Q4 2019 Earnings Call
Ladies and gentlemen, today's conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
To turn the call over to Beatrice Musotto director.
Of Investor Relations of Broadcom. Please go ahead man.
Thank you operator, and good afternoon, everyone.
Joining me today are hock, Tan, President and CEO and Tom crowd.
He financial officer of Telecom.
After the market close dotcom distributed a press release.
Financial people, describing our financial performance.
For the fourth quarter and fiscal year 2019.
If you did not receive a copy may obtain information from the Investor section of Dotcoms website at Broadcom dotcom.
His conference call is being webcast live.
Recording will be available.
Although via telephone playback wanted me.
He will also be archive any investor section of our website <unk> Dot com dotcom.
During the prepared comments section of the call Hakan, Tom will be providing details of our fourth quarter.
Fiscal year 2019 result.
Guidance for fiscal year 2020.
And commentary regarding the business in burn it.
We'll take questions. After the end of our prepared comments.
Please refer to our press release today and our recent filings with the ITC for information on the specific risk factors that could cause our actual results to.
Could differ materially from the forward looking statements made on this call.
In addition to U.S. GAAP reporting Dot Com report certain financial measures on the non-GAAP pizza.
The reconciliation between GAAP and non-GAAP measures is included in the tables attached to todays press release.
Comments made during today's call will primarily refer to our non-GAAP financial results.
With that I'll turn the call.
Okay. Thank you very good afternoon, everyone and thank you for joining today.
No. We concluded fiscal year 2019, we record revenue of $22.6 billion.
Growing 8% year over year, despite the challenging environment.
With semiconductor solutions segment declined 8% year over year, but this was more than offset by our infrastructure software segment benefiting from the integration and for your results from the seed business.
In semiconductors.
Almost all product lines were down year on year, we won cleared exception and that's net working.
Well the existing growth drivers couldn't didn't you do you have strong momentum.
Infrastructure software renewals and I'll call. It goes grew double digits, which may.
Then no fed ex the expected accretion.
You know non core income.
No as we embark on fiscal 2020 I want to provide you some insight into our labor strategic or that's when the semiconductor businesses.
And no current.
Well the market.
I also wanted to give you an update on software business.
Including our latest cemented acquisition.
I'm sure you'll have seen the guidance and not a news release today that we're headed towards 25 billion in revenue $25 billion in.
New in 2020 .
And I'll, let Tom gold, who the details on how we get there.
But before then these over to him let me now give you the broader picture.
So when we look at all semiconductor segment today.
We are increasingly.
Thinking about <unk> coal and set bloods semiconductor disciplined but couldn't says oh.
Networking broadband and storage connectivity products.
It goes on enterprise service providers and cloud infrastructure.
Yes, we get a lot of strategic synergies and scale across all end markets, we bought customers.
We thought coal silicon technology.
These same then drives efficiencies you know sale.
Alright, and BT and supply chain activities.
Oh infrastructure software businesses, which focused primarily on large enterprises.
In fact, white complementary and not in Hong Kong semi discusses by bringing us closer to one in customers.
These gives us a.
Natural barrier to entry.
Gives us comfort.
We can drive sustainable revenue growth and improved profitability long term.
Alongside these clothes could be called semiconductor business.
We have no.
Valuable semiconductor businesses.
I'm much more then alone in nature.
If you took their unique customers technology and supply chain characteristics.
This will conclude our wireless businesses and all industrial businesses.
We don't have the same kind.
In the Sidney just reduce as we do not call semi business.
Increasingly.
We view. This this is a small financial assets, especially in terms of capital allocation balance sheet optimization, and how we chose to leverage resources and Manny.
The company.
Turning to our current assessment phone calls semi business.
It's extremely positive.
We believe we are uniquely position with an industry leading portfolio extending connectivity across.
And to Brian LCOS and cool.
They listened to switching and routing.
When they bring to close the transition to 400 gigabit per second.
We also just to know.
800 Gigabits per second.
Further demonstrates.
Leadership in this space by fall.
In fine G.
Like infrastructure.
We are leveraging I won't eat the technology to bring the NAND what to do you edge in open right all regulate says networks.
The company combination should know custom and spend that product.
Cross Bull.
No.
And digital domains.
And as we know.
Well as most laws for computing starts to slow down as it has.
We continue to gain momentum in developing and delivering hot Wayne.
Celebrate this too.
All flow computing for the cloud service providers across an increasing variety of workloads.
You mean shaleen.
Weve virtualization.
Hi devices and extending to date to.
Superiority.
Encryption and video transcoding.
And then the wireless access in enterprise and home gateways.
We are of course, leaving the market transition to white five six.
And finally, we actually do right now and again integrate the silicon photonics.
Underway, combining our capabilities in switching we saw strong legacy in fiber optics for next generation Colo and met working architectures.
So in summary, we blend to increase our investment cost semiconductor businesses to position ourselves for expected future.
Good growth opportunities, where we can leverage all scale investment industry, leading focus execution and breadth of IP now we all know there's been a tough years for semiconductors in general we follow semiconductor segment down approximately 8% as I indicated, but if we look at all close I mean.
Business as I do find it is that.
Reasonably well put some numbers are running this business did a little over 11 billion in sales in 2019.
Which was done just less than 4% from 2018.
We think this business is stabilizing and we believe.
Given the growth drivers I just highlighted over the next several years that this business can actually grow six to eight per se.
Annually.
Turning to infrastructure software.
We started a few years.
Go with brocade.
The storage area networking switch business, then we had quite see which is a leading independent provider mainframe tools.
And we just closed on cementing the leading enterprise security software provider in November .
Our brocade acquisition for us.
<unk> predicated on view that the fiber channel same switching bucket for large enterprises, what's sustainable and then we could just grow our leadership position with additional investment and after a couple of years no fairly clear disinvestment Tcs was right.
Similarly, we bought see a because.
We felt the main free market for the launch of enterprises was stable and in fact growing and to see.
Well, it's critical to customers relying on mainframe so running that business. It's still early evening one year now just over one year from mainframe computer is growing.
I mean, we thought target customers, we are increasing investment in mainframe to support our leadership position.
See a customer transition continues with call it sounds growing double digits.
Non core accounts, a treat as we had planned.
We.
Thanks, Glenn Thanks to start with 1.8 billion of call sustainable incremental annual run rate revenue that we believe we can grow to over 2 billion over the next three years.
Infrastructure software segment is becoming more predictable weve raised.
Both recurring revenue contribution from C and now also with Symantec and we anticipate over $7 billion infrastructure software revenue in fiscal 2020.
In summary that fall our long term blend for this.
Comparing it to advance inorganic growth cost semi disciplines, well continue to scale on a one infrastructure software business through disciplined and highly accretive acquisitions.
Now, let me turn the call over to Tom.
Thank you.
Let me start with a review of our fourth quarter in fiscal 2019 results.
Then spent some time discussing our outlook for fiscal 2020.
After which we will open up the call for questions.
Consolidated net revenue for the fourth quarter was 5.8 billion is 6% increase from a year ago.
So it makes better solutions revenue was 4.6 billion and represented 79% of our total revenue.
This quarter.
This was down 7% you're on your end up 5% quarter over quarter.
On a sequential basis networking sustain driven by an uptick in our custom silicon solutions.
Storage also held up driven by increased demand for high capacity drives.
This was offset by increased volatility and broadband, especially as the market prepares for the wife by six transition.
And as is typical in our fourth fiscal quarter wireless was seasonally up.
Revenue for the infrastructure software segment was 1.2 billion and represented 21% of revenue.
Let's see a business continues to perform well sand switching demand remains muted as their partner OEM supply chain continues to compress.
That being said the San switching business was up from the Q3 low point in the market for these.
Products looks to be stabilized.
Looking down the piano sequentially gross margins dropped given the seasonal mix shift the wireless in our semi business.
Well operating expenses remained relatively flat to just over $1 billion.
Operating income from continuous operations was 3 billion.
And represented 52 point.
3% of net revenue.
Adjusted EBITDA was 3.2 billion and represented 54.8% of net revenue.
This figure excludes 143 million depreciation.
I would also note that we accrued $119 million restructuring integration expenses and made a 150 million of cash restructuring.
Gration payments.
In the quarter these expenses and payments are primarily related to see.
We spent 96 million on capital expenditures and free cash flow represented 41% of revenue.
For 2.4 billion.
In the quarter, we returned 1.6 billion to our common.
Alcobras, including 1.1 billion of cash dividends.
As we previewed when we announced the Symantec deal in Q4, we initiated the transition from stock buybacks the debt repayment in the quarter, we invested 587 million for the repurchase and elimination of 2.1 million Avi Geo shares.
However, we.
We also paid down 4.8 billion of debt with proceeds from our preferred stock offering and excess cash flow.
We ended the quarter with 5.1 billion, a cash $32.8 billion total debt.
398 million outstanding common shares and 444 million fully diluted shares for the quarter.
Now, let's recap performance for the full fiscal year 29.
Our revenue hit a new record of 22.6 billion growing 8% year on year.
Semiconductor solutions revenue was 17.4 billion.
Now an 8% year over year.
As Hawk reviewed revenue from our core semiconductor business, which is not include wireless and industrial was down 4%.
Infrastructure software revenue was 5.2 billion, which included 3.4 billion from CA mainframe and enterprise and 1.8 billion from Brocade Sands.
Gross margin for the year was a record high of 71%.
67% a year ago.
The addition of CA as well the beneficial mix and something for product sales drove the gross margin expansion.
Additionally, operating expenses expanded to 4.1 billion with the addition of CA offset by lower annual performance.
Bonus amounts relative to 2018.
Operating income from continuing operations was 11.9 billion up 14.4% year over year and represented 52.8% of net revenue.
Adjusted EBITDA was 12.6 billion.
Up 13.5% year over year.
Sure.
And represented 55.7% of net revenue.
This figure excludes 569 million in the depreciation.
I would also note that we accrued $1.1 billion restructuring integration expenses and made 883 million of cash restructuring integration payments in fiscal 2019, we spent 400.
The 2 million on capital expenditures and free cash flow.
Represented 41.8% of revenue were 9.3 billion.
Free cash flow grew 12.4% year over year.
For the year, we returned 10.6 billion to our common stockholders consisting of 4.2 billion in the form a cash dividends.
And 6.4 billion for the repurchase and elimination of 24.5 million.
And Joe shares.
Okay. So now let's look ahead to fiscal 2020.
The outlook for our business is as follows in the semiconductor solutions segment, we expect to achieve approximately 18 billion.
In.
Got it.
Let me unpack this a bit.
We expect our core semiconductor business.
To deliver approximately 12 billion in revenues in 2020.
Which would represent approximately 7% growth compared to 2019.
Our wireless businesses.
Which let me remind everybody consist of three.
Primary product lines, one is already.
The other is Wi Fi Bluetooth.
Combos, and finally, our mixed signal custom products, which we sell almost exclusively to one of our large smartphone customers.
RF, which represented approximately 2.2 billion of revenues in fiscal 2019 is.
Good to grow high single digits.
Given the initial ramp in Fiveg phones.
Hi, Fi Bluetooth Carbos, which was approximately 2.2 billion in fiscal 2019.
He is expected to be down low single digits, the adoption of new wide Fivesix solutions at our two large smartphone customers.
We'll be offset.
By the completion of our movement away from non core lower margin legacy Wi Fi business.
Which will adversely impact this product lines 2022 revenues.
Finally, our mixed signal custom product line, which was approximately 1.1 billion in fiscal 2019.
Is expected to.
Drop to less than 500 million in fiscal 2020.
The reduction in revenues here is driven by a change in architecture and our primary smartphone customer.
As well as our decision to reduce our investment in this area and focus our engineering resources on more sustainable and profitable activities in our core semi business.
Yes.
Finally, industrial which consist primarily of opto electronic power management and something product lines, we expect business will stabilize and recover in fiscal 2000. After a challenging fiscal 2019 in the contribute approximately 1 billion in revenues.
Switching to the software segment as Hopper.
Viewed we expect the business to grow to approximately $7 billion Symantec is expected to contribute approximately 1.8 billion, including the effects of purchase accounting well see a in the brocade are expected to be relatively flat to up slightly.
So on a consolidated basis, we're forecasting.
Revenue to be approximately 20 billion 45 billion excuse me.
Plus or minus 500 million for fiscal 2021 housekeeping item, our IP intellectual property segment will be included in our semi solutions segment going forward. Given this business represents an immaterial amount of revenue will therefore have two reporting segments in fiscal 2000.
Dr Solutions and infrastructure software.
Turning to our fiscal year 2020 guidance on a non-GAAP basis operating margins and adjusted EBITDA margins.
Our expected to be relatively flat in fiscal 2000.
There are a number of specific headwinds as hot discussed we're increasing our investment near term in our core semi business to take advantage.
Anuj of growth opportunities, we see there.
We're also want to transition year with Symantec given effects of purchase accounting near term and onetime expenses tied to the transition services agreement in place with Norton Lifelock.
And finally, we will have a headwind from our bonus accrual resetting to target, which impacts 2020.
Looking beyond.
Fiscal 2000, we expect to continue to expand our operating margins organically and are targeting 55% by fiscal 2022.
Now on the capital allocation, we remain committed to returning approximately 50% of our prior year free cash flow to stockholders.
Form of cash dividends.
With that on the.
Dividend based on approximately 9 billion of free cash flow after M&A and related items that we generated in fiscal 2019, we are increasing our target quarterly common stock cash dividend, starting this quarter $3.25 per share.
This constitutes an increase of 23%.
We plan to maintain this dividend payout.
Throughout the year subject to quarterly board approval, which means we plan to pay out just over 5 billion cash dividends in fiscal 20.
Consistent with our capital allocation policy, we knew we will reassess the dividends. This time next year based on our fiscal 2000 free cash flow from operations results.
In addition, we plan to pay down approximately.
The only 4 billion in that in fiscal 20 as part of our commitment to maintain our investment grade credit rating.
That concludes my prepared remarks during the Q when a portion of today's call. Please limit yourselves to one question. Each so we can accommodate as many analysts as possible.
Operator, please open up the call for questions.
Thank you.
Ladies and gentlemen, if you have a question at this time. Please press Star then one key on your Touchtone of telephone we ask that you. Please limit yourself to one question.
Withdraw your question please press the pound.
Please standby, while we compiled the culinary roster.
Our first question comes from.
Mr with JP Morgan.
Good afternoon. Thanks for taking my question one other areas, obviously, which has been a strong growth driver for the team 2019. As you mentioned Hawk has been cloud and Hyperscale data center networking and compute acceleration.
Got come off try to enjoy recall, your compute and security acceleration a six and.
And the new optical connectivity portfolio, there wasn't a bit of pausing cloud spending in the first half of this year, but it looks like that that is starting to accelerate and looking to be strong. In 2020. You also have just started to 400 gig upgrade cycle. So for fiscal 20, how do you see the data center part of your semi franchise performing.
Relative to 2019 is this going to be another strong year and then just secondarily.
One of your customers Cisco, just announced that they're getting into the merchant silicon market for cloud networking you guys have a strong position here and in fact its help these guys both merchant and 86 on their networking.
I am as would be great to get your views on this customer now as a potential competitor.
[laughter] well, let's start with the first spot.
Good question, which is how do we see 2020 business fall.
Net working enough dupont's to each of this has you know.
That's the.
Hi, guys service provider in the cloud guys and days the more traditional enterprise.
And we see spending in the cloud guys.
As you correctly pointed out stepping out.
Mall and mall in 22.
Trendy we've seen some of it this year Kevin.
In the late upon on COVID-19 in investment install reach and we will start to see in 20.
20.
Spending on the networking to start ramping up.
Yes, you really got to 200 gigabit and 400 gigabit, especially in the second of the year, which will be grateful us because of a product portfolio Pall mall, three and even try didnt fall in these areas as well as have caused the spine so to us we see 20.
20 as continue growth momentum.
No.
It's getting our datacenter business, especially when it relates to plant in enterprise, we on not so sure.
Enterprise has clearly thinking a pause.
Second the hands up 19 calendar.
19, and we see that pause probably continuing four wall into 20 before possibly.
Okay slowly recovering.
About half of 2020 for enterprise and that's the end needed to defer that glad defensiveness spending.
And with respect to.
No.
Hi, good customers.
Turning into the coming into merchant silicon in with the recent announcement I think you yesterday on one silicon or just silicon one and the route the 8000 I think.
It's it's we welcomed it because it.
Validates couple things would be pushing for yes.
One of which is that.
There will be there has been and won't be Mauling mall. This aggregation.
All software the operating system from Hopwood.
The silicon chips that supports it they will be more and more desegregation as you know.
Traditionally is all wrapped into a black box as one that desegregation path was it has obviously been push.
And we have been able Dan binder.
The club guys Hypercloud, guys and we have been very successful enabling.
And thats, great. So that the fact that Cisco join it now view validates the model the trend we have been pushing and it's great to see that we're right in that regard so.
Welcome to competition.
Just wanted to add this morning, CLO that we're seeing that happen.
It's also in enterprise traditional enterprise.
Particularly some of the large telcos.
I would classify as call do and I don't need to mention names, but a few of them very large.
Close both in North America and in Europe .
Oh also pushing down that path with us very very closely.
And the Vera and summarize some of them very far along especially in eight you and we using our Jericho to.
Okay.
To enable the.
And talking of wish that gerrick pulled to route the reach about using today.
In April that path of those telcos enterprises.
What.
Does that indication of hardware and software has been around and we have been shipping if.
Yeah, and then runs.
And Terabit per second.
The same families.
Silicon one announced yesterday.
And earlier this week, we and now as a future success.
25.6 that are a bit plus.
Second.
Switching and royalty.
And that's where we're pushing low two and half acts the performance or what just came up.
[noise].
Thank you.
Our next question comes from Craig Hettenbach with Morgan Stanley .
Yes. Thank you question on the Symantec business. The 1.8 billion starting point can you talk about if theres any impact there of any divestitures you might be considering and then once getting.
That just to comment around you think you can grow it from that level. What are some of the growth drivers that you see in the semantic side of the business.
Thanks, Greg It's Tom I I think we talked about this in the past week.
Take the original run rate, which is about a $2.4 billion run rate on the enterprise business, we're going.
Our focus on core accounts.
In terms of investment and where we're going to try to drive.
Our combined strategy with CA and Symantec, we're also going to.
Rationalize the portfolio around some of the noncore businesses, especially in areas of services on so when we take that into account as well as some of the effects on purchase.
And in which is a couple of hundred million dollars, we're going to start a run rate of about 1.8 billion.
And then we think we can grow that it's obviously a growing market would talk a lot about the growth in the market. We've talked about the three core franchises the endpoint protection.
LP and what proxy area, we think those three areas focused on core large accounts.
We will allow us to continue to grow.
The business over the next several years and we should comfortably exit you were 300 run rate over $2 billion.
Thank you Sir our next question comes from the they are you with bank of America.
Thanks for taking my question I.
Actually wanted to dig into the fiscal 2000 guidance and the two aspects of what Hawk are you baking in for trade tensions and Im kind that are done enough shipments to while we are other Chinese customers and the other aspect.
You are now classifying wireless as a financial assets rather than what has been kind of core strategic.
Asset and I'm not sure what the implications are longer term.
For Broadcom.
Oh Gunslinger letter question lump.
Shotgun nothing has changed is available asset and it's still valid we are still investing and making sure it sustains itself.
It's just that we're highlighting in as the fact that it's that differentiated from the call semiconductor.
Said, so products and portfolio of products.
We highlight thing that use a difference.
And because those are standalone franchises and it gives you a sense.
Paul for those technology and franchise as they can stand alone.
Really large size in this markets, but as we looked at all our portfolio companies. They are essence and franchises and where we particularly highlight for this purpose as of this review why we.
Our low cost.
Our sand mines is there's a lot of synergies this alone push in data centers networking network networking and it covers both cloud.
And enterprises and covers both hot Wang and increasingly software.
Operating systems that actually even infrastructure software and.
We want to highlight that difference and highlight the difference in particular to show you that in those call areas of data centers.
We don't draw as much as the marketplace as we saw in 2019 wed year on year organically, we're down only 4%.
That will.
Thanks, some puts it in 2022 actually grow.
Good.
Well recover fairly quickly to mid to high single digits.
Very sets in these end markets because the environment.
And the market that environment is.
Good and we leading by a long Sean we leaned in providing that technology, which is another interesting thing between selling assistance and selling components.
Borman's beats softlayer be semiconductor solution.
It's driven our lawn.
Hi.
Technology to strong technology, which can be applied to allow.
Customers to create different shape.
Systems.
Selling systems as we finalize itself is a very much a relationship. This is a very embedded software.
You know you the key is service and support as supposed technology.
Within different but that's really what we're trying to show we hit as why we highlight the strength of our call semi conductor franchise.
Thank you our next.
Question will come from Ross Seymore with Deutsche Bank.
Hi, guys. Thanks for letting me ask question. Thanks for all the details.
I guess, a two pronged question, the 7% growth you're talking about and what's your now calling core from an answer to an earlier question. It seems like networking is a big portion of that but can you talk through a little bit about the other moving parts broadband et cetera and.
Then within the Wi Fi Bluetooth combo side of the I guess wireless business can you give us a little more color on what's happening with why that's going down low single digits year over year. When you bought that asset people thought you might have gotten rid of it and divested it and then you seem to really like the differentiation. The sustainability now it seems like it might be somewhere.
Between those two viewpoint, so a little color would be helpful.
[laughter], that's as good point.
On a cost semiconductor business touching on your first part of it.
Obviously networking ease of especially merchant Silicon and then looking there's been a very strong driver.
And particularly so in.
Let about of 19 when enterprise spending slowdown.
And he does stabilize.
But it but it is definitely it's it has definitely slowed down and but trial starts to recover and the various the.
Full year them failures.
Positions, we have product portfolio, we have enormous avis.
Ulcers on balance to mitigate quite a bit this slowdown and the big one of the biggest say read that loss mitigation.
To it and slow down in networking distressing.
It is.
Compute awful yeah. This is very much 12 spent.
And the biggest say real mitigation it continues to be AI, we probably we ship.
I think chips.
Provides one of the biggest sentman fall compete opportunities I should say.
Fall compute of look this is and this was a real business now we're shipping.
And on several hundred million dollars a year.
And growing of this can be of this AI chips. We also starting in March in a few other areas as in virtualization hypervisor.
We all typically calls monthly, but then the stunting should happen.
And that's also going to allow.
In the enterprise the move towards.
Hi here Ben wave make performance Nick is little to helping times that so that's a whole slew of things in data centers that need.
He gave each other having said that in 2019, especially a second enough broadband and you know we on the big in this area. The video dilemma delivery and cable in which I am DSL digital subscriber line copper upon fiber to the home.
Slowed down second of 19, we're now seeing as.
As we approach to end of the year a lot of Riet momentum as bell Folsom to recover this spending in broadband and we're seeing a very sharp recovery. When all is makes put together broadband we see as fast as fast as a market that's very stable cycle both recycled.
As an underlying push on excess on Wi Fi access as more and more of this.
Makes sense gateways are now.
Deploying why or why fine as it, especially wise the next generation Y. sites, so that creates a little degree of rural broadband in general.
The stable go through cycle, and sometimes it offsets, but the data center networking business.
It's a secular growth area and Thats why we talked about can didnt.
Wrapping up our investment in did say that and that's the other reason we wanted to highlight the call that we.
Yeah, actually investing increasing a level investment.
As a percentage of revenue as an example in this particular area and that includes our foray into silicon Photonics, which is intended due in April integration of the silicon switch.
Every fiber optic interconnects as we move.
From 25.6 gigabit per second routing to fit the next Gen. Two years from now 51 better bits per second so high density I think we need that integration and we're preparing for towards that direction.
Thank you.
Our next question comes from Mitch Steves with RBC capital markets.
Hey, guys. Thanks for taking my question I kind of wanted it to go into the operating margin side of equation guys you talk about 55%.
But given the fact you guys have got more software assets and it seems like your integration is going well.
As well as is there any reason why that that can be higher I guess why is it so I guess muted relative to the mix improving the software side.
Oh, I forget one way I've got 55% sounds pretty good [laughter] I mean, we're moving from what is around 50 to getting to 53%.
Then over the next three years to 55, it's like something out tree us, it's a trajectory and we believe we're well on that trajectory and you're right you get to more than 55%.
We think that 55%, it's a nice target milestones alignment and we May get then two years instead of.
Yeah.
Thank you. Our next question comes from Edward Snyder with charter equity research.
Thank you very much talk in terms of the Smethwick acquisition.
It seems to be your Chung sets us up a little bit differently were a lot of the cost savings that we've talked before you get there in terms of some kind of downsizing some of the.
So that you don't need should we expect that some of the.
As you should see synergies from this accelerates or not accelerate but.
Good luck sooner than we have us like she and some of the other ones I know, it's not looked for guidance I'm just trying to get a feel for how you are seeing the synergies play out for she A. I know you touched on the revenue side of it too.
But.
What we can expect stringent quality models now trying to give an idea of what that impact would be had cash flow and the second half of your fiscal year. Thanks. Okay. That's a very good question nature, and and do differently to show the difference the denunciation cement thing because they've got a different the beginning with the structure of the deal C.
We bought a whole company.
And then we have to sit there and what you guys you guys watch us as we restructure and that does they.
Longer.
To get to an end state, which were not quite there yet by the way by getting close to instead of this year integration. Unlike cement thing.
Cement bank, it's a cop out of Ns and so you're right you will get us to the end state quicker.
And it won't and we expand but in the short term we have to handle transition services agreements from the remain coal naughton lifelock, while we work through that and there'll be a problem.
At six months of transition services arrangements before the out of it but then we get too because we only think that says we really one and people really one you'll see us get that faster.
And Thats why we expect to be able do then.
Thank you our next question.
Person comes from Matt Ramsay with Cowen.
Yes. Thank you very much good afternoon.
How can some of your comments you talked about the new Cisco platform and the performance level that you're switching and routing solutions have that are significantly higher than that I wonder if you might talk a little bit about the mix of.
Business, and you're switching and routing business, which pieces of revenue or at the highest performance points and what the cheering looks like within that stock just to understand a little bit about what percentage of your business there might be competition with them, which parts are super differentiated at those highest performance points. Thank you.
You know I'm not I'm not think.
Just to be able to get delving that level, you want to be happy to take it separately, but broadly let me try to answer a question, we have a pretty broad portfolio in our switching and routing business.
And by the way the differentiation between switching and routing the way we are architecting and is rapidly going away is how much.
Small features you put in one versus the other which is what differentiates between the tomahawk and the try them probably not trying to confuse people, but funding broad terms, we have very high and we are we have a whole portfolio. The gimbaled from very high end.
Spine, which is.
Thing.
Top of the rank switching.
Very high end Throughputs, all the way down to campus, which is mall lower end, which and we have a whole range of brown our portfolio products that.
I would say that create that too I had to match.
Each segment, yes.
And if that's across a whole range from very high end.
Hypercloud and even routing for operators died that Jericho too and beyond already down to very low end campus switching and routing richer.
John chips that are relatively simple.
And our strengths is our ability to leverage across this entire portfolio.
Thank you. Our next question comes from C.J. Muse with Evercore.
Yeah. Good afternoon. Thank you for taking the.
Question I, just wondered just revisit the operating margin side.
You can speak to I guess, the moving parts.
In terms of how fast you expect kind of cost down on Symantec and perhaps what increased investments might look like on the opex side to help us really understand the drivers of that flat guide.
Thank you.
Yeah.
I see that Tom I'll take that so as we outlined on the call I think the.
Sort of three major pieces, but we do out a couple hundred million dollar headwind in our annual performance bonus target because we under accrued in 19, given that we didn't hit or numbers. That's one that you know this is a technical.
One but matters or the other is we are increasing investment a couple hundred million dollars in semiconductor business as well.
That's it that's another headwind and then from US Symantec perspective.
Yeah. This is a business that was doing a couple hundred million dollars of EBITDA. When we bought it we're going to enter the year on day, one with obviously a much more elevated.
EBITDA.
Figure, which will report on next quarter, but I think when you think about them.
The TSH elements and somebody that restructuring items. There you have another couple hundred million dollars that you have to get through as we work through the year. So I would I would think of it in those three equal parts and they can get back that out and.
And you think about some of the organic growth that we're driving in core semis and we still have margin expansion. We've talked about this a lot or over the years in terms of where we can take gross margins in our core semiconductor business and the scale advantages that delivers in terms of the operating margin line Thats, how we get to the 55% target over the next three years.
Thank you in today's final question will come from William Stein with Suntrust.
Great. Thank you for squeezing me and I want to say I like that 55% margin target. So thanks for that but the question relates to Fiveg Hock I think you talked about.
The pace of growth thing.
I mean thats the pace of growth.
As it relates to Fiveg in handsets can you address your exposure to Fiveg infrastructure.
Oh.
Absolutely, Yes, I think a love discussion has been on a lot on fiveg handset, which as Tom mentioned.
So both.
Turning now RF side.
Alright division were very very much in it and it's great to appoint way, we expect to grow 920 because of content increase on the but with respect to infrastructure.
We oh.
Have a getting a lot of.
Correction and I indicate that in my opening remarks, and you've been very you asked for specific let me very specific in the base station as the Best example, I call. It radio access networks. Israeli another system is base station and the base station for Fiveg networks to improve latency to boot density throughput.
Yup.
I can tell they ought to think they operate those are pushing.
The net well the bank call all the network that takes a signal from the bank from the base station the pushing debt right to the edge, which is into the base station in other words Ethernet is.
Lead the.
No open ran to open the saw a base rent will push as far as possible into the radio.
And you really run the entire.
Lying and.
End to end as much as you can on Ethernet even sipri we.
Typically they the protocol that use between the radio in the radio is now being Minimise and squeeze out as opposed to just running a common higher bandwidth internet, which is by the way. It plays right up to us stretching strengths routing and switching strain. So we're very engaged now.
Fault break Weve Oems in dosing on infrastructure site.
In developing.
Testing.
And working on the key elements within the base station.
That's our push.
Every.
Into Fiveg infrastructure, which is a little known small degree part of the increase investment in call semis that Tom indicator of at least 200 billion a year not all of it but a big part of it.
Thank you ladies and.
Gentlemen, This concludes today's conference call. Thank you for your participation you may now disconnect and have a wonderful day.