Broadcom (AVGO) 2 Mar 232023 Q1 Earnings call transcript

Welcome to Broadcom Inc.’s First Quarter Fiscal Year 2023 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.

Thank you, Operator, 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 first quarter fiscal year 2023.

receive Investors you at section not information obtain broadcom.com. did the from of you a may copy, the If Broadcom’s website

replay the Investors This and of Broadcom’s be being is section for of audio accessed through conference can the year webcast one website. call call an live

providing business well XXXX the for results, During be our comments, environment. as first our second and Hock of prepared as commentary guidance the regarding quarter will quarter, Kirsten details fiscal year

the end after our prepared We questions will of comments. take

Please release filings refer specific and with on cause differ today the that made call. the statements to our this factors our on materially to press forward-looking our from actual results SEC recent for risk the could information

certain A included press non-GAAP to financial measures In financial call to to tables during addition on today’s results. reconciliation measures primarily is GAAP will reports basis. and in non-GAAP the Comments made today’s attached refer U.S. GAAP release. Broadcom non-GAAP between a our reporting,

over will turn I now to the Hock. call

Thank XXXX, Solutions today. XX to fiscal XX% $X.X Semiconductor In up our for XX% -- increased that in you, our QX joining us billion, you, $X.X and net -- revenue billion. fiscal revenue year-on-year. was was Ji, year-on-year revenue consolidated everyone, thank

Infrastructure While software even as sustained year-on-year as our we Software to expected, core year-on-year. growth X% declined $X.X billion, of X%

even in technology strong, providers, nine QX. view, in quarters. infrastructure our has service been happened hyperscale spending sustain. From Stepping be growth let showing in up to up, sum for infrastructure back, particularly what me and consecutive for continues double-digit Spending as enterprise

at visibility times and XXXX fiscal on for lead booked be to semiconductors largely remain weeks. continue and XX We our

are orders, that our business. number they been to of have had push a these out a on we certain exceptions requests impact not have While and material small know the there

managed. very linearly across been to inventory ecosystem around remains Broadcom on we has products of Because throughout the books and consistent our days the well quarter inventory our customers, XX overall ship

We backlog customers. needless in when to shipping our our continue, very end be and disciplined as by only say, to needed

now markets. semiconductor Starting with color With our up each year-on-year, XX% representing and of let was more guidance, was of me XX% on with that, revenue. provide in networking. revenue billion line $X.X Networking our end

deployment their our and spine see advanced Tomahawk hyperscalers switches We by of continued leaf in architectures.

Even we having for increased deliver that, remains on as a bandwidth said challenge. the power major hyperscalers,

optical week, announced silicon we this switch Tomahawk photonics Bailey, industry’s power. name X next-generation doubles switching our per just integrated but Bailey XX.X reduce code at So it active will total networking second. first interconnects the which performance integrates system solution with the terabit

Keep in traditional mind separate that growing at existing their workloads. AI CPU networks, are scale the portion have of switches within deployed xXX outrunning which hyperscalers, a our been from

engines. with to Now should language, models density support of and processor enabling have network AI critical SDAI The synchronized and it’s large scale bus this gig. thousands we -- large say, using of is we engines data is this I AI of run to XXX parameters, XXX at today. speeds massive large gig Tomorrow, generated and billions tower important of in

networks be to have scale. to latency able low Such lossless, be and

AI Fabric. networks deployed through you switches are as such been our and Jericho So certain know, X Ramon at hyperscalers already

$XXX we shipments in Ethernet estimated XXXX, deployed AI over in fact, our In switch was million.

in With accelerate to XXXX. continue grow customers, performance mindful more the over anticipate networks in that demand even need this expected well exponential will could future. trend hyperscale that our higher to the forecast and this we from we We million $XXX

of a and this in new AI latency fabric specifically generation investing have lossless designed low Ethernet compute-intensive data to handle We been such workloads.

accelerated hyperscalers. offload are our growth compute exciting the for Of AI prospects driving course, generative business at additionally,

indicated $X we billion XXXX. revenue in over achieved As business in have quarter, this last to you

QX, In $X billion exceed fiscal another drive XXXX. we expect forward, our year-over-year. looking networking track are We about to tailwinds to XX% revenue revenue our grow short-term, on to these in in

was storage as XX% next this we transition megawatt preceding revenue. quarters, on next-generation up discussed year-on-year server in connectivity substantial $X.X again, revenue XX% our to the increase. There record a billion or rapid Once semiconductor year-on-year. solutions to Moving of drove content and

revenue After this year-on-year quarters expect towards server transition, of four year-on-year in and that however, complete storage XX% such QX is consecutive growth. increases, significantly we basis a on moderate connectivity will

revenue. Moving a broadband. record and XX% of on to grew XX% $X.X year-on-year Revenue to billion represented semiconductor

our quarter, of robust deployments of this telcos X.X. broadband benefited and by from operators During business cable XXG PON particularly DOCSIS

secular And and These a gateways year-on-year, broadband the to will XX%. we a have in sustain high attach expect WiFi momentum grow X XE. broadband behind QX, and on basis, drivers rates of solid sequential

expect billion to quarter. in wireless. QX we down wireless North single-digit $X.X X% from of to seasonally, and compared represented last QX our on reflecting up year-over-year. we of QX, wireless flattish sequentially Demand revenue. content be wireless Sequentially, revenue American percentage revenue which XX% had indicated and down to customer semiconductor year-on-year, drove high previously was increases, Moving

million industrial Finally, medical. China. be QX renewable China $XXX low-single percentage digits softness down And resales strength and on of industrial to resale in QX, offset continuing X% in year-on-year in softness year-over-year as in energy decreased we forecast

single-digit and in high So, growth expect we year-on-year. revenue was summary, Semiconductor XX% QX Solutions QX in up revenue percentage semiconductor of year-on-year

and Infrastructure revenue QX, revenue. declined X% Turning of of year-on-year billion XX% total to represented software. Software $X.X In

narrow grew in year-on-year, SAN revenue storage. lumpiness the consumption very software this enterprise core Brocade business declined While vertical of in of X% because

$XXX $XXX of and consolidated software, averaged maintenance. contracts, represent value core accounts, million represented these to Over of XX% portfolio which of For our and averaged and strategic within expiring XXX% strategic rates XXX% products our included of bookings same within recurring this customers. renewal we the accounts, cross-selling of million, renewal core strategic subscription XX% annualized of

revenue of forward at a of Now up of renewal in of accounts, rates the averaged expiring -- ago. we in year X% the and end over was contracts, our which from this, by consolidated billion, the XXX% XXX%. last months, way is averaged XX QX ARR, over comparison, strategic our Because indicator $X.X

In be by software to partially our single-digit be the segment in we now Brocade. Software expect QX, revenue continues as stable low-to-mid growth offset year-on-year, up Infrastructure to percentage core weakness

we summary, in year-on-year. be revenue consolidated X% are the QX So, to $X.X billion, up for company guiding

you our provide our brief financial for Kirsten, acquisition Before of VMware. me pending on more update tells a let quarter, about performance the

Denmark, We clearance the Zealand. continue control to make received progress our and with Germany, regulatory world, Brazil, merger now in foreign France, Canada, filings having and Africa various New clearance and around investment legal Austria, Italy in South

our of review said this in XXXX. that, key within we fiscal other our Having we anticipate the to earnings continue line that time especially to call, to given transaction. will the continue size transaction be stated As process the extended on we for expect last the close regions,

innovation to confident see enterprises most when We believe Broadcom they the we regulators and addressing VMware their conclude this and multi-cloud is about by technology choice expand combination of their will and challenges review. are in complex enabling accelerate era this

its Broadcom recently discusses annual which Finally, initiatives. the citizenship ESG report ESG available published third on company’s corporate our website,

leader, excellence, this As Broadcom’s employees and impact recognize a a operational technology and committed responsibility mission. our innovation remain positive have to communities and to on technology product we we global through our customers,

call over to Kirsten. With that, the me let turn

Thank Hock. you,

financial Gross the Consolidated quarter, higher margins was Let revenue expected. points performance. me XX% now financials. had billion XX% XX in revenue Broadcom $X.X the than quarter with year were of detail for our up about from robust additional on ago. another basis great we quarter, provide a

increased Operating from from part year-on-year. down people variable expenses of resulting were primarily are headcount costs higher R&D $X.X $XXX spending, other also in billion, million project X% hiring. we down by X% was and year-on-year, streamlined offset as

from XX% of depreciation. billion the was excludes Adjusted revenue. income margin This XX% year Operating million up Operating quarter of basis $X.X was for revenue, figure was billion $XXX up XX% XX a points year-on-year. $X.X was approximately or of ago. and EBITDA

represented Now a P&L XX% the was our quarter. review revenue $X.X Solutions two year-on-year. the Revenue in billion for This our of was reportable XX% total Semiconductor segment of up segments. for and

As from semiconductor our across discussed, of this markets. Hock came strength end all

Solutions our basis by driven Gross XX%, XXX points approximately end mix markets. approximately segment down our Semiconductor margins semiconductor within year-on-year, were primarily product for

XX%. in million in R&D X% down $XXX QX down million QX, were year-on-year. quarter, X% were expenses margins was Operating year-on-year. semiconductor operating $XXX the

XX% was So profit while grew semiconductor revenue up year-on-year. operating XX%,

the was X% year-on-year $X represented reportable revenue. down $X.X XX% P&L of Software our Moving billion, Infrastructure and Infrastructure -- to Software for segment. Revenue for

Infrastructure quarter, down XX% the million margins in operating year-over-year. Gross X% profit Software were expenses were the Software margin in for $XXX quarter was year-on-year. was operating and QX Infrastructure operating and stable in XX%

XX% cash capital to what quarter cash increase year-over-year. was billion, Moving in QX expenditures. the revenues XX% flow year. consistent million with We a in spent representing cash of last Free quarter $XXX same we represented Free flow. achieved XXXX $X.X on flow the

ended We on $X.X Overall, of X% to in prior across end ecosystem, the days inventory Days of indicated, as days sales fourth with outstanding or first the hand. first well were in billion, products XX the quarter. days compared the Broadcom’s XX quarter managed. Hock quarter of quarter remains down from the inventory XX the

the which is ended of $X.X gross billion with of cash first billion We of debt $XX.X and $XX.X quarter billion short-term.

in fixed we were and and that weighted maturity. notes is years, of the rate maturity years XX.X quarter, X.XX% During million debt repaid senior The on average our $XXX rate due to coupon respectively.

billion employee eliminated quarter, stock return dividends. equity, of capital of was diluted cash to in of stock common paid million shareholders, count for $XXX stockholders excess due QX with to resulting in million the approximately million. we to the our of cash $X.X and share allocation. $X.X repurchase of shares. commitment repurchased Turning on In X.X elimination Consistent vesting AVGO common The non-GAAP billion and we taxes our $XXX

$XX.X repurchase of As under QX, authorization. the end of billion the remaining was share

we the diluted any to share non-GAAP be Excluding count impact in million. XXX QX, of the repurchases, share potential expect

for trends the of revenues for adjusted our quarter and current and revenue. of fiscal conditions, on is approximately $X.X Based consolidated billion XX.X% XXXX of guidance projected EBITDA of business second

sequentially profitability, to such margins points gross In up mix R&D on we and product seasonal and forecasting tax spending to engineers sequentially up basis hiring expect XXX payroll on approximately of be step-ups. continuing be

open call for prepared questions. my That please remarks. up concludes the Operator,

Harsh the question Piper Thank Sandler. Our you. Instructions] Kumar [Operator first line come with will from of

is open. Your line

of to versus Yeah. understanding another is. in what you guide and on our yet you for provided. I generative are between far Hock, Hey, difference mentioned doing wanted and all what models quarter thanks you the understand solid so color guys guys. your maybe AI in the commentary. generative Congratulations

talked place mostly compute you process? think think of we offload of about place generative we was video large You $X to Maybe for the $X and generative how Broadcom’s in in million then because models related understanding that say My Avago’s Ethernet billion have AI, processing. that that was going in largely billion. to InfiniBand are companies is or about help heard using sort $XXX other talked us about part, for generative, the

opportunity to and within why XXXX, why purposefully. and generative question yeah, AI In But off. particularly Well, that clarify we just volume. thank it in very kick hyperscalers, for barely you is they I networks fairly highlighted significant highlighted to starting the exist

And traditional are trying CPUs, data say very one workloads centers. we similar in is, same in those CPUs to traditional to

starting constrained buying to on of together Law, work server, those we closely and performance rows networking of and and Moore’s CPUs silicon rows We parallel. them scale positioning see have out are CPUs to in

to racks you language up thousands parallel generative and to AI step together in goes. and of in to be starting large we are coming in how play. AI, in hundreds, into models particular soon that strung working GPUs know As be

run call parallel together, bulk those basically, TPUs other run synchronous they manner or GPUs, together, work parametric basically all GPUs to do AI we in engines are whether fairly AI or and engines. AI And GPUs basically, what exchange, in

together. them run You

faster, Law they doing AI form high doesn’t they They difference face make Moore’s you to phenomenon in end It we been got put very hardware. together many AI doing of whole and have constraints. comes of here becomes hyperscalers have CPUs to becomes similar a have make an what been network. to run come the similar part AI have -- racks engine. in to them potentially make of work, any engines The as on silicon, in it performance To now -- critical this network from parallel,

-- part the becomes of here. generative fulfilling becomes So AI a network constrained, becomes key a dream very problem network

And that more advent and what goes $XXX AI as AI am is generative I are we my silicon, switches here could running call -- the hyperscalers. AI comments saying the are doing we we in in what networks that is, saying you estimate could we million are last XXXX, are workloads these of relatively new, Ethernet identify what as fabric AI those still in far as and of far hyperscale -- and fresh into as year,

coming it in and AI the we generative excitement that With are urgency today. and of seeing

to We to that customers coming us place I latency and Ethernet very networks hyperscale is dramatically ability secure scale. would to low those low our are very increase makes put seeing lossless, what very, very seeing and to in scale can in those secure are call, very, products, we networks urgency that

Understood.

Thanks, Harsh.

One moment the JP with from our come that will Harlan you. And Thank Sur for next line question. Morgan. of

Your line is open.

routing Good X and generative Jericho is and win compute data for compute Hock, and/or AI year, this customers to across ramp design design for to my your AI-focused center TPU offload ASIC pull on as out is are funnel footprint, this strong perspective, their products driving Thanks focused But future some like taking right? or deployment causing as your Tomahawk for now mentioned. from AI demand want of port switch their product forward aggressively tape of afternoon. question. next-gen like demand This you development and the a Ethernet our and X offload as new customers and programs? switching cloud also pulling your programs next-generation cloud

Yes.

seeing are that and over by the XX all We of the happened the way last days. foregoing

urgency, it right excitement, of you call that on. lot that, might but it have a of a seen We hit lot you

Okay.

both Which data a compute develop pushing of color net kind this and switching accounting generation is to very and new Ethernet in generative support altogether of network about workloads. AI-based for Yes. the commentary my intensive can that us --

side So that’s of one it.

way to customized of typically side are compute certain these talk it, that right, some of -- And another certain related which very are not offload, to fairly yeah, to the is of we other saying, that the engines about are much you want have hyperscalers. dedicated

Hock. you, Thank

come of Vivek moment Thank America. the you. will that Bank question. One for with line of our Arya from next And

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I years, anywhere between the the just the Thank views few question. curious second X% Broadcom look you to to has at of right, kind managed about last am my just environment. half. understand half-over-half, half grow for If I taking Hock, semiconductor business the second double-digit to just broader sales,

environment per negative of kind that year? broader business it’s se, question, Broadcom So not a positive more for in trend or change way a of what this could guidance

say, a guidance, you but not of conceptual, sort a this broadly as In trend way.

growth, probably leading rather nonetheless, soft hopeful improvement this we be we soft see We are still will as kind in indicating half. moderation the -- in getting QX of that That second future year-on-year quarter would it of lending. are be landing moderating a a but this a as to

Thank Understood. you, Hock.

Thank from for you. question. One next of moment our Bernstein. line Rasgon the And come with that Stacy will

line Your open. is

question. still context last given Hock, say that from hearing the just that, times Hi, guys. Thanks I just taking for around hyperscale my wanted do days, the to in urgency XX about weeks. customers I that in that and you verify, AI the think of your lead started are how did you XX

the contribute the contributes does the do more ASICs. Ethernet when in that billion net to I in of like, and demand AI now the You half timing times? is wake like, both from the of across the given lead it in I growth think or a broader the second times, sounds that have for kind linearly XXXX of guess or just in strong guess I thing year more levels $X.X model right about just year-over-year the lead got incremental how working given

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Okay.

customers ability to we fairly generative and But that, very, urgent launch need having help no, customers a to products helpful those manner want -- of urgent in obviously into when those our our through to working timing AI. still are said very aggressively be

So midst we the in of are that.

that I Because quarter, we I are I like already through guess… some that because you QX once do go sequentially. beyond, half, got for this implied the as it, get or even -- like, Is networking guess up guide right? get mid-teens call through already are of Okay. -- we more So first be we has the to contributing

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Okay. Thank you so much, Hock.

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quick on generative about AI. you -- a talked question Just

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doing wireless. out last guys the into going or to you apparently were So getting quarter wireless, getting of handset wireless you are start are over

to wanted of So get couple updates. I a

could you set the straight. record maybe So

the on wireless because it does even better, actually, year it opinion First let’s sea does say, providers a you your get worse, pieces with that two, way, obviously, change next silicon, historically, change or you if and other see closely develop in players get silicon and fundamentally all baseband in, have know, to supply the if if you worked a your of like all, change, does required and big of impact of group, I puzzle do mixed own. your chain that has either helping going transceivers the key very are architectures it are

reset the in you but in maybe guidance, the the division does general, get year bar on you expect wireless just greater? next or what could So without kind you of that for to Thanks. for two,

Ed. question, Good Thanks.

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year. a perspective what’s hyperscale to happening of together trying am put I clients So at this

all if that -- this that networking in growth at I if you compute year and for $X $XXX at represent grow the So billion your might -- least division, if networking. in in by look million growth like billion, you AI well your have

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at the the year large it CPUs growing around that market? these question of my the this xXX only the centers AI So to is or data think purpose sign fair will future of is, that in in a still what and end infrastructure day like say be is very purpose or or is growth general a started general centered do similar good you or is

all don’t those and GPUs, even I you I CPUs. know. know, do way. are do know. insights sell asking. post I good not interesting and me very, customers is, you -- do do I by necessarily I know problem because not I not You very questions do honor and All customers -- not Pierre. I what don’t sell The them my hyperscale questions, sharing those that -- by on the

a pushing applications That’s up what seen their there, on AI. spending be driving and seeing as networking with know our out some are and behind not those always in which perhaps we see you That’s of in hyperscalers. effect focus, not course, generative to know business, areas hype is. some excitement, of excitement the these is, of sense what in saying lot what of we are and I to a it see of workloads left we urgency we that bringing certain is if and business But speed be we of hyperscalers have this to on

key routers as sustained quarter’s in see we the get backlog in Beyond to networking And strength. results, the we unfortunately, we, that. and last switches, see other normal I indicated that, components, than we continue

particular indicate we quarter as continuing QX. and quarter last this Now

what see yeah, we be want now, continues Beyond guide hyperscalers to in not networking that, this we I don’t scale and to we quarter, to sustained the in deployment might beyond last and get in right data going traditional well that. networking centers see in do -- as But out to are strong quarter, enterprise. indicate

year Okay. majority very specifically networking come in the growth that -- to you just which you is to assume looking are clarify this fair $X to Just that is I Great. large and of majority or right what am anything AI, have Ethernet doing, going from a think AIs way on at is else? [inaudible] your And from business, million not for not coming that billion coming about it? the from $XXX your to

about I be mature. might at too a this bit Don’t will think point. forget It not generative… it

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Yes.

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On have softer opportunity into that piece, relates a their that’s in towards companies could was peer infrastructure has I discuss growth now premise buildup ecosystem and due the to on curious quite stop to a your fiber switch the to weighting investing portion. it but the division. you Tomahawk as a been portfolio more broadband sell guided have then of And outlook frankly, if in inventory, across networking elected broadband, the the you several customer obviously side,

an business infrastructure? begin you from how consumer and thinking of governments your broadband as And funds so equipment within could a are discuss both infrastructure hoping deploy about fiber side I was growth standpoint the you. you for to Thank broadband

good and XX% last I boring. very to that grew actually good at Broadband we reported, Yes. for point. is you question. is, us, year-on-year. Boring Used business this sustaining. as a quarter, for very Thank QX, be very, And

XX% five and we rather for have seeing to that’s even normalizes exceptional most growing. QX, enough still quarters. it date level, view, past a rather the my year-on-year still in been but at growth In now broadband, four was exceptional least sure quarters, though But

very to next-generation simply respect been growth the in and And positioned telcos Europe country countries XX-gig we with deployed which because supported America, are has other and all that big well to is over even nations governments that. other in -- PON, not mention now the North in PON, volumes by by beyond

them as you key call simultaneous reaching broadband every deployment. then or about a PON of lot we is we cable a also see strong to because maintain to And it and Basically, continued it, fiber, household vertical large cable, gigabit need with utility more competitiveness see the these of market, telcos service and deployment the PON. the of launch home, scale who a as telcos operators, of the on the to certainly DOCSIS who XX few coax

DOCSIS cable in and not to in they lose market the -- against each subscribers able to compete has market other. to update That be same the compete

we happening, next see call X.X. I years, the of as X.X, it, within not -- couple in both potentially DOCSIS but DOCSIS cable, next So generation, yet hopefully X. and strength

strength continuing deployment we and happening, accounts quarters those last content PON to come which over just the and quarter Meanwhile, last unit is infrastructure, high the and not fact and of attach come I the for increases what boost, of that also several of strength it, saw deployments but provides rates with more, content increases this additional our in And would X growth call very WiFi a revenue lot XE. broadband. that to gateways

quietly still very that’s So All right. chugging along us. for nicely

you. Thank

would call I time. queue back in to the As I this over Ji showing no any questions at the to for now turn closing like remarks. Yoo am further

In the Thank earnings at conclude attending will call June our like to Technology, Broadcom March X second Stanley of close call joining. we A Pacific will end you That for and earnings today. Time. of market after the Thursday, p.m. XXXX. Media its public Thank highlight you X, may will quarter on of all for Tuesday, you, the be Sherri, earnings Xth. call. that webcast Broadcom’s would Telecom conference report follow Conference Sherri. Broadcom fiscal XXXX plans Morgan to on currently closing,

for you This Thank participating. program. today’s all concludes

may now disconnect. You