Q4 2020 Broadcom Inc Earnings Call
Ladies and gentlemen, todays conference is scheduled to begin shortly please continue the standby. Thank you for your patience.
[music].
Well, ladies and gentlemen, todays conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
[music].
Welcome to Broadcom, Inc. fourth quarter and fiscal year 2020 financial results conference call. At this time for opening remarks, and introductions I would like to turn the call over to the interest of Versado director of Investor Relations from Broadcom, Inc. Please go ahead ma'am.
Thank you operator, and good afternoon, everyone.
Joining me on today's call are Hock Tan President and CEO of.
All of the senior leadership team as announced this afternoon.
Including the Tom Crowley President infrastructure software agreed Charlie.
Oh the college.
Chief operating officer, Thank here since the <unk> Chief Financial Officer.
Broadcom also distributed a press release and financial tables after the market closed.
Describing our financial performance.
For the fourth quarter and fiscal year 2020.
If you did not receive a copy you may obtain information from the investors section of <unk> Com's website at Broadcom Dot com.
The conference call is being webcast live and a recording of the available via telephone playback for one week.
All of the archives in the Investor section of our website I brought non dotcom.
During the prepared comments.
Hock kerosene and Tom will be providing details of our fourth quarter and fiscal year 2020 result.
Guidance for first quarter.
Well the commentary regarding the business environment.
Well take questions. After the end of our prepared comments.
Please refer to our press release today, and our filings with the FCC for information on the specific risk factors that could cause our actual results could differ materially from the forward looking statements made on the call.
In addition to U.S. GAAP reporting brought home reports certain financial measures on a non-GAAP the of that or.
A reconciliation between GAAP and non-GAAP measures is included in the table 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 over the hock.
Thank you Bobby.
Before I discuss all resolved I do want to highlight the senior leadership appointments. We just made around the same time this afternoon, which.
Which is.
It's all about ensuring continued growth and the success of Broadcom from.
For the full malls as the season I'm not going anywhere.
I'm as committed and the engage that's ever.
Well, the but one of you often see me and Tom He thought beyond those revenue very strong bench that all of that has got the most.
Where we ought to do so today, we are elevating the some of the deep range into critical positions.
Well strength the.
Our organization going forward the.
Charlie and Pearson, among the people, who sort of thing the but volume.
It makes the pre nominal number of I'm about the unknowns happen.
Uh huh.
The showcase all deep bench of talent at Broadcom stopping in fiscal year two once the one.
We plan to do all the mines.
You saw the Annalys day on the Bay area is this was sort of way.
Where you can get from all of us, but the general managers above the businesses and to pick the solved the folks won't occur the January where from the lager and the Elecsys Jalan will review all one net working trend true.
Well the days less let me now turn to of very strong fourth quarter results.
We kind of all Cisco Twentytwenty, we record quarterly revenue and profitability. Despite the ongoing bin damning macro economic uncertainties.
We delivered net revenue of $6.5 billion.
Above the midpoint of our guidance and 11% sequentially and 12% of 12% year on year.
Semiconductor solutions revenue was 4.8 billion, increasing 6% year on year.
Most notably the representing a return to year on year revenue growth.
Infrastructure of software revenue was 1.6 billion.
The 36, the same year on year, which of course includes the contribution from cement the.
Let me know the first the semiconductors.
Net working which represented approximately 35% of of semiconductor solutions revenue in the quarter, what's the up 17% year on year.
Driven by the continued strength in cloud data center spending as well as continued spending by.
Tell colds in upgrading edge and core networks.
Moving on to Q1, we expect this trend of double digit.
Thank you on your revenue growth to continue even this year.
<unk> expense and the Bryce camp of spending to continue to soften.
The I think the broad bid.
Which represented approximately 14% of semiconductor solutions in the war the debt.
That was wouldn't be the the seven year on year growth.
Growth was driven by the work from home and vitamin and the need among service providers. It's one of its got a few months.
The great broadband connectivity connectivity.
True as well as within the home.
We experienced strong adoption of the wife I think next generation makes a good weve dealt goes and consumers.
The thing in this environment why the fine.
Where we are very well positioned as the leader has been into of substantial and growing business for the company.
Beyond the wife volume, we also experienced strong investment.
Well I sort of its providers.
Jeep on the fiber to the home and digital subs the subscriber line Copa.
As well as cable.
Cable modem among the cable operators all of these more than offset the decline in the deal.
We expect LOE to meet the.
The same day each year on year growth revenue growth in broadband for Q1 as the main continues to remain strong.
Moving on wireless revenue, which represent the Bronx, approximately 31% of semiconductor revenue in this quarter was up 43%.
The one chili's in Q4 with the launch of the new generation flagship phone by all the large north American OEM customer.
Deal.
Do you sort of down 9% year on year, given the one quarter of the Lee in the dream of production of that all of that.
The program.
Accordingly, we expect Q1 fiscal true in the one to now be the peak quarter of this season on revenue and revenue you would compare extremely favorably with the same quarter, a year ago, and a and b expense.
The expected to be up over 50% year on year.
Turning to sort of the storage connectivity that represent the approximately 14% of Q4 revenue of semiconductor revenue and was down 9% year on year as expected, reflecting softness in enterprise the men.
I think the Q1, we expect revenue to continue to the plane and given the strong Q1 income pay in fiscal 20 weeks like this could be down double digits, even as much as perhaps 20 per se.
Lots of wanting to industrial which represents an approximate 3% of coupon of semiconductor solutions revenue, we've seen the man recovery, especially out of China, and consolidate that Reis sales and here, we sell through distributors of course, well up 4% year on year.
And we focus such refills in Q1 to start doing a salary to meet the end year on year drove EPS the recovery in the industrial and automotive continues so in summary of semiconductor solutions segment of some six the same year on year in Q4, driven.
Primarily by the Ram in wireless as one of its continued strength and walking in broadband.
Forecasting Q1, we expect this ramp in wireless the peak.
And while the broadband and then once the King the main book remains strong diesel drawing of revenue in the semiconductor segment the.
The increase in Q1 by high teen percentage year on year.
Turning to software.
Let me read Threed, all the business model here.
We focus its way of saying many times only on the largest enterprise customers.
The two increase the adoption of the software products to a hybrid model of about 90% of which are recurring subscription revenue well step up investment in R&D focus on Joe's These coal customers.
Hi, we're able to do that by spending much less on the our go to market outside of our launch call enterprise customers. Unlike obviously, the other software companies who.
Oh chasing every last dollar of revenue the matter how much it costs.
So let me tell you know we do use of tea under our belt, Let me tell you how we have done.
Revenue one of the two years integrating T onto one platform.
Oh cool pool 20.
Revenue was up 5% year on year flow.
Well, it's the men thing if you exclude services and the hog the way to fall product revenue of 380 million was up 10% from Q1 fiscal 20.
Which was obviously of first quarter up the acquisition.
But if we just look at revenue from a core income.
In theory.
This was the one thing I'll double digits closer to 12 per se year on year, driven by bookings, which have continued to grow double digits on an annualized basis.
This is obviously moving this book of these girls the in call accounts is obviously more than offset the blamed the Cline services and the attrition of accounts outside Oh coal ex enterprise customers.
That's how we expect to sustain the call so part of business long term LP.
Albeit at low to mid single digit percentage revenue growth.
We tend to drawing to a financial outcome that is consistent with the Broadcom model.
You'll hear more on debt from kids than when she talks about the financial model.
So looking ahead to the next quarter on.
From the year on year basis, we expect to see gains the men take software revenue the continued to grow in the mid single digits. However, Q in Q1 fiscal 21.
Thanks relocate the decline high.
High single digits consistent with the softness in the enterprise markets, resulting in the infrastructure software segment revenue the revenue to be flat to perhaps up low single digits. The said page yeah over you.
In summary, we.
We expect Q1 consolidated net revenue of $6.6 billion up approximately 13% yeah, all the year.
All the right organically.
Today.
We on the unique situation.
Scott the fiscal 2021.
Weve reckon back from all the.
That has now grown to over $14 billion today.
The timing of this conversion of backlog of two revenue wont be driven by the supply chain, which continues to be Tom.
Finally, I want to take the opportunity here to take note of our team for all the awards in fiscal 2020 day.
He says the undoubtedly bin a challenging year.
And it's really the whole all of our employees have demonstrate the unwavering focus on resilience the.
Most of the hard work a mission critical technologies have never been more relevant and the up to date.
And with that let me turn you over to Justin.
Thank you hock.
Way of background, well I've been a part of Broadcom.
Next years, my history of accounting and reporting of old legacy companies and the Avago and all the SYE dates back over 20 years I'm proud of the strong financing organization net Broadcom has built and I look forward to working together.
I know Hock just gave you the details on revenue, which I'll recap of flow moving down the P. now to discuss our fourth quarter performance, which clearly demonstrates our strong foundation for future growth.
Consolidated net revenue for the fourth quarter was 6.5 billion of 12% increase from a year ago semiconductor solutions revenue was 4.8 billion and represented 75% of our total revenue. This quarter. This was up 6% year on year.
Revenue from the infrastructure software segment was 1.6 billion and represented 25% of revenue. This was up 36% year on year, given the inclusion of Symantec.
Continuing down the piano gross margins were 74% of revenue in the corner of approximately 370 basis points year on year.
Expansion the gross margin year on year was driven by favorable product mix in semiconductor and a higher percentage of software revenue.
Operating expenses were 1.1 billion of 10% year on year due primarily to the addition of financing.
Okay.
Operating income from continuing operations was 3.6 billion and represented 56% of revenue.
Operating margins were up approximately 400 basis points year on year of.
Adjusted EBITDA of 3.8 billion and represented 59% of revenue.
This figure excludes 139 million of depreciation.
Gross margins for semiconductor solutions segment were approximately 68% of Q4 of the 320 basis points year over year, driven by improved product mix. This mix included more networking products and less wireless.
As you know wireless carried around 10 points less margin on product profitability than the rest of our semiconductor portfolio.
Operating expenses were 777 billion of Q4 or 16% of semiconductor solutions revenue compared to 727 million in the prior year period, as we continue to invest in our business.
R&D costs as a percentage of revenue for Q4 was approximately 14% and asked you get day as a percentage of revenue was 2%.
Operating margins for our semiconductor solutions segment was 52% in Q4 of 290 basis points year on year.
All told in semiconductor solutions revenue was up 6% and operating profit grew 12%.
Gross margin for our infrastructure software segment were 90% of Q4 hundred 30 basis points year over year cost of revenue primarily includes costs of products support hosting far south products professional services and hardware.
Operating expenses were 338 million in Q4, or 21% of infrastructure software revenue compared to 290 million or 24% of revenue in the part of your period as we generate scale from the acquisition of Symantec.
R&D costs as the percentage of revenue for Q4 was approximately 12% and after you may as a percentage of infrastructure software revenue was 9%.
Operating margin was 69% in Q4 of 480 basis points year over year.
Our operating margins reflect our model, which is about focusing on the largest enterprise customers and increasing our share of their wallet in terms of our software portfolio.
Given this model, we are able to focus our R&D investments all of the strategic group of customers and by doing so reduce cost pardon. The early on go to market.
This is how we get to operating margin of about 69%, which we believe we can sustain.
Looking at cash flow, we kind of quarterly free cash flow of 3.2 billion, representing 50% of revenue. This is up 36% year on year as we managed our working capital more tightly during this pandemic.
Moving out of the capital allocation from Q4, we paid our common stockholders 1.3 billion of cash dividends. We also paid 185 million of withholding taxes would be one vesting of employee equity, resulting from the elimination of approximately 500000 E. B G O shares.
We ended the quarter with 407 million outstanding common shares and 451 million diluted shares.
Note that we expect the diluted share count to be 450 million of Q1.
On the financing and balance sheet from we reduced total debt by 3 billion in the quarter.
All told we ended the quarter with 7.6 billion of cash and currently have 12.6 billion of liquidity, including our 5 billion revolver we.
We ended the quarter with 41.1 billion of total debt of which approximately 800 million in short term.
I'll now turn the call over to Tom.
Thank you Kirsten let me now recap our financial performance for fiscal year 2020, our revenue hit a new record of 23.9 billion growing 6% year on year. So.
Let me get the solutions revenue was 17 point Threebillion down 1% year over year infrastructure software revenue was 6.6 billion, which included 1.5 billion from brocade.
Which was down 17% year on year 3.5 billion from CA, which was up 4% year on year and the addition of Symantec 1.6 billion.
Gross margin for the year was a record high of 73.5% up.
Up from 71% of year ago. The addition of Symantec as well as the beneficial mix and semiconductor products sales drove the gross margin expansion.
Additionally, operating expenses were 4.6 billion, which included the addition of Symantec operating income from continuing operations was 12.9 billion up 8% year over year and represented 54% net revenue.
Adjusted EBITDA was 13.6 billion of 8% year over year represented 57% of net revenue.
This figure excludes 570 million depreciation.
We accrued 644 million of restructuring integration expenses and made 583 million of cash restructuring integration payments in fiscal 2020.
We spent 463 million on capital expenditures and free cash flow represented 49% of revenue or 11.6 billion.
Free cash flow grew 25% year over year.
Now on the capital allocation for the year, we returned $6 billion to our common stockholders consisting of 5.2 billion in the form of cash dividends and 800 million for the elimination of 2.6 million of PV Geo shares.
We also paid 209 million in dividends to our preferred stock of course.
I would also note from the refinancing of liability management activities. We've undertaken this year are weighted average debt maturity is now approximately six years, where the weighted average interest rate of approximately three now for so.
Looking ahead the fiscal 2021, we remain committed to returning approximately 50% of our prior year normalized free cash flow the stockholders of the form of cash dividends.
With that on the dividend based on approximately 12 billion of free cash flow in fiscal year 2020, we.
We are increasing our target quarterly common stock cash dividend, starting this quarter the $3 from 60 cents per share the.
This constitutes an increase of 11% and assumes the basic outstanding share count of 413 million shares at the end of the school 2021.
We plan to maintain the dividend pay out throughout this year subject to quarterly.
Board approval.
Consistent with our capital allocation policy rule set we will reassess the dividend. This time next year based on our fiscal 21 free cash flow.
With that I'll turn the call back over to be.
[noise] [noise]. Thank you Tom Thank you Tom.
This time, we'll open the call for questions.
Hock, Tom and then Charlie available to answer any questions. So operator of please go ahead and kick us off.
Thank you so much ladies and gentlemen to ask the question you will need to press star one on your telephone we ask that you. Please limit yourself to one question.
Please stand by while the compiled the Q1 day roster.
Our first question will come from Craig Hettenbach with Morgan Stanley. Please go ahead.
Yes. Thank you a question for Hock I think on the call a year ago, you talked about an increase in R&D investment in those areas and in cloud Photonics I think wireless infrastructure. So just wanted to get an update on how that's progressing and the visibility into the kind of revenue of from.
From that R&D investment.
Okay. That's a very good question and the investment we the cadence of the investment we.
We're doing.
Continues.
In the areas that we close we see as very strategic.
In the various businesses.
And you've seen some of that coming out as we continue to do so well in sort of the last week, we announced.
The the introduction and range and introduction the availability of the our 800 gig.
Platform for switching routing and the and the connect and the basically the fives Retimers and all of that goes hand in hand with it it's all about launching 800 gig.
Platform and then comes in the formal all new product Tomahawk full.
And that's really interesting the when launching it now because I.
Our previous generation, which is that 400 gig platform from all three.
We didn't reach we introduced over the year ago.
Most of the unit half of go is just starting to ramp.
We've been in high income so into a lot of Jim I'll add.
<unk> and we are reading launching and 800 gig so the speed of the.
The regularity and the speed at which we are pushing.
The this brought banks.
It's definitely something we intend to keep where we're coming out with the new new loan generation, probably that is probably two ex throughput capacity.
The regular of deal.
18 months to two years on the consistent basis, because that's one of our hype of club customers want.
And it makes sense, because we need to scale out data centers as the.
The field starts to hit the limitations on most of all well. That's one example, as part of that.
Between the indicate that a year ago was stepping out of investment in areas of Silicon Photonics basically too in the April.
In the Connex at.
Very high throughput at very high band the beef and that's been going very very well, it's a multiyear investment and the as from indicates the <unk> from the last time, we talked to Boeing where not only on the second yet, but we expect to have something kind of.
That will make sense and that will be out to the marketplace within a generation all true all fall platforms in switching and routing and that's down from that aspect of it in terms of for the investment we have the type of investment as I indicated in my report.
On the wife on on the connectivity all of Ah think it'll to the 11 ex no and we launched the platform a year two years ago.
I am very successful and we are already working on the none we have invested a lot of on the next generation Y. fly seven successes the his wife Isix in between the putting out of.
The six gigahertz why fine that's why I find the six <unk>, which has the benefit of the spectral bin read recently it was approved by the FCC and not the long ago. It was Lorraine we already have our flows brought out some of you fine by the FCC had recently with the from.
All day, so we intend to be in the lead flow, whose lives in this wireless connectivity, which by the way today.
The indicate that represents a very substantial and growing part of the business.
And the.
Yes, the testimonial to all of the sucks the level of investment the success, we've gotten in this area.
And so do the that's one of the things that we have and most of this investment the multiyear but you didn't stop the C.
Some of the Ben some of the products some of the launch of some of the.
Revenue starting to come in the this.
The level of investments you are making it yeah.
Thank you. Our next question will come from the that are yeah with Banc of America Securities. Please go ahead.
Hi, Thanks for taking my question and good luck to Tom and of course and Charlie in any of noodles talk. The question is for you on supply constraints that several of the or up the erosion in semiconductors that mention of whether its in substrate. So they are foundry capacity I'm curious where does broadcom stand on this you know the supply of factor.
The new reported resides.
Your Q1 outlook of course, something back you think of constrained the growth in fiscal 21, just what steps are you taking to make sure. It doesn't constrain growth and also on the other side you don't make sure customers are not double ordering because of all of these supply issues. Thank you.
Oh interesting question, we reported on by the way, we reported on day supply calling the strain.
Uh huh.
At least three months ago, when we did our earnings call or the site, probably even earlier than the we yes, it probably even two quarters ago, we have seen that supply constraint.
And and we were one of the first to report on it and that's a blank on stream continues.
From when I'm from when we first thought your net six months ago and it's in some of your it just seems to revolve the in the frozen specific areas where are these the talk about wafers then.
And then people will as you correctly pointed out and we are you hearing the news substrate is like from sort of consideration and believe me beyond the wire bonding is even the possible constrained depending on where the like get more and more automotive legacy products coming in so we don't Brady the environment and I mentioned in my remarks.
That is fairly unique.
The unique the agree on the middle of the button damning, Yeah, we are where the windows and most of those even in the product lines, even in the industry the in where the some businesses where the man is just booming.
I would touch on day in net working in broadband.
In some areas, particularly in the enterprise when they're not so strong.
But what we also see is.
That's the.
The supply of capacity from of supply chain that is tight that treat the doing and we've seen the four months and we've taken a lot of all the actions to address the will have a dressing and we continue to do that we also one of the law of Joe's consumer of those the part the.
Manufacturers in semiconductor the out the Mi day wafers be day substrates be day backend Assembly and test capacity.
We are all in day it would've been bin seeing it for six months. So based on sales were managing that.
We have having said that.
We have the backlog in place and we have also very early on in the you know fiscal 20.
Right child of supply chain.
Non only being sort of what we've seen but based on what we anticipate happening and that's has also enable us to be able to in the mall, although the man million I'm, what I consider them more appropriate manner.
Well the products to the in the <unk> in the hands off of a end users who need it.
The appropriate times without net very well and having said all of that even as we do it all back flow continues to grow.
Yes. The names I mentioned, we had 14 billion over 14 billion of backlog today, when we spot the called the of backlog English shipping in between and since then the beginning of the quarter of backlog was 12.
So it's the summary thing, but having said that please don't get carried away from the other aspect.
As you know wireless business that we have is seasonal so we are seeing obviously the <unk> wireless of wireless from a backlog is a significant part of the total bank well, but given the seasonality of deal, but we obviously have seen a deceleration.
In the all the in the bookings that are coming from our wireless business.
Huh.
We are seeing on the other side.
Celleration and continued strength in all of those coming in from the odds of parts of of business.
Net working that's always remain strong broadband couldn't do it continues to be very strong and now we start to see the some of the smaller part of the business industrial coming in very very strong. So one sites also thing the other day and we continue to see the strong backlog, which in a way of make sell claiming in the supply chain.
I mean.
Easier.
But in some ways both of the other challenges so making sure we.
Uh huh.
The delivering products to the right consumer customers and the right Tom.
Thank you. Our next question will come from Harlan sur with JP Morgan. Please go ahead.
Good afternoon, great job, one of the quarterly execution and congratulations to all of the executive appointments Hock you know we're still at the very start of the 400 gig networking upgrade cycle with your hyperscale customers, but seems like telco service. The writers are also starting to adopt the white box switching while the model which is good for.
The Tomahawk and Jericho chipsets, and then you guys. The also benefiting from the optical connectivity that goes along with your switching solutions beyond this quarter or do you see sustained them through appeal of the net working upgrade and spending cycle through next year and then given the way from so sick from screens or your lead times in net working expanding beyond.
Six months now.
[laughter].
The good question Alan and thank you for your kind with the Oh I'm sort of the spot yeah, we like where our new product generation you know in a 400 G platform as I mentioned earlier.
It's starting to ramp up in the big Kuwait These upcoming at the Cisco twin the one stop the didn't when Dean.
We book couple log type of scale customers.
And he's been the Dol and is the start ramping up we my anymore because.
Fiscal 21, and I'm sure. It goes on the 22, and we do not see a slow down one of the demand and you're correct operate the on service provider and operate the Oh.
Also adopting this the merchant silicon India routing platforms on the other night was as I mentioned, particularly in coal as well as the edge and where we're seeing extreme very very good demand and the success as evidenced by the backlog and all of those two.
The good thing from a service providers and not just type of CLO of but.
But the only service providers on the of merchant Silicon Jericho family. So that's good and do I see that continuing probably as five screens. The 21, we have our lead times go its own beyond six months than say your question, so and the and just to end of for the thought.
We have a policy in this company that we.
And Oh, it the kids to very very strictly flow, both because of financial.
ER governance.
Any all of those plays on those.
Two non we do not allow to be tensile all of customers from the old at all up out of the smell that so we actually think real de man hours a day at.
At least six months.
And that brings the pretty close to.
Well the the second to the wood that well that brings us insight to the second half of fiscal 21 at that point.
And and as guess as many of you will know just from buying fall in the beginning of the seasonal ramp of the next generation wireless products.
So I'll 21.
The visibility of appears to be remarkably bet. The day, we usually have at this point in the beginning of the fiscal year.
Thank you. Our next question will come from Stacy Rasgon with Bernstein Research. Please go ahead.
Hi, guys. Thanks for taking my questions I had a question on the wireless trajectory last quarter, just given the change in the seasonality you had given us some a little bit of color actually on this quarter, you said it would probably still grow sequentially.
How should we think about the seasonality into I guess the is it the may quarter.
Off the February just especially given the seem to we're going to push out it looks like wireless in Q4 was actually came in a little lower.
Then you would have stuck and it sounds like some of that's pushing into the in the into Q1. So can you I guess, given those dynamics and given that the seasonal peak in Q1 can you give us some idea similar to what you did last quarter on what to expect for the wireless trajectory in the fiscal Q2.
[laughter].
Well, that's the tough question the until the beginning of ways.
You don't Oh, we generally don't talk much about Q2, though I did not give you guys from indication based on the bank loan would be sitting today weighed on lightly to flow of.
But.
I mean, it's you're right I mean, we have this $14 billion of bank loans, which continues to grow and substantially most of it.
A lot of it wont be feel good think you wanting to true to begin with and the bigger picture, but the way you asked the in respect of wireless you're correct also in bonding now when we do you own the of comparisons now it's very interesting because the Q4 fiscal 20 the cost the we just.
In addition, the reporting on.
Becomes the.
The first quarterly ramp.
Of our wireless business and income bands.
The Q4 fiscal 19, which the in typical cycles in the past eat sushi the peak.
Caught the of revenue seasonally fall a wireless business, so you're comparing <unk> and the initial ramp against a peak quarter and that's down as I indicated the night per se.
On yeah.
The big driver not all four of these current generation of phones in our wireless business won't be out Q1 of the quarter. We didn't know and that compares to the Q1, all fiscal 20, now which is pools peak thread of the last generation.
And which is why I also indicate that we're likely to see no of fit the route of 50 per se.
Yeah the on yeah.
Type of you know wireless revenue now he's going to the Q2 and I think people probably things get back to more normal see and that's always expect wireless to demonstrate a seasonal seasonal season, the only she's the valid being.
It's probably the bottom quarter.
Oh, all the an annual cycle.
Thank you. Our next question will come from John Pitzer with Credit Suisse. Please go ahead.
Yeah, good afternoon, Hock and glad to see that you're sticking around I guess I want to ask the some of the questions around the management changes specifically Toms new position I'm, just kind of curious you know what that might mean for the software infrastructure business longer term and whether or not there's any sort of plans to potentially actually spend net business out of it and I asked the.
Question, because clearly when you look at the core IP you have in your silicon business around the Io around acceleration and how important those IP blocks or when you look at the sum of the part valuation of overall broadcom. It just looks of dirt cheap you've doubled the operating margins in the software businesses that you acquired those companies.
And you have got great franchises in silicon and yet you're trading at a big discount is there a belief that perhaps the best way to get value longer term for these businesses might be a spin and is that part of the rationale behind Tom the new position.
Oh, no no I love. The fact, you speculate so vividly here, but the no that's not the blend of what I think it's it's just that the software the systems, especially go to market is a very interesting play for this company because broadcom.
As a whole and you look at US where 20 of the around $20 billion to $25 billion, roughly give or take a 2 billion in revenues what each one of you with technology company. The various out that technology supply is due in equal system and by that I mean, an ecosystem that dresses and news.
The be day Hypercloud.
The day service providers, all be day, basically launch and all the as well.
Well, we tend to focus large enterprise all day like the banks insurance company travel agency whatever the end user we look at these accounts as I've been true.
End use customers, that's all ecosystem and the deepened our ecosystem we have partners.
With the Oems.
Some of some distribute the spot last from me I'll keep on the song the ore yet and he's on bonus these.
These non-GAAP.
The way important partners that offer we often.
Sales of products, we and through.
We look at the day week, so when you look at it that way.
At the end use software infrastructure software.
No different than the Silicon solutions hardware and software tied to the way that we sell all of that.
It's just that we tend to sell silicon software from partners Weve partners.
Revenue in the system and go through the end users, let's suppose infrastructure. So from my way, we tend to go door range, though not all the time, sometimes the goal we've and Miss you know and that's the jets and the service providers like I'd be M.G.P.S. or the xcede the cells the true, but ultimately ultimately goes the end use.
Well uses of software and we look kind of ecosystem that way. It makes the total logical saying that we have the unified platform. The does everything across but at the end of day. We are simple feeling sort of same and use of this whether the semiconductor hardware solutions we've itself. It did.
The software developers kit educational or the operating system.
All straight infrastructure software some of these that blinds of school I think of it.
And so net net to.
To me it was long term is very logical they stayed together.
Thank you. Our next question will come from Ross Seymore of with Deutsche Bank. Please go ahead.
Hi, Thanks from let me ask the question and congrats to all the senior appointments.
The system could be for hock, Tom or Kierston I want to talk about the capital allocation side the versus a year ago, you de lever the balance sheet pushed out the maturities lock in some good rates so that doesn't seem to be an issue there you're comfortable enough to raise your dividend significantly. So I wanted to hear what your thoughts.
Our especially given the the pandemics and what's going on with the the backlog being is larger than it is the first how are you thinking about the other half of your capital any sort of updates given the environment or is it as simple as you're you're just going to focus on either giving it back with shareholder returns via buybacks or do a deal.
Okay Rotce of Tom I'll take that one I think it's very much back to business as usual and I think obviously 2020.
We got into the crisis mode earlier in the year I think we focused a lot on pushing out maturities. We you know kind of the balance sheet from a liquidity standpoint, which we continue to do.
And you know the markets were very favorable and we will do all of that I think obviously business also came back in.
Performed quite well in the talks talked about.
We've got a decent amount of as the building the first half and we'll see what happens in the second half.
But you know it seems like of the years set up.
For original amount of success and so I think with that in mind, you know, we're comfortable with our our investment grade credit rating, we have the Levered, we paid down $3 billion of that in Q4.
We're upping the dividend as it does you mentioned sticking to the policy of giving back about 50% of the free cash flow. So that's gonna leave us with some excess cash and we always look at it is you know what are the right relative returns and what's best for shareholders and that usually means buying back stock, we're doing doing M&A and I think.
Well certainly look of doing both you know were biased toward the acquisitions. Historically I think we'll continue to be so as long as we can find the right.
The targets and generate the right returns because this was our business model, So I'd really say business as usual.
Thank you. Our next question will come from the Timothy Arcuri with <unk>. Please go ahead.
Hi, I guess someone of the follow on John's question. So you know in addition to the you'd imagine changes you're pretty much giving us the full second the piano, which had never done before so I guess the question is why now is there some industrial feedback on maybe that the segmentation will drive the better multiple I mean, you know for sure. The stock is very inexpensive and it seems like.
You know some of the parts would be a better way the value with but is there. Some feedback that you know, giving you a the the you know, giving you the sort of break out of the segment piano. Thanks.
[noise] theme you answered your own question perfectly yes, we're doing it because we feel that we we should give more disclosures more specifics all of our various businesses. Its you don't this in addition to.
Giving full via now almost from being they'll put ex the India is because it's also some of them on the location, but we tried to be very representative of up to launch the of of two segments semiconductors and infrastructure software you will notice that we.
We've been in it, especially in semiconductor we give you a lot of non mall cala and breakdown on what drives what are the ones, which are the particular end market applications in the semiconductors and the behavior and the dynamics in each of those verticals.
And something.
We understand we have been let and perhaps a more lacking in the past and we true tried the renminbi down by giving you guys much more details and it's also in this particular environment. It is then regarding bought the nice thing we give it because I cannot say that all cylinders the firing like crazy the.
Because as you all know we all know the no independent of a where some of the Linda and the N.S., we indicate that very lonely the some areas, where we're bearing the way, it's performing very very well and is performing very well of very well ahead should the quickly hasten to add not the go through a sales.
Good day in it which we are the golf, but we also simple good and the other is the non performing its relative. He also is just the economies the the macro economy, the demand and the unusual situation, we only and so we felt it was appropriate to give you guys more specifics what's driving.
The overall revenue.
And the and one of his <unk> and one has changed because as the also indicate the in my last earnings call.
When we began this year.
We.
Okay. So then sent off or expectations, which has dramatically changed now that we finished the year I expect the us I mean I had the expected of semiconductor the.
As for the industry to recover from downturns of 2000, and 2019, obviously and that Twentytwenty will be a slow steady recovery at the low rate thing into the banking.
Well, we didn't expect is it.
Actual numbers it did recover but non everything recall, but.
And it's it's the in the sense is the response to the requirements the situation of up and bin damning and the work from home environment and so we see those businesses that are doing it doing superbly.
And.
The really explain me we felt we had the gigamon disclosures and which we are and if we start getting into the school Jim I think of you'll go all the way and show you where even how the segment on the two broad segment and now look like.
And one of the the other things we want the also demonstrates the you guys loud and clear is that we have of business model in mind I teach the this investment thesis when we go and find this specific software companies some of which may not be in favor of when we bought them.
But what we're looking at as we looked at semiconductor disease is that these of very sustainable franchises, which with the right. The approach with the right model and the right focus which we liked the thing what we discussed the use the approach we're thinking that we can make them into.
No real sustainable Frank choices.
And generate the kind of.
<unk>.
Cash on cash in the preferred returns the.
That we are demonstrating the use today and that does a sustainable.
Thank you and the final question today will come from Toshiya Hari with Goldman Sachs. Please go ahead.
Hi, guys. Thank you so much for squeezing me in I had a follow up question for Tom I'm now that you'll be leading the software business going forward, where are the one or two top priorities for you and running that business and a clarification question I think hock in your prepared remarks, you talked about the long.
From growth rate in your software business being in the low to mid single digits is that the organic number or does that include M&A and then on M&A. Tom If you can speak to the pipeline and software on your thoughts on valuation today that would be helpful. Thank you so much.
So she is so many questions I can barely remember the first one but [laughter] book I'm excited I think we've got a great team, bringing together the the go to market in the business units under one umbrella.
The will allow us the scale continues to grow which we've been doing and we've had some some early success. We've got a lot to learn and so I think this positions us well and.
I'm looking forward to it.
Beyond that the we'll we'll take all the other full of questions on the on the coal that coal, but thanks very much.
Ladies and gentlemen, thank you for participating in today's question and answer session I would now like to turn the call back over to Miss the interest for Scott asked for any closing remarks.
Thank you operator.
So in closing we did want to note that we'll be kicking off the presentations by our general managers.
At the JP Morgan tax Forum on Tuesday January 12.
Tom will be joined by around a lot of the and Elecsys. The orlin from our networking division to present at that event. So thanks. Thank you that will conclude our earnings call today and operator, you may end the call.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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