,000 otherwise, you call it scale out. And that's a continuing, evolving architecture. But I think each of these hyperscale customers of ours have, at this point kind of figured out how to get there. Hence, a road map that will keep growing from 100,000 to 1 million XPU cluster. On pretty much, similar architecture basis over the next three years, four years.
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Joseph MooreanalystMorgan Stanley
Great. Thank you.
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Q&A 4/12
OP
Operatoroperator
Thank you. One moment for our next question. And that will come from the line of Harlan Sur with JPMorgan. Your line is open.
HS
Harlan SuranalystJPMorgan
Hi, good afternoon. Thanks for taking my question.
Hock, I know the team has been putting out an AI guide for fiscal '25. And I appreciate the multi-year sort of SAM opportunity outlook. But for this year, can we look at what your customers on the networking and custom accelerators are thinking about from a data center CapEx spending perspective? So for example, our latest roll up is that the top four cloud and hyperscalers are going to grow their CapEx, 35%, 40% in fiscal '25. I would expect that your AI business would sort of closely mirror this trend, maybe even think about it as a base case when we think about Ethernet taking share from InfiniBand, ASICs growing faster than merchant GPUs, maybe the profile of your AI business can go even faster than the CapEx trend, either way, plus or minus, is that how we should think about the growth in the AI business roughly in-line with CapEx growth trends of your large cloud and hyperscale customers?
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Hock TanCEOBroadcom Inc.
Harlan. No, it doesn't. I mean, I think the hyperscalers tend to give you an overall CapEx numbers. I'm not sure they really break out between what's AI and what's non-AI out there. And clearly, the spend in AI outstrips the spend in non-AI even on the CapEx. And so no, I won't necessarily stop at that.
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Harlan SuranalystJPMorgan
Okay. Thank you Hock.
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Q&A 5/12
OP
Operatoroperator
Thank you. One moment for our next question, and that will come from the line of Stacy Rasgon with Bernstein. Your line is open.
SR
Stacy RasgonanalystBernstein
Hi, guys. Thanks for taking my question. I have a more tactical question.
So you have software pushouts into Q1, which is elevating it. Should we think about that — those pushouts are rolling off as we get into Q2 and the back half of the year? And like what are the implications on the shape of software for the year as well as gross margins? Because I guess maybe in the back half, you'll have like software a little weaker versus Q2 as well as the XPU stronger. So should we be thinking about the gross margin trajectory of the current elevated base kind of like easing as we get in the back half. So just anything you can tell us around the shape of the software around the pushouts and implications for revenues and gross margins.
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Hock TanCEOBroadcom Inc.
Well, number one, it's a slip. And I think you're overthinking this whole project. It's just a slip, pick it up, and you see the differences between Q4 growth and Q1 reacceleration. That's all it is. One —.
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Stacy RasgonanalystBernstein
Should Q2 be lower because you had push out into Q1 is what I'm asking.
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Hock TanCEOBroadcom Inc.
No, it doesn't. Not Q2. No. I don't — it won't have a material impact on the rest of the fiscal '25.
SR
Stacy RasgonanalystBernstein
Do you think software can kind of hold at these levels or even grow off of these like $6.5 billion levels as we go through the year?
HT
Hock TanCEOBroadcom Inc.
I'm not giving guidance. I might remind you for the rest of the year. I'm just giving you a guidance for Q1. but I'm just telling you your analysis is kind of defective.
SR
Stacy RasgonanalystBernstein
I've been told that before. Okay, thank you Hock.
HT
Hock TanCEOBroadcom Inc.
Thank you.
Q&A 6/12
OP
Operatoroperator
Thank you. And one moment for our next question. and that will come from Benjamin Reitzes with Melius. Your line is open.
BR
Ben ReitzesanalystMelius
Hi, thanks a lot. And nice quarter there, Hock. I wanted to ask you about the $60 billion to $90 billion with a little more clarity. Previously, you've talked about a cumulative TAM from your customers. So — and that — is this a run rate TAM or a cumulative TAM? Kind of meaning do we take the $12.2 million, then add some growth for the next two years and then think of it that way? Or do we think of we take a share of like a $75 billion TAM and what your revenue yield is? And then I just also was hoping you could clarify, you're not including those two new customers. Do those two customers have the same $20 billion to $30 billion TAM each that the current three do? Or do you think they're smaller or bigger? Sorry about the multipart question there.
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HT
Hock TanCEOBroadcom Inc.
No. I think you asked — the first part was very similar to an earlier question, but I'd be pleased to clarify.
No, the $60 billion to $90 billion, it is not — we are not talking cumulative SAM or TAM anymore. We are putting for you a destination, so to speak, a milestone which happens to be three years hence, 2027, possibly slip a bit part of '28, but 2027. We are seeing a destination 2027 or milestone, better one, where the deployment of those large-scale AI clusters each on single fabric pretty much to run those large LLM models, will come to $60 billion to $90 billion in that one-year period and collectively, all three of them. And to answer the second part too.
Possibly, yes, at least one of them, we believe, yes. But you know what I don't want you adding one plus one equals two here. Those are not validated in our view and our model as customers. So, please don't do your addition to the $60 million to $90 million SAM that I have postulated in my remarks.
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Ben ReitzesanalystMelius
Thank you so much.
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Q&A 7/12
OP
Operatoroperator
One moment for our next question, and that will come from the line of Ross Seymore with Deutsche Bank. Your line is open.
RS
Ross SeymoreanalystDeutsche Bank
Hi, thanks for letting me ask a question. I want to talk about the cash return side of things, a great job on the dividend increase. The other 50%, is fiscal '25 a year where you're going to still be paying down debt? Share repurchases in the mix? Or Hock, you mentioned that VMware, the integration is largely now behind you? Usually that puts you on the prowl looking for deals. Is that something we should, in general, think about or the regulatory issues that are still a concern? Just trying to figure out what that other 50% is going to go towards this year.
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Hock TanCEOBroadcom Inc.
Well — to start with, yes, the other 50% of cash that is — will be generated that will not use — that is beyond dividends, we only one use or two uses for it, we've always say, one is [inaudible] balance sheet for the opportunity to buy someone else. But in reality, we're buying big enough companies you almost say that 50% cash is sitting there, it's not adequate. So the likely use of that 50% cash is, as Kirsten indicated in her prepared remarks, pay down debt. We do intend to use part of that 50% free cash flow that's not used for dividends to go delever ourselves, given the size of the debt we are taking on — or we have taken on since we acquired VMware.
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KS
Kirsten SpearsCFOBroadcom Inc.
Yes, Ross, it's Kirsten.
We want to focus on reducing interest expense. So we'll go after those term loans. So yes, the focus will be on paying down debt.
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Ross SeymoreanalystDeutsche Bank
Thank you.
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Q&A 8/12
OP
Operatoroperator
And one moment for our next question. That will come from the line of Vivek Arya with Bank of America. Your line is open.
VA
Vivek AryaanalystBank of America
Thanks for taking my question. Hock back to AI. What do you think is the SAM in 2024, so we can get a baseline view of what your $12.2 billion in sales represent and is your assumption that you maintain the share, right? You grow it?
Or what happens to that share over time? And then sort of related question to that is what happens to your semiconductor gross margins if AI grows, right to such an extent? Because you gave us a mid-single digit for non-AI and I'm wondering if AI gets to be such a big part of semis, what happens to gross margin. So both kind of the baseline of what SAM was this year and what happens to your share and margins over time?
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HT
Hock TanCEOBroadcom Inc.
Okay. That's a very insightful question on the first one, which — on the first one, anyway, where we are saying what is the baseline on the $60 billion to $90 billion in three years' time, where we are specifying down to these three customers of ours. And I would estimate this 2024 for that to be about less than $20 billion — $15 billion to $20 billion at this point, in 2024, $15 billion to $20 billion going to $60 billion to $90 billion right?
And in terms of margins, well don't get too hung up about gross margin, please, Vivek, because you're not wrong — gross margin in semiconductors will dilute you aren't saying that. But see, the game here is the revenue will leverage so much on the spending we have to do to generate it that the operating margin will improve from where we are today.
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Vivek AryaanalystBank of America
Thank you.
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Q&A 9/12
OP
Operatoroperator
Thank you. One moment for our next question. And that will come from the line of Harsh Kumar with Piper Sandler. Your line is open.
HK
Harsh KumaranalystPiper Sandler
Yes. Hi.
First of all, guys, huge congratulations on successfully integrating VMware so much ahead of your time frame. And Hock, I had a two part question. Is there a simple dollar metric that we can think of for network attached to XPUs, for example, is $1 of networking to $1 of XPUs. And then for my question, in one of your posts, you talked about sovereign data centers and VMware. I guess my question is, is there a play for Broadcom outside of the software piece? In other words, are you noticing that sovereign guys are wanting to use XPUs or are they strictly sticking to merchant silicon?
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HT
Hock TanCEOBroadcom Inc.
Let me answer your question backwards, the easiest one first. Sovereign guys are like most — most of the — it's pretty much like enterprise market. which is simply merchant. Sovereign guys do not have the capability necessarily to create first the hardware, but more importantly, the software stack to enable transistors in hardware to translate itself into high-level language which then the LLM, AP application — large language models, and AI applications can operate on. So don't stick to what's available, which is merchant silicon and available ecosystem of software — software layers that allow that translation. So it will be done very much that way on XPUs. And on your first question of what's the ratio between AI connectivity, networking that is you're saying to XPUs to compute.
Well, it's a changing number as the cluster expense. Though there are some ratios to be looked at. And the simple ratio to look at is there is scale up and there is scale's out. And as we expand into a single fabric cluster of XPUs or GPU that grows bigger and bigger. Guess what is more important. Scale up becomes more and more important. And the ratio we are talking about as we move up increases almost exponentially, which is why I'm saying from probably networking, as a percent of AI content in silicon today of between 5% to 10%, you're going up to 15% to 20% by the time you hit 500,000 to 1 million XPU GPU clusters.
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Harsh KumaranalystPiper Sandler
Thank you.
Q&A 10/12
OP
Operatoroperator
One moment for our next question. And that will come from the line of Toshiya Hari with Goldman Sachs. Your line is open.
TH
Toshiya HarianalystGoldman Sachs
Hi, good afternoon. Thank you so much for taking the question. The $60 billion to $90 billion SAM forecast for fiscal '27, Hock, I'm curious if you guys have a view on the TAM. So just want to know how big the SAM is as a percentage of the total opportunity set? And then my main question is you talked about going for leading market share within your SAM, which makes sense. I assume you're not assuming 100% share.
So, the value of that $60 billion to $90 billion that you won't be capturing, is that a function of some of your hyperscale customers wanting to capture value internally? Or is that always having a backup or a second source? Is there a low-margin business that you just simply won't pursue? How should we think about the part of the $60 billion to $90 billion that you won't be going after or won't be capturing? Thank you.
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HT
Hock TanCEOBroadcom Inc.
Okay. First, to answer the bigger overarching question. I don't know the TAM. I don't make any part — I don't think too far and hard about them. We don't think in macro approaches, we're looking at line of sight here. So I got customers, I try to figure out how much volume the — where the road map of the customer is, not just product, technology, but what they are building up, what is their consumption pattern like, that's how we create our SAM. Actually, in a way, bottoms up, then top down. So I have no idea what the TAM is beyond customers we are serving closely, collaborating closely. So let's make it clear.
In terms of market share, I don't know. But as you all can see, it's a very large, substantial market opportunity. There's room for many players. All we are going to do is gain our fair share.
We're just very well positioned today having the best technology, very relevant in this space. We have, by far, one of the best technology — combination technology out there to do XPUs and to connect those XPUs. The silicon technology that enables it, we have it here in Broadcom by the boatloads, which is why we are very well positioned with these three customers of ours. So we — based on that, we are — and based on the depth of our engagement today, this didn't just start. This has been going on now for a while in terms of deep engagement with engineering teams from the other side — each of the other side, we are very-well positioned, well underway to creating a multiyear road map for — to enable these few customers of ours to get to when their ambition leads them to be in.
And it's because of the great technology we have, where we are actually enabling in the areas we're very good at. We're talking about silicon design, packaging design and optical technology.
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Toshiya HarianalystGoldman Sachs
Thank you.
Q&A 11/12
OP
Operatoroperator
One moment for our next question. And that will come from the line of William Stein with Truist Securities. Your line is open.
WS
William SteinanalystTruist Securities
Great. Thanks for taking my question. I want to add my congrats to all the great results this year and for the quarter and outlook. But Hock, this is sort of a stunning turn of events in the last year with what we've been accustomed to thinking of as a sort of mature, slow growth business at its core with all the M&A tacked on to it.
And I wonder with the sudden acceleration of the organic business, given your exposure to these capabilities in ASICs to bring AI technologies to customers, does that change your interest level in M&A? And does it change your focus area of potential M&A going forward? Thank you.
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Hock TanCEOBroadcom Inc.
No, it doesn't. We are open — still open, always open because that's been a core part of our strategy, business model of this company for the last 10 years, which is we're always interested in adding to our portfolio, very good franchise assets, be they in semiconductors or be they in infrastructure software. As long as they always say, they meet the criteria, the fairly demanding criteria we look for, we would always be open to acquiring these assets and adding into our portfolio. So no, it hasn't changed our thinking at all.
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William SteinanalystTruist Securities
Great. Thank you.
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Q&A 12/12
OP
Operatoroperator
One moment for our next question. And that will come from the line of Vijay Rakesh with Mizuho. Your line is open.
VR
Vijay RakeshanalystMizuho
Hi, Hock. Great results here. Just a question back on the AI custom silicon side. I guess it looks like of the $17.5 billion TAM here — SAM here, you have about 70% share. So assuming that 70% looking out to '27, your custom silicon AI revenue should be like $50 billion in fiscal '27. So — do we have a good line of sight into fiscal '26, showing a pretty nice ramp to hit those numbers, maybe with our [inaudible] that to do the 1 million XPUs, how do you see that? Thank you.
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HT
Hock TanCEOBroadcom Inc.
I don't have — we don't have really a good enough line of sign to want to share it with you, nor for that matter, do we have a policy of giving you guidance beyond what we're doing one quarter a year, but we do want to give you a sense of where this journey is headed. We want to give you a sense of where this could lead us this company in terms of its AI — semiconductor AI revenue trajectory. Given that we now made it very open official almost that we're going forward only are guiding AI revenue versus non-AI revenue, we forget — at least give you a sense of what the AI trajectory is. On a non-AI you have known it with us for a long time. It's mature, stable, evolving, growing mid-single-digit GDP plus. AI will never give you that. So that's why we take the step now unprecedented in some ways of laying that road map in terms of potential market for AI. Now only market we have is the customers we have and the end-markets we serve.
So we create this SAM and the clarity we see is, to some extent in 2027. How that journey progresses with each of our [technical difficulty] customers is somewhat variable. It's the rate of the adoption and of their own XPUs and will be very much a part of that journey. But because of that, we expect to see a situation where there could be quarter-to-quarter variability, given the only three customers, and the fact that deployment comes in big chunks, typically. So my best answer to you is I can't give you any clarity beyond what I've given so far.
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Vijay RakeshanalystMizuho
Got it. And the other 2 CSPs, when do you see them ramping?
HT
Hock TanCEOBroadcom Inc.
Well, first of all, I got to get into production, they got to get into production. So why do we cross that bridge when we get to it. We are working very hard with them to get it production stage. We're pretty deeply engaged with tape-out chips. And — but they've got to get their software ready, they got to get it tested and they got to get going on it. So now I'm not sure — but definitely over the next three years.
Closing Remarks
OP
Operatoroperator
And thank you. That is all the time we have for our question-and-answer session. I would now like to turn the call back over to Ji Yoo, Head of Investor Relations for closing remarks.
JY
Ji YooirBroadcom Inc.
Thank you, Sheri.
Broadcom currently plans to report its earnings for the first quarter of fiscal year 2025 after close of market on Thursday, March 6, 2024. A public webcast of Broadcom's earnings conference call will follow at 2:00 p.m. Pacific Time. That will conclude our earnings call today. Thank you all for joining. Operator, you may end the call.
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Operator Sign-off
OP
Operatoroperator
This concludes today's program. Thank you all for participating. You may now disconnect.