Q2 2021 Broadcom Inc Earnings Call
[music].
Welcome to Broadcom, Inc.
Second quarter of fiscal year, 'twenty 'twenty, 1 financial results conference call.
At this time for opening remarks, and introductions I would like to turn the call over to <unk> director of Investor Relations of Broadcom, Inc. Please go ahead.
Thank you operator, and good afternoon, everyone joining.
Joining me on today's call are Hock Tan President and CEO.
Houston Spears, Chief Financial Officer, Tom Krauss, President of infrastructure software group, and Charlie Cola Chief operating Officer.
<unk> Com also distributed a press release and financial tables after the market close describing our financial performance for the second quarter of fiscal year 2021.
If you did not receive a copy you may obtain the information from the investors section of Broadcom website at Broadcom Dot com.
This conference call is being webcast live and a recording will be available via telephone playback for 1 week.
He will also be archived in the investors section of our website at Broadcom Dot com.
During the prepared comments Hawkins Houston will be providing details of our second quarter fiscal year 2021 results.
Guidance for our third quarter as well as commentary regarding the business environment, We will take questions. After the end of our prepared comments.
Please refer to our press release today and our recent filings with the SEC for information on the specific risk factors that could cause our actual results to differ materially from the forward looking statements made on this call.
In addition to the U S GAAP reporting Broadcom reports certain financial measures on a non-GAAP basis.
A reconciliation between GAAP and non-GAAP measures is included in the tables attached to todays press release.
Comments made during today's call will primarily refer to are non-GAAP financial results on.
I'll now turn the call over to Hock.
Thank you Gigi and thank you everyone for joining us today.
In Q2.
Semiconductor solutions revenue grew a strong 20% year on year to $4.8 billion.
Infrastructure software revenue growing and the expected 4% year on year to $1.8 billion.
Consolidated net revenue was $6.6 billion.
The 15% year on year.
Now on the last earnings call we had.
We talked about how strong broadband and networking bookings were from hyper cloud and service provides us even the AST wireless was declining seasonally.
Yeah.
In Q2, just passed not only do we see broadband and networking sustaining we now see of recovery of bookings from enterprise.
And on the supply side of our lead times have now stabilized.
But the book, but the volume of bookings we are experiencing today continues to grow.
We intend to meet such demand and in doing so.
We maintain our discipline.
Process of.
Carefully reviewing our backlog.
Identifying real end user demand and delivering products accordingly.
We have debt as context, let me provide you more color Tom.
The thing with broadband.
Interestingly non who's going through somewhat of a Renaissance.
<unk> grew 28% year on year and represented 18% of our semiconductor revenue.
As discussed during our broadband teaching the work learn and play from home environment is driving global service providers to extend connectivity to the home.
On a broadband carrier access business.
On fiber or otherwise known as <unk> grew over 40% year on year, mostly with existing generation 2.5 G. But with next generation 10, G PON, representing only 30% today there is significant room for content growth.
As 10 G PON deploys the over the next few years.
Not to be outdone by fiber cable operators in the U S of driving deployment of DOCSIS 3.1 cable modems.
The C. We saw in the 80% year on year of growth and planning to accelerate the upgrades to next generation DOCSIS 4.0.
Our broadband technologies and Frank on.
On the E billing service providers to complement the 5 G. They deliver to deliver best experience for consumers.
Now overlaying.
All of this lost small broadband upgrades.
We see a day.
The main search for the latest Wi Fi.
6 and 6 E technology to enable the loss of 100 feet of connectivity and homes.
Broadcom has emerged as the clear market and technology leader in Wi Fi for access gateways to the home and to end the prices with over 50 million ports shipped in Q2 alone on a year on year revenue growth of some 30%.
On the other hand, as we might expect with the push into higher performance fiber copper DSL digital subscriber line deployments for wireline broadband declined 30% year on year and with the lack of lines of events during the pandemic.
Video declined 20%.
But with the onset of 5 G. So the service providers are competing for subscribers, leading to technology upgrades globally in fiber cable and Wi Fi connectivity with.
We are seeing this investment cycle in brought bang been extending into 'twenty 'twenty 2 and so for Q3, we expect to sustain double digit year on year revenue growth in this segment.
Moving on to networking net looking grew 10% year on year and represented 32% of of semiconductor revenue.
We experienced Dale wins from hyper cloud and telcos posture.
Partially offset by headwinds from enterprise.
Revenue for switching was up 30% year on year, primarily driven by the strong ramp of a trade than and Tomahawk 3 for over 400, Jeep platforms and hyper cloud data centers.
Yes.
In the networks service providers have been investing in 5 G infrastructure worldwide, whereas the demand fall of January cold too at the Metro call and Couldnt run at the edge has been robust with revenue up 35% year on year.
On the other hand enterprise demand in networking has not yet recovered.
Still down double digits from the yoga.
But as we go into the back half of the year.
We expect to see hyper clubs upgrading to a next generation Trident Tom Hall fall.
Over 800, G switching platforms and sustained strength by service providers in network routing.
And the accordingly in Q3, we expect net working revenue to maintain the trend of low double digit.
Growth year on year, we found the complete recovery of enterprise demand.
Yes.
Speaking of it and the price, let's talk about server storage connectivity, which represented approximately 12% of semiconductor revenue.
This end market is largely driven by end of price.
And in line with our guidance revenue was down 16% year on year.
You may recall, however in Q1 this was down 22%.
And as the economy starts to recover we have seen an improving demand trajectory.
So in Q3.
We expect service storage connected connectivity revenue to be down high single digits.
Tentage year on year.
With the launch of Intel's isolate Amd's, Milan as well as future.
<unk> servers.
<unk> space is turning quite exciting and innovative for us both in the hardware and software and we will provide obviously more color during our next teaching in July on our server storage business.
Moving on to wireless Q2 revenue was down 16% sequentially, reflecting seasonality with wireless representing 34% of serving the semiconductor revenue mix Nonetheless.
Nonetheless on a year over year basis.
Wireless revenue was up 48%, reflecting a very favorable compare year on year as well as content increases in NAV bar and Wi Fi.
In Q2, we were able to ship more than we had originally planned.
And accordingly in Q3, we expect the growth trend in wireless revenue to sustain.
At over 30% year on year.
Finally, industrial and other represented approximately 12% of Q2 semiconductor solutions revenue re sales grew 34% yield per year in Q2, driven by recovery in automotive and China.
Inventory in the channel continues to deplete.
It's what we shipped in the distribute those grew only 23%.
Turning to Q3, we expect re sales.
To continue to grow double digit percentage on the year on year basis.
Summary.
2 of semiconductor solutions segment was up 20% year on year and in Q3, we expect revenue growth year over year to be of a similar amount.
Turning to software.
In Q2 infrastructure software have produced another quarter of Davey and predictable results as revenue grew 4% year on year and represented 27% of total revenue.
Now if we exclude professional services.
Our enterprise software revenue grew 7% actually year over year.
And as further indicate indicates the indicate the cater of the quality and sustainability of our products.
Over 90% of our software bookings represented recurring subscription and maintenance maintenance, we've been average contract life span from call customers pretty much close to 3 years.
We continue to believe our infrastructure software business is on track to grow at or better than mid single digit percentage year over year, which is the gain what we expect to see in Q3.
Summarizing this demand continues to be robust.
So our Q2 consolidated net revenue grew 15% year over year, we expect the momentum to sustain in Q3 and total revenue to be at 6.75 billion or so.
16% year on year.
With that let.
Let me now turn the call over to <unk>.
Thank you hock.
Let me now provide additional detail on our financial performance.
Revenue was $6.6 billion for the quarter up 15% from a year ago.
Gross margins were a record 75% of revenue in the quarter and up approximately 180 basis points year on year.
Operating expenses were $1.2 billion down 1% year on year, driven by lower SG&A offset in part by increased investment in R&D.
Operating income for the quarter was $3.8 billion and was up 25% from a year ago.
Operating margin was 58% of revenue up approximately 470 basis points year on year adjusted.
Adjusted EBITDA was $4 billion or 60% of revenue this figure excludes the $133 million of depreciation.
Now a review of the P&L for our 2 segments.
Revenue for our semiconductor solutions segment was $4.8 billion and represented 73% of total revenue in the quarter. This was up 20% year on year.
Gross margin for our semiconductor solutions segment were approximately 69% up 290 basis points year on year, driven primarily by higher product margin.
This margin improvement comes from content growth as we deploy more next generation products in broadband and networking end market.
Operating expenses were $795 million in Q2 up approximately 2% year on year as we invested in R&D and streamlined SG&A R&D was $702 million in Q2 up approximately 6% year on year.
Q2 operating margin increased to 53 per fab up 50, 580 basis points year on year.
While semiconductor revenue was up 20% operating profit grew 35% moving to the P&L of our infrastructure software segment revenue for infrastructure software was $1.8 billion and represented 27% of revenue. This was up 4% year on year.
Margin for infrastructure software, where 90% in the quarter up 100 basis points year over year.
Operating expenses were $355 million in the quarter down 8% year on year as we've completed the integration of Symantec R&D spending of 228 million is up 1% year over year.
Operating profit was up 10% year on year on top line growth of 4%.
Operating margin was 70% in Q2 up 360 basis points year over year.
Moving to cash flow free cash flow in the second quarter was $3.4 billion, representing 52% of revenue.
Days sales outstanding were 33 days in the second quarter compared to 51 days a year ago. We ended the second quarter with inventory of $1 billion, an increase of $52 million of 5% from the end of the prior quarter.
We should also note in Q2, we spent 126 million on capital expenditures.
On the financing front, we extended our weighted average debt maturity to approximately 10 years from 9 by exchanging notes our weighted average coupon debt decreased about 5 basis points to 3.7%.
During the quarter, we made $1.5 billion in payments on debt obligations, ending the quarter with $9.5 billion of cash and 44 billion of total debt of which $278 million of short term.
Turning to capital allocation in the quarter, we paid stockholders $1.6 billion of cash dividends.
We also paid $461 million in withholding taxes due on vesting of employee equity, resulting in the elimination of approximately $1 million <unk> shares.
We ended the quarter with $410 million outstanding common shares and 450 million diluted shares.
Note that we expect the diluted share count to be $449 million in Q3.
The board of Directors has approved a quarterly cash dividend on our common stock of $3.60 per share in Q3.
Based on current trends and conditions our guidance for the third quarter of fiscal 2021 is for consolidated revenues to be $6, 7.5 billion and adjusted EBITDA of approximately 60% of projected revenue.
That concludes my prepared remarks, operator, please open up the call for questions.
Thank you as a reminder to ask a question. Please press star 1 on your Touchtone telephone again Thats Star 1 on your Touchtone telephone to ask the question to withdraw your question press the pound key please standby, while we compile the Q&A roster.
Our first question comes from the line of John Pitzer of Credit Suisse. Your line is open yes. Good afternoon guys. Thanks for let me ask the question Hock I have.
Got 2 quick ones first within your wireless business, you've been able to sign long term contracts with your key customer and I would argue that the benefited both you and them, it's giving you the confidence to invest in the business properly and then the confidence that youll have supply for them when they need it I'm just kind of curious given how tight things are elsewhere.
On the semi business have you been able to parlay this into any longer term customer contracts and what implications might that have as we all start to worry about the quote unquote end of cycle and then secondly, just on your comments about the enterprise recovery can you elaborate on that was that specifically of storage.
Comment or is that also of networking comment.
Okay. Let me take the question wanted at the time.
On.
Arrangements with long term agreements.
John This is something we have been thoughtfully carefully putting in place we've.
The poll strategic customers, we just don't go do it.
And as of its commoditize.
Our thoughtful about doing in and we do it in very specific areas way.
Thanks.
We know for sure that the technologies fairly fairly.
Difficult complex too.
2 men, H, and which requires a substantial amount of <unk>.
R&D spending and we have been doing it the.
The full while known.
Strategic customers.
In the call businesses. So we just don't do it across the board and what <unk>.
You pointed out is very very correct is the mutual Ben.
The structure is in agreement with mutual benefit we have the.
The confidence to invest in R&D to make capex capacity investment and in return we offer the best.
Leading edge technology in specific areas in the.
The timely manner to our critical customers so yes.
We have been doing it and we will continue to thoughtfully doing in the very appropriate manner.
On the second part.
Okay.
If you could repeat the question John let me be sure.
Please elaborate a little bit on your comments about enterprise recovering brewing was that mostly within storage or was it networking. So I'm a little bit surprised given some of cisco's comments that youre not a little bit more positive on the enterprise network space.
In the.
It is across it is for enterprise spending it is I won't say across the board unnecessarily.
In trying to define the enterprise very appropriately.
As you as you noticed.
In my comments.
We classify some of its provides us tell coles.
As a separate animal different from traditional enterprise.
So as I pointed out based on broadband telcos have been investing big time service providers telcos have been investing in the huge men over the past 12 months, but traditional enterprise the companies, whether it's the banks and the manufacturing sector.
Various of retail customers Airlines examples.
Note this guidance on.
In the recovery mode and not surprisingly we are seeing.
Easing, let's say North America, and as it eases, we see the step up in spending, but we do not see spending spiking up now obviously, if you look at those.
Some businesses that weyerhaeuser.
Warehouses that require.
The Wifi net 10% bond the campus networking environment, you do see that improving but.
So say across the board all enterprises are just spending money not non we are still seeing.
And then as I showed in servers and storage connectivity, we still see a year on year year on year things on non up to what it was a year ago and that applies not just on.
The data centers, namely compute.
The compute is also a slice of the Datacenters enterprise campus environment.
We see less of debt.
But across the book.
Helpful. Thank you very much.
Thank you. Our next question comes from the line of Harlan sur of Jpmorgan. Your line is open.
Okay.
Good afternoon, and great job on the quarterly execution and strong margins and free cash flow generation as Hock I think as you mentioned, we're still on the early phases of the 400 gig networking upgrade cycle with your Hyperscale and telco customers.
The 2 of your of Big Cloud Titan customers have already started the upgrade of sector or another 2 more of that are going to start the upgrade cycle here in the second half of this year and quite a bit more next year and then as you mentioned you still have Tomahawk..4 ahead of you. So given the extended visibility that the team has with the strong backlog.
Do you see the cloud and telco upgrade cycle and inevitable recovery in enterprise driving continued year over year of growth in networking into next year.
I don't.
We don't really trying to guide.
More than 1 quarter ahead of time first of all of them, because we're not that smart to be able to do that but on the broader trajectory. It does appear fairly.
Fairly much the trends as we see it which is.
On the hyper cloud guys will go will push out in the second FSA in the indicated on the on the data center on Tomahawk 4 of the 800 G platform and Fei with the essential bank law for delivery in the back half of the year for Tom Hall full so we see that going on.
And we use of Youre right, we see the recovering step by step of data enterprise.
I do not see that really taking off.
In terms of reaching the level of it once a year ago, probably on June 2022, but what we do not know for sure is would that give pause to of.
Hyper cloud in the spending.
Net but we just put the and just putting everything on the table, we're not sure whether hypocaust spending will necessarily continue into 2022.
Since it would we see some of the bank loans, but as the enterprise steps up 1 relevant none of it knows that if the economy start to re balance and net site, but what we do see and broadband service.
Service providers.
On the telcos in particular.
For sure upgrading and here. This is the longest cycle of upgrades and we see them upgrade.
And we see the backlog associated with it through 2022.
Great. Thank you.
Okay.
Thank you. Our next question comes from Ross Seymore of Deutsche Bank. Your question. Please.
Hey, guys. Thanks revenue you asked the question congrats on the strong results Hock I wanted to dive a little bit into the lead time commentary that you had with that stabilizing of 2 quarters ago, you talked about the size of the book the backlog you had last quarter you talked about the year over year on even in some instances the sequential growth being so large in bookings and now we're hearing that the lead times are stable.
Rising.
People could interpret that a bunch of different ways and as far as the implications on the demand side of the equation of that supply is catching up to it or frankly people are just ordering so far out that they're not willing to extend that any further.
I was hoping to double click on that lead time commentary and get your feelings as to why it's stabilizing and do you take that as a positive or negative.
Oh I just make a comment to say we have stretch our lead times. So far on Ross. Good point, you bring up and I'm glad you're bringing up the give me a chance of <unk>.
<unk> a.
Set of quick comments I made in my opening remarks.
We are comfortable at the lead times, we are on.
And so what it is as customer of customers are comfortable seeing on lead time now, but what we have found rather remarkable over the last call.
Water is that even as our lead times remain stable consistent.
The volume of bookings we receive every week.
<unk> to growth I.
I made the comment.
And thanks for the opportunity to make debt reiterate that point.
Same lead time stable for the last 3 months.
On the booking rate we are seeing every week continues to step up.
Great. Thank you.
Okay.
Thank you. Our next question comes from Vivek Arya of Bank of America Securities. Your line is open.
Thanks for taking my question Hock I had another 1 on the supply situation. If there were no supply constraints, how fast what your semiconductor business.
The growing and kind of part b of that is.
What is driving the shortages for you right now and what are you doing to resolve it and do you have any kind of gut feel on when the supply situation will become normal. Thank you.
1 of the first I'll answer the first on the launch in between I am not sure.
On the first.
It's we will not put ourselves of the situation nor should anyone doing.
Because there's also.
A certain amount of you don't know, we do not want on customers and I don't think any of our peers wanted to do that either to buy too hot.
To create buffers to buy ahead of what the needs. So we tried to manage identify as I said and go through a process of rigorously understanding.
True end demand in other words, we look for drop date quantities as of the misuse in the industry and we shipped 2 dose dropped the quantities of maybe a little more.
And what you see today is the true growth rate. We are seeing we are representing where non hiding what could have been the theres no..1 could have been we are shipping to what we believe with the customers consider is the.
The true real demand now having said that we may be delivering doing GIC just in time, but nonetheless, we do try to fulfill.
1 customer truly 1 just on the in the timely basis and Thats still continues to day, regardless of the size of the backlog we have with discipline in that regard.
And from our perspective.
And on the.
The challenges we entered the supply chain is a constant set of challenges is to ensure that we get components, whether it's wafer substrates getting our product assemble tested any of them.
The small components on a timely basis to make sure that we can keep this thing running and if you look at the size of inventory versus of the size of our cost of goods sold of our revenue quarterly you can see that we run pretty close to just in time throughout the entire supply chain.
And we've been able to do it and sustained debt and so what we're reporting to you like 20% year on year growth on semiconductor components.
In our view of pretty decent reflection, what is truly and demand needs all day.
Alright.
Next question.
Next question comes from Timothy Arcuri of UBS. Your line is open.
Thanks, a lot hock.
I wanted to ask you what you think the long term growth rate is of your semiconductor business you sort.
Of trending to the high teens this year, but that's kind of due to easy comps and you have the compressed iPhone launch on the pull forward of some of these technologies.
Due to the due to the pandemic. So once this all sort of normalizes. What do you think is the right long term growth rate for the business are you still thinking 5% or do you think maybe just given the strength of the of the.
Bookings recently that it could be better than that thanks.
Net.
It's a hell of a question and answer earlier on this right now we're in the midst of.
A very strong demand and that's also created perhaps as we all know about.
Via the imbalance between demand and supply of demand and supply of what's the catch up.
But if you look at the long enough I think the dynamics on.
Underlying the fundamental dynamics underlying the semiconductor industry.
Yet.
Change at least I haven't seen it to change so.
The team that's my that's the 1 best answer I can give you the beaches I haven't changed my thinking if we look over the next 10 years, how this industry will behave because it is a relatively mature the industry is evolutionary technology is still evolving which is great for us and it keeps getting better and better.
But it's evolving disruption it's before the likes to say in this industry is less of.
Also in the event.
Evolutionary and I have not seen anything that tells me there's a fundamental change.
Thanks, Tom.
Thank you. Our next question comes from Craig and back of.
The Morgan Stanley Your line is open.
Thanks, Tom.
Given the ongoing strength in the free cash flow and improved balance sheet can you just talk about your thoughts on the M&A environment and also into our buybacks, how youre thinking about cash deployment as you go forward.
Yes, I'll take that 1 this is kirsten.
Relative to 2 capital allocation first and foremost we're dedicated to paying 50% of our free cash flow to our shareholders and so that would be first secondly, M&A if we can.
Accretive M&A it would be the second objective, then thirdly stock buybacks and at the end there would be debt repayments. So I think that's how we're looking at capital allocation in that order there isn't anything yet on the M&A front that I can talk about but if anything does come up we'll let you know.
Thank you. Our next question comes from Blayne Curtis of Barclays. Please go ahead, hey, good afternoon. Thanks for taking my questions just curious a little more detail on the gross margin the record gross margin.
Any color on product or segment, and then I guess as you look forward here.
If you could describe what youre still dealing with in terms of excess costs due to Covid and then how to think about it at the enterprise comes back should that the additive to the gross margin.
I expect gross margin next quarter to be about the same as it was this quarter and then as you know at the end of the year, we're expecting wireless to come back in that normal ramp that we have in for the margins will come down a bit towards the end of the year, but at this point of Ics being able to sustain the margins that we experienced this quarter.
Mostly coming from networking on broadband.
Blaine.
And the resolve perhaps the repeating our sales to myself too much from past conversations.
Then I had reviewed all of you guys.
Our gross margin has this natural trend of continuing to keep expanding year on year non.
Non necessary quarter on quarter, but sequentially as much as the year on year simply because we tend to have a chance to go through of new product lifecycle products next generation products in across the across some of our franchise products and the.
It's a combination of of all of this so the natural growth all of the explained on the expansion of gross margin for all of business, especially in the SME site, particularly in the semi side.
Which I assume your question is related to the.
Is.
As I've always say, we have of gross margin expansion.
The range of 50 to 150 basis points.
By year end and average across our 'twenty 4 'twenty 5 different of well I should take a sulfate just hardware about 20 or so different product lines, each with the different product lifecycle and each going towards new generation product each time, because as you know each time, we come to a new generation product we.
Get the lift in margins on product margin, which translates to gross margin. So it's not unusual to see US go to the high end of the range and in this particular case year on year as the bid more than the high end of the range and that's probably.
And related to perhaps separate mix of products in this environment, because they're still puts and takes.
Across our product range non everything is on fire.
Based on debt.
And with the <unk> higher than the normal 50 to 150 basis point range, but I don't think this is something that will go on forever, but you should expect debt year. After year, you will see that 50 to 150 basis point improvement in gross margin on the semiconductor side.
Thanks, so much.
Okay.
Thank you. Our next question comes from the share of Hari of go.
Eldon Sachs. Your line is open.
Hi, guys. Thank you so much for taking my questions I had 2 actually 1 on wireless and 1 on on the cost side.
In terms of wireless I guess.
In Q2 revenue came in.
Better than expected I, just wanted to understand was that primarily supply being better or where there are dynamics on the demand side of that came in better than expected.
And then sticking to wireless.
As you think about the next.
The next generation product cycle of your largest customer how are you.
Thinking about the content opportunity at this point you pretty much know, what's what's locked in.
If you can if you can comment on RF, and Wi Fi and touch and maybe compare and contrast this.
This uplift in the cycle visiting the past cycles that would be super helpful. And then on the cost side based on the comments you just made about gross margin expansion and some of the <unk> comments.
Cost of inflation is having impact on your business, but if you can speak to wafer pricing and substrates on what youre seeing from a cost perspective over the next year or so that would be super helpful. Thank you.
Alright, let's start with the first 1 and if I lost track of the last 2 of your bet the remind me of steel.
On wireless.
Right.
What I indicated was Q2 wireless was kind of high end than we original what day, we had originally planned and it's all in the loans.
Related to demand of course is demand we will never ship just because we had the we had the products is based on demand 1 ticket and so we are happy to fulfill it.
And part of the demand may actually found the bid from Q3 not sure of a 100% yet because this is the dimmed.
The demand comes in the short cycles, and the Mi and perhaps that's why it will be a bit careful about telling new Q3 year on year improvement.
Still 30 plus percent year on year growth.
Not saying 40, plus but we don't know for sure except we know that we do pulling some from Q3 to Q2 non much and that allows us to do to perform.
The 44, 48% year on year of growth, which is great, but Q3 will still be pretty good year on year.
As we fully expect.
And the related to content and all of that I prefer at this point.
City of arena, we've of highly sensitive.
Situation to non answer that question at all.
No offense, but I can answer that question, but I'll be happy to take the third question, which is yes, we have cost inflation.
In this in this environment, where the as we all know the semiconductor supply chain is on the severe constraints on its ability to provide non whereby we are very launch we are very very large customer in the very loyal customer to many of.
Supply is all of our key components and so we believe we are treated very well, having said that web prices of concern of course, not we see cost inflation.
In this environment.
Very very.
Open to talking to our customers who are in third and very open to being able to address cost of inflationary krause cost pressure in the higher purchase price on the site.
So we.
Which is why on margin.
<unk> been stable.
Thank you.
Thank you. Our next question comes from C. J Muse of Evercore. Your line is open.
Good afternoon, and thank you for taking the question I guess another question on the supply chain and I guess, a bigger picture question Hock.
If you think about your increased lead times, you talked earlier to John's question of boat.
Selective strategic agreements with key customers at the same time, we're taking multiyear kind of take or pay contracts with foundries curious if you see any structural changes to.
To the semi industry as we kind of emerge post pandemic.
Okay.
The main frame opinion.
I don't know.
They shouldn't be the same question there was the assays do you do I think the semiconductor industry over the next 10.20 years.
We will grow any faster or slower.
In my view is no I don't think I don't see any fundamental things that have changed the 1 we ended the sick of this storm so to speak of course.
Hell breaks loose as soon as the expression goes but.
This of cycles, we all have seen.
Many times in the semiconductor industry and maybe this interest in this.
This is a bit of extreme with the.
In the context of depend damning.
Over the course of 2020 and now extending partners into 2021.
But.
You know the supply will step up at some point.
And the demand is always day, because people need technology and people need the performance need the technology that we all offer in the <unk>.
<unk> provides.
And we will be competing the same way, we have been competing and it's not necessarily related to creating.
The long term agreement on any such thing is about being able to provide the best technology the best.
On a product in the timely manner for your customers and it doesn't matter that you do any agreements.
At the end of the day Jan you link the technology on your length of the products that customers.
Need to make themselves successful of to be able to deploy it in a very well in the good manner and that has always been the semiconductor industry and net net will I do not see anything that changes then no.
Putting long term agreements might make life easier, but I think it's just a myth we still have.
To establish ourselves that we can outperform our engineer.
The competition.
Thank you.
Thank you. Our next question comes from Chris <unk> of Citi. Your line is open.
Hey, Thanks gang.
There's a lot of talk worries speculation I don't know of lifestyles, whatever about this big inventory buildup of handsets in China.
<unk>.
Any thoughts there.
<unk> team and what would be the potential impact for Broadcom.
Well.
Non non directly if there is such a big overhang sitting out of the non directly because.
Our wireless business on the wireless products.
As we have.
Fully articulated.
30 months sales.
<unk> to 2 large customers.
Actually what Tom.
In the handset, we do not sell.
Much if any to the handset product of handset guys Oems debt is in China.
And we sell to 2 big customers.
1 in North America, 1 in Korea, and is a very high end.
The flagship status phones.
And thats it.
And now that it could be in direct blow back and then I do recognize.
In certain markets. If there is an excess of inventory that needs to be just.
Now debt, but on the other side.
On the direct basis, we do not see any we do not expect to see an interest.
Yeah.
Okay. Thanks Hock.
On.
Thank you at this time I'd like to turn the call over to you for closing remarks.
Thank you operator in closing please note that hock will be presenting at the Bofa Securities Technology Conference on Tuesday June 8.
Following our net working on broadband <unk> earlier, this year Broadcom and Bernstein, we'll be hosting of teaching on our storage businesses on Wednesday July 20, <unk> at 12 PM Eastern 9 am Pacific.
Hock will be joined by jazz Trombley.
General manager of our server storage connectivity business Jack.
Jack 1 Tony General manager of our sand business and Dan Donlan marketing head of our hard disk drive business.
That will conclude our earnings call today. Thank you all for joining.
Operator, you may end the call.
Thank you on this concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
Jim.
And the kind of.
And of course.
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Thanks, Tom.
Moving on.
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Hello.
On.
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Yes.
Yes.
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Okay.