Q3 2021 Broadcom Inc Earnings Call
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Welcome to Broadcom, Inc. Third quarter fiscal year 2021 financial results conference call. At this time for opening remarks, and introduction I would like to turn the call over to G. U director of Investor Relations of Broadcom, Inc.
Thank you operator, and good afternoon, everyone. Joining me on today's call are Hock Tan President and CEO, Kirsten sphere, Chief Financial Officer, Tom Crouch, President Broadcom software group, and Charlie Collier, Chief operating officer.
Broadcom also distributed a press release and financial tables after the market close describing our financial performance for the third 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 one week. It will also be archived in the investors section of our website at Broadcom Dot com.
During the prepared remarks, hock and Christian will be providing details of our third quarter of fiscal year 2021 results Guy.
Guidance for our fourth 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.
Dishing to U S. GAAP reporting Broadcom reports certain financial measures on a non-GAAP basis, a reconciliation between GAAP and non-GAAP measures is included in the tables attached to todays press release.
Comments made during today's call will primarily refer to are non-GAAP financial results.
I'll now turn the call over to heart.
Thank you gene and thank you everyone for joining us today.
In Q3 semiconductor solutions revenue grew 19% year on year to $5 billion.
With infrastructure software revenue growing 10%.
Year on year to $9.0 billion guidance.
Solid data revenue was $14.0 billion.
<unk> up 16% year on year.
In Q3 demand continued to be strong from hyper growth.
And service provider customers wireless continues to have a strong year on year compare.
And while enterprise has been on the trajectory of recovery. We believe Q3 is still early in that cycle and then enterprise was down year on year.
Yes.
On the supply side.
We continue to keep our lead times are stable.
We've done as Kannan. Thanks, let me provide more color by end market.
Starting with networking.
Networking revenue of $1.8 billion grew stronger than we had forecast that up.
Up 19% year on year versus low double digit growth and represented 36% of our semiconductor revenue.
The better than expected growth was driven by.
Routing from service providers in the expansion of <unk> networks full backhaul metro and coal.
Swell as major share gains in Ethernet Ethernet network interface controllers within data centers.
While we experienced strong orders from OEM consistent we've a recovering environment for enterprise spending we believe actual deployment of networking and enterprise.
It's all still lagging from a year ago, our shipments and revenue appropriately reflects this.
In Q4, however, we expect a different set of demand dynamics.
We see cloud customers upgrading to a next generation 800 gigabit base tomo healthful and tried it and switches.
The first and only provide the of $25 six better bid switches and we are shipping to version one we have 512 lanes at 50.50 G studies and the up 256 lanes at 100 G studies.
I would like to highlight that we are the only company today shipping 100 G cities.
In data center switching as in service provider routing, we continuing to lead the next generation product transitions.
It's all engineers continue to out execute what's out there.
And in Q4.
Again, a very strong year on year compare.
We expect networking revenue growth to be low double digits year on year.
Next our server storage connectivity connectivity business was.
$673 million in Q3 down 9% year on year in line with our guidance and represented approximately 13% of semiconductor revenue as you know.
Product is supplied mission critical applications largely to enterprise.
As I said earlier.
It was in a state of recovery.
That's been said.
We've seen a very strong bookings trajectory from traditional enterprise customers within this segment.
Despite such enterprise recovery in server storage.
And the same is happening in networking.
B one of the students of growth in Q4 and into 2022.
In this particular segment customer transitions to a next generation.
Says and nvme connectivity at the service he simply fund this growth the aggressive migration in cloud.
218, terabyte hard disk drive.
I'll also provide a strong tailwind to demand.
So don't storage connectivity products in this segment.
<unk> contrast to them next to the 9% decline in Q3, we forecast in Q4 server storage connectivity revenue to be up low double digits percentage year on year.
Moving onto broadband revenue.
Revenue of $910 million in Q3 grew 23% year on year and represented 18% of semiconductor revenue.
This was primarily driven by the two X growth in deployments of Wi Fi six access gateways.
As well as double digit growth in next generation fiber and DOCSIS three one cable modem deployments.
For Q4, we continue to expect double digit year on year revenue growth in broadband.
We've been seeing for the last few quarters.
So looking ahead.
We see service providers like AT&T, British Telecom and Deutsche Telekom deploying in increasing volumes next generation last mile fiber connectivity to homes in the U S and globally.
Multiyear.
And multibillion dollar investments by operators.
And then attached to every one of this fiber notes.
You need Wi Fi connectivity for the last 100 feet within the holds.
And we lead the global transition to Wifi six to date.
We expect our strong design win momentum for Wifi six E at U S and European operators will sustain our market position into the next generation.
Now moving to wireless.
Q3 revenue of $5.0 billion was up.
35% year on year in line with expectations and represented 29% of semiconductor revenue mix.
In Q4.
Expect wireless revenue to ramp approximately 33% sequentially in support of the launch of next generation <unk>.
<unk> phones and to be up 25% year on year.
Finally, industrial revenue of $205 million in Tis.
<unk> represented approximately 4% of Q3 semiconductor solutions revenue.
<unk> sales grew in them.
<unk> grew what we can see the and unsustainable, 55% year over year, driven by aggressive buying from Oems in automotive robotics and renewable energy.
As a result inventory in our channels declined significantly to below two months.
Turning to Q4, we do expect <unk> sales to come down to a more rational 20% yes.
Upon year growth.
And so in summary Q.
Q3 semiconductor solutions revenue was up 19% year on year and in Q4, we expect the momentum to continue and revenue growth to be up double digits percentage year on year.
Turning to software.
In Q3 infrastructure software revenue of $9.0 billion grew 10% year on year and represented 26% of total revenue.
Within this brocade.
Grew 27% year on year, driven by the launch of new generation.
Gen seven fiber channel San products.
Excluding brocade.
<unk> Com software revenue grew 6% year on year in dollar terms bookings average, 116% over expiring contracts, while in the call while in a call. It counts we average 129%.
Over 9% of these bookings represented recurring subscription and maintenance revenue.
Reflecting this renewables.
Our infrastructure software revenue to be on track.
To grow around mid single digit percentage year over year, which is again, what we expect to see in Q4.
So in summary, combining.
A strongly growing semiconductor segment with a more stable software segment totaled Q3 net revenue grew 16% year on year.
And we expect this double digit growth.
Spain in Q4, and total revenue to be 735 billion.
14% year on year.
And with that let me turn the call.
Great.
Thank you Hock, let me now provide additional detail on our financial performance.
Revenue was $14.0 billion for the quarter up 16% from a year ago.
Gross margins were 75% of revenue in the quarter and up approximately 85 basis points year on year.
Operating expenses were $2.0 billion flat year on year, driven by lower SG&A and continued investment in R&D.
Operating income for the quarter was $12.0 billion and was up 24% from a year ago.
Operating margin was 58% of revenue up approximately 360 basis points year on year.
Adjusted EBITDA was $5.0 billion or 61% of revenue.
This figure excludes 134 million of depreciation.
Now a review of the P&L for our two segments.
Revenue for our semiconductor solutions segment was $5 billion and represented 74% of total revenue in the quarter.
This was up 19% year on year.
Gross margins for our semiconductor solutions segment, where approximately 70% up 110 basis points year on year, driven primarily by favorable product mix and content growth as we deploy more next generation products in broadband and networking.
Operating expenses were $783 million.
Flat year on year, R&D was $693 million in Q3 up 1% year on year.
Q3, operating margins increased to 54% up 410 basis points year on year.
While semiconductor revenue was up 19% operating profit grew 29%.
Moving to the P&L for our infrastructure software segment.
Revenue for infrastructure software with $9.0 billion and represented 26% of revenue this was up 10% year on year.
Most margins for infrastructure software, where 90% in the quarter up 125 basis points year over year.
Operating expenses were $359 million in the quarter up 1% year over year R&D spending at $226 million is up 9% year over year and SG&A of $133 million is down 11% year over year.
Operating margin was 70% in Q3 up 305 basis points year over year and operating profit grew 15%.
Moving to cash flow free cash flow in the third quarter was three 4 billion, representing 51% of revenue, we spent $115 million on capital expenditures.
Days sales outstanding were 30 days in the third quarter compared to 42 days a year ago. We ended the third quarter with inventory of $3.0 billion, an increase of 156 or 16% from the end of the prior quarter in preparation to meet customer demand in Q4.
We ended the third quarter with $12.0 billion of cash and $45.0 billion of total debt of which 279 million is short term.
Turning to capital allocation.
In the quarter, we paid stockholders, one 6 billion of cash dividend.
We also paid $347 million in withholding taxes due on vesting of employee equity, resulting in the elimination of approximately 739000 <unk> shares.
We ended the quarter with 412 million outstanding common shares and 449 million diluted shares note that we expect the diluted share count to be $448 million in Q4.
Our board of Directors has approved a quarterly cash dividend on our common stock of $63.0 per share in Q4.
Based on current business trends and conditions and to reiterate what Hock has said our guidance for the fourth quarter of fiscal 2021 is for consolidated revenues of 735 billion and adjusted EBITDA of approximately 61% of projected revenue.
That concludes my prepared remarks, operator, please open up the call for questions.
As a reminder to ask a question you will need to press star one on your telephone.
I want to draw your question press the pound key please limit yourself to one question. Please stand by while we compile the Q&A roster.
Our first question comes from the line of John Pitzer from Credit Suisse. Your line is now open.
Good afternoon, guys. Thanks for let me ask the question Hock.
I'm just kind of curious you kind of did what you said you were going to do 90 days ago, but this is usually the part of the cycle, especially on the semi business, where I would expect I would've expected more upside.
And clearly when you look across the sector. Most companies are putting up an upside that you guys didn't see in the July quarter. So I'm kind of curious if you could help us better understand what happened do you think that this was mostly.
Supply issue and given that inventory grew 15% sequentially in the quarter to what extent do you think now that you've kind of got that under control and going forward, you'll have a better supply environment to fulfill this demand.
Well I mean supply is always something.
That is very much.
Any shoe of constrained in this environment as you well know, but the other side of the picture is what we are really shipping as we have said in previous calls as well.
<unk>.
<unk>.
Put it directly.
Our shipping.
Secondly, we believe to want demand.
Rick wise by that I mean end user demand requests we are trying very hard.
To overshoot and not building pockets of excess inventory within our ecosystem.
No.
I think we're managing very much to what we see out there.
Great. Thank you.
Thank you. Our next question comes from the line of harsh Kumar from Piper Sandler. Your line is now open.
Yeah, Hey, Hock first of all congratulations solid results and guidance.
Question for you as everybody is.
Foundry TSMC is talking about price increases.
Some cases there are substantial do you feel that you can pass this along and also at this point in time companies are probably securing capacity for next year can you talk about Europe capacity your ability to get some extra capacity to be able to grow next year. Thank you.
Okay.
I mean in very interesting questions.
First and foremost from from all sides, we try not to talk about customers, specifically and the same applies very much tools strategic suppliers too so.
I wouldn't comment at all on what you alluded.
Alluded to here, but as far as our capacity for 2022, I think we have gotten a pretty good supply.
Yes.
Availability lineup for 2022, and we feel.
Britney, Okay about that I wouldn't say, great, but in this environment all things considered.
We're feeling quite good.
Thank you.
Thank you. Our next question comes from the line of Ross Seymore from Deutsche Bank. Your line is now open.
Hi, guys. Thanks for letting me ask a question Hock I wanted to touch on the enterprise business you mentioned it a couple of different times. When you were talking about both networking in your served server storage connectivity segments. So I guess a two part question one how much of your semiconductor business do you believe is enterprise exposed and two when do you believe that will return to year.
Over year growth.
And is that a specific thing to broadcom with your product cycles or is it just the end markets returning to year over year old at that time.
Okay.
Well <unk>.
Enterprise traditional enterprise as we defined it and need.
I think I made a point of purposely demarcating. The fact that in semiconductor as we shall focusing on semiconductor segment by itself when you.
Can you can literally look at our data.
The new.
Selling into three distinct elements one is cloud.
And service providers retreat clubbed together as one and then this consumer.
Which is very much our wireless business and then the rest company.
Companies All day enterprises, we call traditional enterprise. So we do put telcos service providers to make it clear as part of club in that category. So we break it into three categories and under that measure.
Enterprise represents about half.
It doesn't around half of the total semiconductor revenues.
And basically I'd say, a question, which I did indicate in month three months on server storage.
End markets for our semiconductor business.
We have seen an improvement year on year.
<unk> revenues in this in our service storage, which is 80% at least 90% driven by traditional enterprise. So they are very good indicators of what traditional enterprises, showing we have seen it.
Sure.
Improving year on year comp pass.
And ending in the latest Q3 still high <unk> mid to high single digit decline from a year ago, but we did also guidance.
That because of strong bookings that we have been seeing now for the last three months at lease from enterprise.
Which is going through largely on the large Oems will put to integrate the products and sell it to end users.
Yes.
So going to likely expand.
Enterprise to grow double digits.
One year.
In Q4, so we'd see the point of crossover probably now skillful.
Thank you.
Thank you. Our next question comes from the line of Edward Snyder from Charter equity Research. Your line is now open.
Thanks, a lot hock following up on that same question last quarter, you were predicting you thought that the exelon.
Excellent growth you've seen.
And.
Server providers telcos might lighten up mixtures that digest that as enterprise started to grow that would be kind of a mix shift there, but it sounds like that isn't lightening up in enterprises coming you back a bit sooner.
Do you think any differently now about telcos and service providers cloud will that will that last longer or do you still expect to maybe lighten up 2022, and how long do you expect the enterprise it's been down for quite a while now the enterprise.
Upward trend to lash I'm, just trying to get a feeling with the profile of demand looks like in your core business next year sure.
Happy to do that one we are seeing now are what we expect to see in 2022.
In terms of broad.
Direction.
As we see.
In telcos service providers.
Are running well.
Well quite hot and it looks like they are sustaining.
As opposed to perhaps rolling over they seem to be sustaining.
Where we are right now.
Regarding enterprise.
It's pretty much what we had indicated before and continue to see which is a continuing trajectory of improving demand spending and demand and we see that continuing to improve and grow.
Our next this coming quarter Q fall.
And beyond in fact, I would say that the engine for growth for our semiconductor business in 2022 will likely be enterprise spending.
Whether it's coming from net working one sector for us all for all and all from server storage, which is largely enterprise we see both these showing.
Strong growth as we go into 2022.
While just to repeat itself, we see telcos and service provide the non rolling over just hanging up day at a very elevated level.
Does that imply you split the cloud lightened up a bit then two could you just called out service providers until it goes kind of talk.
No.
I use service provider.
This provides us sometimes it's a club as well, though we see cloud also hanging out.
Together, we service today.
Together with the telcos.
Great. Thank you.
Sure.
Yes.
Thank you. Our next question comes from the line of Stacy <unk> from Bernstein Research. Your line is now open.
Hi, guys. Thanks for taking my question I wanted to ask you about capital allocation. Obviously, we will have the cash flow it goes through the dividend and the other half.
Goes I mean, ideally the M&A or buybacks and it's been awhile. Since obviously, you executed M&A and we're kind of getting towards the end of the year.
What point do you kind of make the decision to.
To give up on M&A this year and start buying back stock or do you save the cash like for like a potential deal next year, just how do we think about your mindset around M&A environment versus just using the cash for buybacks and then may be starting to cycle over again at some point in time as we get into next year.
Well you know the spud the first time I got this question I got in last quarter and the quarter before and then full year guidance and I stick by that and such you'll know we're running it until the end of this fiscal year.
Which is.
October and November.
And we will make that call at that time, whether we use the cash to buying <unk>.
All we use the cash to buy.
To do an M&A or to buy back all shifts.
Does that mean that you have to have a deal in mind in October November could colby to save the cash for something in the future.
If you don't have a deal on the on the books in October November two we see a buyback.
Well more probably.
Nope blades that was simple ways as far as saying that as you correctly say, we're accumulating cash at a fairly dramatic right.
And so by the end of October our fiscal year, we'll probably see the cash net of dividends.
Cash pool to be up to close to $13 billion, which is.
I'm thinking like 678 billion above what we would otherwise like to carry on our books. So we have to make a call. It a decision at that point.
Got it that's helpful. Thank you.
Thank you. Our next question comes from the line of Harlan sur from Jpmorgan. Your line is now open.
Good afternoon, congratulations on the strong quarterly execution and results strong free cash flow generation in Q3, you gave us the EBITDA profile for Q4.
I use normalized assumptions on cash interest payments cash taxes and capex.
I think the team is going to generate about $20.0 billion ish roughly in free cash flow this fiscal year, which.
Roughly translates into a dividend increase to at least $16.70, maybe a bit more.
If the team continued to return 50% of the free cash flow I guess my question is on Q4 are there any onetime cash event timing.
Timing related dynamics Capex increases are tax related events, which we should be considering or.
With my free cash flow and dividend math roughly correct.
Then just a quick follow up the team the team has a fairly large footprint of logistics warehousing and keeps the clouds for assembly and test in Malaysia, just given the significant uptick in COVID-19 cases, there is the team being impacted by potential facilities closures or how is the team mitigating this impact.
I'll take that first question that you asked and then I'll have hock take the second one.
Essentially we are policy isn't changing we're going to return 50% of our free cash flows to our shareholders and I would say your math is pretty good.
Youre spot on island.
No.
Thank you.
Right in terms of the concern that you expressed about the resurgence of COVID-19 infections in Malaysia, where we have correctly say have a launch supply chain team located.
Uh huh.
You are right. It is challenging but we are managing very well I think on themes that I would say.
The clean 90, 99%.
Our people in Malaysia.
Been vaccinated.
We made arrangements with inflation government.
And should that this was done and this has been done and so we are full.
<unk> two <unk>.
To manage through this resurgence in Malaysia.
And we will continue to keep our eye very closely on conditions over that but for now I think we okay.
Thank you hock thanks Kristen.
Okay.
Thank you. Our next question comes from the line of Vivek Arya from Bank of America. Your line is now open.
Thanks for taking my question actually just wanted to clarify something and then have the question.
On the clarification I think hock you mentioned youre shipping to demand does it mean, you're not seeing any supply shortages and that would be very different than what we are hearing from every other semiconductor companies. So just wanted to make sure I had the right interpretation.
And then my question is.
Just kind of the long term growth rate for Broadcom.
You know in the past you had mentioned kind of this mid single digit kind of growth rate I understand that this year compares to make it easier to grow faster than that but as you look at broadcom over the next handful of years.
Do you think you are in a situation to grow better than mid single digit growth rate like what is missing to make you upgrade right that mid single digit.
Great. The conceptual forecast that you have provided in the past.
Okay, Let's let me take the first question first the first part of <unk>, because I think it's very important and very interesting it ties into the first question by John Pizza.
Hey, why your guidance.
Shipping like Crazy I use supply constrained.
Uh huh.
It's always overhanging our K about making every wafer count in this environment and we do that very carefully and we do that I believe very well given that you are looking at how well our margins are performing in this environment, but we also always as I've said before a few.
The way, we manage our supply chain.
Pretty much like to see them carefully.
Scrutinize.
<unk> demand as defined as defined by ourselves which is.
One.
The end user will need those products.
What we also see and I mentioned that in our industrial segment in 2000.
In Q3 were really sales from a distributor to know industrial generally goes through.
Pretty much go through distributors.
The OEM end users just go to our distributors and wipe out.
Inventory multiple inventory day, so we'd show a resale growth of 55% and we all know that's all around demand people are building up buffer, there's a certain level of panic buying <unk>.
Across all segments of semiconductor markets today, you see that kind of behavior.
Unless you.
Uh huh.
S call key suppliers.
Reported in careful disciplined to manage.
Line two way demand is really neat as opposed to way.
<unk> only been end users are just building up buffers.
Bulk of the bus everywhere and that's pretty much what we.
Spend a lot of time doing.
I cannot necessary say the same of many other semiconductor companies out there which is probably why.
John <unk> Singh Wadhwa people, showing bigger numbers, we can show bigger numbers.
That means we will build up inventory in the wrong places and we need every one of those wafers in this environment not just this quarter or next quarter and the quarter after that to ensure that.
Our strategic customers.
<unk> to get what they need to win to launch the deploy programs.
Yeah.
Alright.
And on the long term growth rate.
Oh, sorry I.
I guess the model well.
We like I like to believe light some of you do.
With this recent event and with this things happening, especially COVID-19.
Creating a change of work habits in this.
<unk>.
Ecosystem.
Dave the reset upwards.
It's a higher consumption of technology and by extension semiconductor chips.
In the long term.
I agree that has been in the salary that adoption of certain technologies under this lockdown conditions in our economy in our lifestyle economy over the last 12 months.
The last 18 months that this has salaries.
Adoption of technology.
<unk> has created a strong grower demand for semiconductor products over this last 12 months I agree and we report those results, which we believe are true end demand as I indicated.
The early part of my answer to your question that is now up to high mid to high double digit teens, so to speak year on year. That's good that's very strong that's a far cry from mine.
My mind model that says semiconductor gross long term mid single digits.
But this accelerated consumption doesn't necessarily create a fundamental shift in our people's ability to consume technology and were now when things revert back towards a more.
Normal lifestyle maybe.
Maybe not this year, maybe next year the year after I would expect this accelerated consumption.
Reset itself.
And then you also sell fundamentally over the next 10 years five years 10 years is semiconductor.
Assumption do you use stage going to increase any higher.
I find it hard to imagine why it should.
Fundamentally we have an industry that is relatively mature.
Still evolving still changing which makes it exciting for us but pretty much.
Been around failure fell off.
Very much a long time.
And I.
I may be wrong, I still think you will revert over the next 510 years back to a norm.
And a question you'll view is will not be high single digits, perhaps rather than mid single digits and you may be right.
I don't know the answer to that but right. Now you are right we are seeing.
15% to 20% year on year.
Demand usage of our semiconductor chips and by the way we are pretty broad across multiple end markets.
Applications of semiconductors, so we kind of represent.
A large part of the overall semiconductor growth and now David in particular.
That could grow faster than that mid single digits, and I and I do accept that but given how broadly broad base. We are I think the thing we revert to what will be the norm and I cannot disagree with you that the non might be higher than the mid single digits I'd say before.
<unk>.
Thank you.
Thank you. Our next question comes from the line of Blayne Curtis from Barclays. Your line is now open.
Afternoon. Thanks for taking my question I wanted to ask on broadband it's been running kind of in the 20th year over year, you said up double digits for Q4, I think last year's easy compare so I just wanted to know how literally to take that I know you said, maybe over time that would be the one segment that could moderate I just didn't know if youre signaling anything for October.
Okay, No broadband is hot to cut to the chase, it's hard it's hard driven by two things and I articulated that in my remarks, Wi Fi Wi Fi six and Wi Fi.
Big area now that operate service providers basically.
Operate the telcos.
And.
And cable operators.
Using.
As part of connectivity to households globally.
And Thats.
And we have literally one again, a huge part of that market.
And we're seeing that debt.
That trend continuing into next generation Wi Fi six, but what's also driving Wi Fi broadband I should say Blaine and I mentioned that is fiber.
Fiber is.
Month of several large telcos Europe U S.
Investing for.
Very big.
In putting fiber out there to households.
Politically driven I guess to some extent by political considerations. They want to connect households, very well you sure about British telecoms openly saying they wanted to.
They have a program over the next five six years to connect over $20 million British households, Dodge account telecom is doing exactly the same thing and so always AT&T here in the U S where they have very large program in design as I indicated.
Multiyear programs, where each of this operator will span multiple billions of dollars of investment to put that fiber to the home and.
<unk> of each.
Fiber node youll have that wireless connectivity Wi Fi within for the last 100 feet in the hole so to what im implying here, you're saying this is not a one shot.
And the thinking in the past that fiber is a kind of barring single digit.
Slow growth business.
Be changing from our perception from our perspective, because we are seeing the program from those operators coming.
And a big part of it is both U S and Europe, putting in large broadband in the form of fiber because it's the most.
Effective way in some ways economic way to expand to households.
Hand in hand, with <unk> net wireless Netherlands out debt is also very interesting for us market share wise because.
You used to talk about China doing broadband fiber today.
This is Europe U S a.
And.
The number of players fighting in this market on technology.
Yes.
Much less now.
Given the interest interesting political events between China, and the rest of the world.
Thanks.
Thank you.
Our next question comes from the line of Matt Ramsay from Cowen. Your line is now open.
Good afternoon, Thank you very much.
Hock I noticed in your prepared script.
You were a bit more specific about.
Some of the leadership position that Broadcom has in different levels of advanced <unk>.
And you maybe called it out a bit more than you had in the past. It's an advantage to the company has had in your own switching routing product, but also in being the AC preferred ASIC shop for a few hyperscale folks I Wonder if you might.
Did you call that out on purpose.
Is there something changing there competitively given the scale of your R&D.
Do you feel like that lead is expanding shrinking staying the same any update there would be great. Thank you.
Oh no.
That's very perceptive and Dolby and reason I call that out is because it's true and it's been true for many years.
Just wanted to reemphasize this point that in terms of being probably the preferred.
Vendor for special lines.
And silicon engines.
To drive specialized workloads and you all I've indicated to you guys, what some of those especially in hybrid cloud.
We definitely I'm the lead by far in this area and for the reasons you mentioned, we have we have the scale.
We have a lot of the IP calls.
And the capability to do all of those chips for those multiple hyper.
Who can afford and are willing to push the envelope on specialized offer what we call I used to call. It offload computing engines <unk> video transcoding.
Machine learning.
Even.
What people call deep yields smart nate's, otherwise call and various other specialized engine security.
Hardware that we put in place in multiple cloud guys, just just a point of.
I guess reinforcement that we still very much the leader.
Thank you Adnan.
Thank you at this time I would like to turn the call back over to MS. <unk> for closing remarks.
Thank you operator in closing please note that hock Tan, we'll be presenting at the Deutsche Bank Technology Conference on Thursday September nine and the Citi Technology Conference on Tuesday September 14.
Houston experience will participate in the Piper Sandler Tech Conference on September 13.
We will also be hosting at Broadcom software Investor meeting on Tuesday November nine in New York Tom.
Tom crowd.
Broadcom software group will be leading the event and senior leadership from our software business will present, we will be sending invitations to analysts and investors in the coming week.
That will conclude our earnings call today. Thank you all for joining operator, you may end the call.
This concludes today's conference call. Thank you for participating you may now disconnect.
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Welcome to Broadcom, Inc. Third quarter fiscal year 2021 financial results conference call at this time for opening remarks, and introductions I would like to turn the call over to Jean Liu Director of Investor Relations of Broadcom, Inc.
Thank you operator, and good afternoon, everyone. Joining me on today's call are Hock Tan President and CEO, Kirsten sphere, Chief Financial Officer, Tom Krauss, President Broadcom software group, and Charlie Collier, Chief operating officer.
Broadcom also distributed a press release and financial tables. After the market closed describing our financial performance for the third quarter of fiscal year, 2020 one.
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 one week. It will also be archived in the investors section of our website at Broadcom Dot com.
During the prepared remarks Hawkins person will be providing details of our third quarter of fiscal year, 2020 one results Guy.
Guidance for our fourth 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.
Dishing to U S. GAAP reporting Broadcom reports certain financial measures on a non-GAAP basis, a reconciliation between GAAP and non-GAAP measures is included in the tables attached to todays press release.
Comments made during today's call will primarily refer to are non-GAAP financial results.
I'll now turn the call over to Hock.
Thank you Jay and thank you everyone for joining us today.
In Q3 semiconductor solutions revenue grew 19% year on year to $5 billion.
With infrastructure software revenue growing 10%.
Year on year to $9.0 billion consolidated net revenue was $14.0 billion.
Up 16% year on year.
In Q3 demand continued to be strong from hyper growth.
And service provider customers wireless continues to have a strong year on year compare.
And Huawei enterprise has been on the trajectory of recovery. We believe Q3 is still early in that cycle and then enterprise was down year on year.
On the supply side.
We continue to keep our lead times are stable.
With that as context, let me provide more color by end market.
Starting with networking.
Networking revenue of $9.0 billion grew stronger than we had forecasted.
Up 19% year on year versus low double digit growth and represented 36% of our semiconductor revenue.
The better than expected growth was driven by.
Routing from service providers.
Expansion of <unk> networks for backhaul Metro and call.
As well as major share gains in Ethernet Ethernet network interface controllers within data centers.
While we experienced strong orders from Oems consistent with a recovering environment for enterprise spending we believe actual deployment of networking and enterprise.
Is still lagging from a year ago, our shipments and revenue appropriately reflects this.
In Q4, however, we expect a different set of demand dynamics.
We see cloud customers upgrading to a next generation 800 gigabit base Tomahawk fall and tried it and switches.
The first and only provider of $25 six better bid switches and we are shipping to version one we have 512 lanes at 50.50 G study <unk> 256 lanes at 100 G studies.
I would like to highlight that we are the only company today shipping 100 G studies.
In data center switching as in service provider routing, we continuing to lead the next generation product transitions.
Engineers continue to out execute what's out there.
And in Q4 against a very strong year on year compare we expect networking revenue growth to be low double digits year on year.
Next our server storage connectivity connectivity business was $673 million in Q3 down 9% year on year.
In line with our guidance and represented approximately 13% of semiconductor revenue as you know.
Our product is supplied mission critical applications largely to enterprise, which as I said earlier.
Was in a state of recovery.
That being said we are.
We've seen a very strong bookings trajectory from traditional enterprise customers within this segment, we expect such enterprise recovery in server storage.
And the same is happening in networking.
One of the cadence of growth in Q4 and into 2022.
In this particular segment customer transition to our next generation <unk>.
Says nvme connectivity as a service is simply fund its growth the aggressive migration in cloud.
18, terabyte hard disk drive.
Ill also provide a strong tailwind to demand for external storage connectivity products. In this segment in sharp contrast to the <unk>.
And to the 9% decline in Q3, we forecast in Q4 server storage connectivity revenue to be up low double digits percentage year on year.
Moving onto broadband <unk>.
Revenue of $910 million in Q3 grew 23% year on year and represented 18% of semiconductor revenue.
This was primarily driven by the two X growth in deployments of Wi Fi six access gateways.
As well as double digit growth in next generation fiber and DOCSIS three one cable modem deployments.
For Q4, we continue to expect double digit year on year revenue growth in broadband.
We've been seeing for the last few quarters.
So looking ahead.
We see service providers like AT&T, British Telecom and Deutsche Telekom deploying in increasing volumes next generation last mile fiber connectivity to homes in the U S and globally.
Multi year end.
And multibillion dollar investments by these operators.
And then attached to every one of this fiber nodes unique Wi Fi connectivity for the last 100 feet within the homes.
And we lead the global transition to Wi Fi six to date.
We expect our strong design win momentum for Wifi six E.
<unk> U S and European operators.
Sustain our market position into the next generation.
Now moving to wireless.
Q3 revenue of $5.0 billion was up.
35% year on year in line with expectations and represented 29% of semiconductor revenue mix.
In Q4, we expect wireless revenue to ramp approximately 33% sequentially.
In support of the launch of next generation <unk>.
Smartphones and to be up 25% year on year.
Yeah.
Finally industrial <unk>.
Revenue of $205 million in Q3 represented approximately 4% of Q3 semiconductor solutions revenue.
<unk> sales grew and grew.
What we can see the and unsustainable.
Sustainable 55% year over year, driven by aggressive buying from Oems in automotive robotics and renewable energy.
As a result inventory in our channels declined significantly to below two months and turning to Q4, we do expect <unk> sales to come down to a more rational 20% year upon year growth.
And so in summary.
Q3 semiconductor solutions revenue was up 19% year on year and in Q4, we expect the momentum to continue and revenue growth to be up double digits percentage year on year.
Turning to software.
In Q3 in.
Infrastructure software revenue of $9.0 billion grew 10% year on year and represented 26% of total revenue.
Within this brocade grew.
<unk> grew 27% year on year, driven by the launch of new generation.
Gen seven fiber channel San products.
Excluding brocade.
<unk> Com software revenue grew 6% year on year in dollar terms bookings average, 116% over expiring contracts, while in the call while in our calling counts we averaged 129%.
Over 9% of these bookings represented recurring subscription and maintenance revenue.
Reflecting this renewables, we expect our infrastructure software revenue to be on track.
To grow around mid single digit percentage year over year, which is again, what we expect to see in Q4.
So in summary, combining.
A strongly growing semiconductor segment with a more stable software segment total Q3 net revenue grew 16% year on year.
And we expect this double digit growth to sustain in Q4.
Total revenue to be 735 billion.
14% year on year.
And with that let me turn the call.
Right.
Thank you Hock, let me now provide additional detail on our financial performance.
Revenue was $14.0 billion for the quarter up 16% from a year ago.
Gross margins were 75% of revenue in the quarter and up approximately 85 basis points year on year.
Operating expenses were $2.0 billion flat year on year, driven by lower SG&A and continued investment in R&D.
Operating income for the quarter was $12.0 billion and was up 24% from a year ago.
Operating margin was 58% of revenue up approximately 360 basis points year on year.
Adjusted EBITDA was $5.0 billion or 61% of revenue.
This figure excludes 134 million of depreciation.
Now a review of the P&L for our two segments.
Revenue for our semiconductor solutions segment was $5 billion and represented 74% of total revenue in the quarter.
This was up 19% year on year.
Gross margins for our semiconductor solutions segment, where approximately 70% up 110 basis points year on year, driven primarily by favorable product mix and content growth as we deploy more next generation products in broadband and networking.
Operating expenses were $783 million.
Flat year on year, R&D was $693 million in Q3 up 1% year on year.
Q3, operating margins increased to 54% up 410 basis points year on year.
Semiconductor revenue was up 19% operating profit grew 29%.
Moving to the P&L for our infrastructure software segment.
Revenue for infrastructure software with $9.0 billion and represented 26% of revenue this was up 10% year on year.
Most margins for infrastructure software, where 90% in the quarter up 125 basis points year over year.
Operating expenses were $359 million in the quarter up 1% year over year R&D spending at $226 million is up 9% year over year and SG&A of $133 million is down 11% year over year.
Operating margin was 70% in Q3 up 305 basis points year over year and operating profit grew 15%.
Moving to cash flow free cash flow in the third quarter was three 4 billion, representing 51% of revenue, we spent $115 million on capital expenditures.
Days sales outstanding were 30 days in the third quarter compared to 42 days a year ago. We ended the third quarter with inventory of $3.0 billion, an increase of 156 or 16% from the end of the prior quarter in preparation to meet customer demand in Q4.
We ended the third quarter with $12.0 billion of cash and $45.0 billion of total debt of which $279 million in short term.
Turning to capital allocation.
In the quarter, we paid stockholders $7.0 billion of cash dividend.
We also paid $347 million in withholding taxes due on vesting of employee equity, resulting in the elimination of approximately 739000 <unk> shares.
We ended the quarter with 412 million outstanding common shares and 449 million diluted shares note that we expect the diluted share count to be $448 million in Q4.
Our board of Directors has approved a quarterly cash dividend on our common stock of $63.0 per share in Q4.
Based on current business trends and conditions and to reiterate what <unk> said our guidance for the fourth quarter of fiscal 2021 is for consolidated revenues of 735 billion and adjusted EBITDA of approximately 61% of projected revenue.
That concludes my prepared remarks, operator, please open up the call for questions.
As a reminder to ask a question you will need to press star one on your telephone.
I want to draw your question press the pound key please limit yourself to one question. Please standby, while we compile the Q&A roster.
Our first question comes from the line of John Pitzer from Credit Suisse. Your line is now open.
Yes. Good afternoon, guys. Thanks for let me ask the question Hock I'm just kind of curious you kind of did what you said you were going to do 90 days ago, but this is usually the part of the cycle, especially on the semi business, where I would expect I would've expected more upside and clearly when you look across the sector. Most companies are putting up an upside.
But you guys didn't see in the July quarter. So I'm kind of curious if you could help us better understand what happened do you think that this was mostly <unk>.
Ill supply issue and given that inventory grew 15% sequentially in the quarter.
What extent do you think now that you've kind of got that under control and going forward, you'll have a better supply environment to fulfill this demand.
Well I mean supply is always something.
That is very much.
Any shoe of constrained in this environment as you well know, but the other side of the picture is what we are really shipping as we have said in previous calls SEC.
<unk>.
We put.
Put it directly we are shipping.
Secondly, we believe to one demand.
Rick Wise by then end user demand and demand requires.
We're trying very hard.
To overshoot and not building pockets of excess inventory within our ecosystem.
No.
I think we're managing very much to what we see out there.
Great. Thank you.
Thank you. Our next question comes from the line of harsh Kumar from Piper Sandler. Your line is now open.
Yes, Hey, Hock first of all congratulations on solid results and guidance.
Question for you as everybody is.
Foundry TSMC is talking about price increases.
In some cases there are substantial.
Do you feel that you can pass this along and also at this point in time from patient probably securing capacity for next year can you talk about Europe capacity your ability to get some extra capacity to be able to grow next year. Thank you.
Okay.
I mean in very interesting questions us.
First and foremost.
From all sides, we try not to talk about customers, specifically and the same applies very much tools strategic suppliers too so.
I wouldn't comment at all on what you.
Alluded to here, but as far as our capacity for 2022, I think we have gotten a pretty good supply.
Uh huh.
Availability lineup for 2022, and we feel.
Britney, Okay about that I won't say, great, but in this environment all things considered.
We're feeling quite good.
Thank you.
Yeah.
Thank you. Our next question comes from the line of Ross Seymore from Deutsche Bank. Your line is now open.
Hi, guys. Thanks for letting me ask a question Hock I wanted to touch on the enterprise business you mentioned it a couple of different times. When you were talking about both networking in your served server storage connectivity segments. So I guess a two part question one how much of your semiconductor business do you believe is enterprise exposed and two when do you believe that will return to year.
Year over year growth.
And is that a specific thing to broadcom with your product cycles or is it just the end markets returning to year over growth at that time.
Okay.
Wow.
Enterprise traditional enterprise as we define it.
I think I made a point of purposely demarcating the fact that in.
In semiconductors, we should.
Focusing on semiconductor segment by itself. When you can you can literally look at our data revenue.
Selling and to treat this thing elements.
One is cloud.
And service providers with shrink come together as one and then that consumer.
Which is very much our wireless business and then the rest.
Companies out there enterprises, we call traditional enterprise. So we do put telcos service provides us to make clear ASP.
As part of club in that category. So we break it into three categories and under that measure.
Enterprise represents about half.
It is around half of the total semiconductor revenues.
Two.
Basically I would say a question, which I did indicate in month three months on server storage.
End markets for our semiconductor business.
We have seen an improvement year on year off revenues in this in server storage, which is 80% at least 90% driven by traditional enterprise. So they are very good indicators of what traditional enterprises, showing we have seen it.
Sure.
Of improving year on year comp pass.
And ending with the latest Q3 still high <unk> mid to high single digit decline from a year ago, but we did also guidance.
Because of strong bookings that we have been saying now for the last three months at lease from enterprise.
Which is going through largely on the large Oems will, particularly who integrate the products and sell it to end users.
Yes.
There's going to likely expand.
Enterprise to grow double digits year on year in Q4, so we'd see the point of crossover probably now Q4.
Thank you.
Thank you. Our next question comes from the lineup Edward Snyder from Charter equity Research. Your line is now open.
Thanks, a lot hock following up on that same question last quarter, you were predicting you thought that the.
Excellent growth you've seen.
And.
Cloud server providers telcos might lighten up next year as the digest that as enterprise started to grow that would be kind of a mix shift there, but it sounds like that isn't lightening up in enterprises coming you back a bit sooner.
Do you think any differently now about telcos and service providers cloud will that will that last longer or do you still expect to maybe lighten up 2022, and how long do you expect the enterprise has been down for quite a while now the enterprise.
Upward trend to last I'm, just trying to get a feeling with the profile of demand looks like in your core business next year sure.
Happy to do that what we are seeing now what we expect to see in 2022.
In terms of broad.
Direction.
We see.
In telcos service providers.
Are running well.
Well quite hard and it looks like they are sustaining as opposed to perhaps rolling over they seem to be sustaining.
Where we are right now.
Regarding enterprise.
That's pretty much what we had indicated before and continue to see which is a continuing trajectory of improving demand spending and demand and we see that continuing to improve and grow.
Next quarter this coming quarter Q4.
And beyond in fact, I would say that the engine for growth for our semiconductor business in 2022 will likely be enterprise spending.
Whether it is coming from net working one sector for us all for all and all from server storage, which is largely enterprise we see both of these showing.
Strong growth as we go into 2022.
While just to repeat itself, we see telcos and service provider non rolling over.
Hanging up day at a very elevated level.
Does that imply you split the cloud lighten up a bit then two could you just call out service providers telcos, but kind of talk about that.
I use service provider.
This provides us sometimes to say cloud as well now we see cloud also hanging out.
Together with service provider together with the telcos.
Great. Thank you.
Sure.
Thank you. Our next question comes from the line of Stacy <unk> from Bernstein Research. Your line is now open hi.
Guys. Thanks for taking my question I wanted to ask you about capital allocation. Obviously, we'll have the cash flow goes to the dividend and the other half.
I mean, ideally to M&A or buybacks and it's been awhile. Since obviously, you executed M&A and we're kind of getting towards the end of the year.
What point do you kind of make the decision to.
To give up on M&A this year and start buying back stock or do you save the cash like for like a potential deal next year, just how do we think about your mindset around M&A environment versus just using the cash for buybacks and then may be starting to cycle over again at some point in time as we get into next year.
Well you know the start of the first time I got this question I got in last quarter and the quarter before and then full year guidance and I'll stick by that NCR steel now we're running it until the end of this fiscal year.
Which is.
October and November.
We will make the call at that time, whether we use the cash to buy all we use the cash either to buy.
To do an M&A or to buyback our shares.
Does that mean that you have to have a deal in mind in October November or could they called me to save the cash for something in the future.
If you don't have a deal on the on the books in October November do we see a buyback.
Well more probably.
Blades that was simple ways as far as saying that as you correctly say, we're accumulating cash at a fairly dramatic right.
And so by the end of October our fiscal year, we're probably see the cash net of dividends, our cash pool to be up to close to $13 billion, which is something like $75.0 billion above what we would otherwise like to carry on our books. So we have to make a call at that decision at that point.
<unk>.
Got it that's helpful. Thank you.
Thank you. Our next question comes from the line of Harlan sur from Jpmorgan. Your line is now open.
Good afternoon, congratulations on the strong quarterly execution and results strong free cash flow generation in Q3, you gave us the EBITDA profile for Q4.
If I use normalized assumptions on cash interest payments cash taxes and capex.
It looks like the team is going to generate about $20.0 billion ish roughly in free cash flow this fiscal year, which.
Roughly translates into a dividend increase to at least $16.70, maybe a bit more.
If the team continues to return 50% of the free cash flow I guess my question is on Q4 are there any onetime cash event timing related dynamics capex increases are tax related events, which we should be considering or is my free cash flow and dividend math roughly correct and then just a quick follow up to <unk>.
The team has a fairly large footprint of logistics warehousing and key suppliers for assembly and test in Malaysia, just given the significant uptick in COVID-19 cases, there is the team being impacted by potential facilities closures or how is the team mitigating this impact.
I'll take that first question that you asked and then I'll have hock take the second one.
Essentially we are policy isn't changing we're going to return 50% of our free cash flows to our shareholders and I would say your math is pretty good.
[laughter].
Youre spot on island.
Almost.
Okay.
Right in terms of the concern that you expressed about the resurgence of COVID-19 infections in Malaysia, where we have <unk>.
Correctly say have a large supply chain team located.
Uh huh.
You are right. It is challenging but we are managing very well I think our teams there.
Hey.
Brexit glean 90, 99% of our of our people in Malaysia.
Have been vaccinated.
We made arrangements with inflation government and ensured that this was done this has been done and so we are.
Both to.
To manage through this resurgence in Malaysia.
And we will continue to keep our eye very closely on conditions over that but for now I think we okay.
Thank you hock thanks Kristen.
Okay.
Thank you. Our next question comes from the line of Vivek Arya from Bank of America. Your line is now open.
Thanks for taking my question actually just wanted to clarify something and then have the question on the clarification I think Hock you mentioned youre shipping to demand does it mean youre not seeing any supply shortages and that would be very different than what we are hearing from every other semiconductor companies. So just wanted to make sure I had the right interpretation.
And then my question is.
Just kind of a long term growth rate for Broadcom.
You know in the past you had mentioned kind of this mid single digit kind of growth rate I understand that this year that compares to make it easier to grow faster than that but as you look at broadcom over the next handful of years.
Do you think you are in a situation to grow better than mid single digit growth rate like what is missing to make you upgrade right that mid single digit growth rate.
The conceptual forecast that you have provided in the past.
Okay, Let's let me take the first question first the first part of <unk>, because I think it's very important very interesting it ties into the first question by John Pitzer.
Hey, why are you guys.
Shipping like Crazy I use supply constrained.
That's always overhanging our K about making every wafer count in this environment and we do that very carefully.
And we do that I believe very well given that you're looking at how well our margins are performing in this environment, but we also always as I said before a few times.
We manage our supply chain.
Pretty much like to see them carefully.
Scrutinize.
And demand as defined as defined by ourselves which is.
One.
The end user will need those products.
What we also see and I mentioned that in our industrial segment in 2000.
In Q3 were really sales from a distributor to know industrial generally goes through.
Pretty much go through distributors.
The OEM end users just go to our distributors and wipe out.
Inventory multiple inventory day, so we'd show a resale growth of 55% and we all know that's on rail demand people are building up buffer there is a certain level of panic buying take that across.
Across all segments of semiconductor markets today, you see that kind of behavior.
Yes.
S call key suppliers.
We put in careful disciplined to manage.
Applying to where demand is really neat.
Both the way Oems OEM.
End users are just building up buffers.
Bulk of the bus everywhere and.
That's pretty much what we.
Spend a lot of time doing.
I cannot necessary say the same of many other semiconductor companies out there which is probably why.
John Pitzer, <unk> Singh Wadhwa people, showing bigger numbers, we can show bigger numbers, but.
That means we will build up inventory in the wrong places and we need every one of those wafers in this environment not just this quarter or next quarter and the quarter after that to ensure that our strategic customers.
Able to get what they need to win to launch to deploy programs.
Alright.
And on the long term growth rate.
Oh, sorry.
I guess the model well.
<unk>.
We like I like to believe like some of you do.
With this recent event and with this things happening, especially COVID-19.
Creating a change of what had been in this.
<unk> enough.
Ecosystem.
Dave Reese said upwards towards a higher consumption of technology and by extension semiconductor chips in the long term.
I agree that has been in his salary.
Option of certain technologies under this lockdown conditions in our economy in our lifestyle economy over the last 12 months in the last 18 months that this accelerated adoption of technology.
Has created a strong.
Demand for semiconductor products over this last 12 months I agree and we report those results, which we believe are true end demand as I indicated.
Early pad on Michael.
Answer to your question that is now up to high mid to high double digit teens, so to speak year on year. So that's good that's very strong.
Far cry from my from my Consol mines model that says semiconductor gross long term mid single digits.
This accelerated consumption doesn't necessarily create a fundamental shift in our people's ability to consume technology and were now when things revert back towards a more.
Normal lifestyle maybe.
Maybe not this year, maybe next year the year after I would expect this accelerated consumption.
Reset itself.
And then you ask yourself fundamentally over the next 10 years five years 10 years is semiconductor.
Assumption usage going to increase any higher.
I find it hard to imagine why it should.
Fundamentally we have an industry that's relatively mature.
Still evolving still changing which makes it exciting for us but pretty much.
Been around failure fell also.
Seven months, a long time.
And I.
I may be wrong, I still think it will reverse over the next 510 years, thanks to our norm.
And the question your view is non be high single digits, perhaps rather than mid single digits and you may be right.
I don't know the answer to that but right. Now you are right we are seeing.
15% to 20% year on year.
Demand usage of our semiconductor chips and by the way we are pretty broad across multiple end markets and applications of semiconductors. So we kind of represent.
A large part of the overall semiconductor growth and now David particular.
Both that could grow faster than that mid single digits, and and I do accept that but given how broadly broad base. We are I think the thing we revert to what will be the norm and.
I cannot disagree with you that the non might be higher than the mid single digits I've said before.
Thank you.
Thank you. Our next question comes from the line of Blayne Curtis from Barclays. Your line is now open hey, good afternoon. Thanks for taking my question I wanted to ask you on on broadband it's been running kind of in the 20th year over year, you said up double digits for Q4, I think last year's easy compare so I just wanted to know.
How literally to take that I know you said, maybe over time that would be the one segment that could moderate as enough youre signaling anything for October.
Okay, No broadband is hot to cut to the chase, it's hard it's hard driven by two things and I articulated that in my remarks, Wi Fi Wi Fi six and Wi Fi.
The big area now that operate as service providers basically operate the telcos.
And.
Cable operators are you.
Using.
As part of connectivity to households globally.
And Thats.
And we have literally one again, a huge part of that market.
And we're seeing that debt.
That trend continuing into next generation Wi Fi six, but what's also driving Wi Fi broadband I should say Blaine and I mentioned that is fiber.
Five.
As you know.
<unk> mountain several large telcos Euro U S.
Investing for.
Very big.
In putting fiber out there to households.
<unk>, driven I guess to some extent by political considerations. They want to connect households, very well you sure about British telecoms up openly saying they wanted to.
They have a program over the next five six years to connect over 20 million British households, Donncha account telecom is doing exactly the same thing and so as AT&T here in the U S where they have very large program in design as I indicated multi.
Multiyear programs weigh each of this operator will span multiple billions of dollars of investment to put that fiber to the home and the aim of each node fiber node youll have that wireless connectivity Wi Fi within for the last 100 feet in a hole.
So what im implying here, you're saying this is not a one shot.
And.
The thinking in the past that fiber is.
Barring single digit.
Slow growth business.
Be changing from our perception from our perspective, because we are seeing the program from those operators coming in.
And a big part of it is both U S and Europe, putting in large broadband in the form of fiber because it's the most.
Effective way in some ways economic way to expand to households.
Hand in hand, with <unk> net wireless Netherlands out debt is also very interesting for us market share wise because.
You used to talk about China doing broadband fiber today.
Beyond that as Europe U S.
In.
The number of players fighting in this market on technology is much lesser.
Given the interest interesting political events between China, and the rest of the world.
Okay.
Thank you.
Our next question comes from the line of Matt Ramsay from Cowen. Your line is now open.
Good afternoon. Thank you very much hock I noticed in your prepared script.
You were a bit more specific about.
Some of the leadership position that Broadcom has in different levels of advanced <unk>.
And you may be called it out a bit more than you had in the past. It's an advantage of the company's had in your own switching routing product, but also in <unk>.
Being the ASIC preferred ASIC shop for a few hyperscale folks I wonder if you might.
Did you call that out on purpose.
Is there something changing there competitively given the scale of your R&D.
Do you feel like that lead is expanding shrinking staying the same any update there would be great. Thank you.
Oh no.
That's very perceptive.
And the only reason I called it out is because it's true and it's all been true for many years.
Just wanted to reemphasize this point that in terms of being probably the preferred.
Vendor for specialize and silicon engines.
To drive specialized workloads and you all I've indicated to you guys, what some of those especially in hybrid cloud.
We are we definitely are in the lead by far in these areas and for the reasons. You mentioned, we have we have the scale.
We have a lot of the IP calls.
And the capability to do all of those chips for those multiple hyper who.
Who can afford and are willing to push the envelope on specialized ultra I use pellets offload computing engines <unk> video transcoding.
Machine learning.
And even.
What people call <unk> smart <unk>, otherwise, Paul and various other specialized engine security.
Hardware that we put in place in multiple cloud guys, just just a point of.
I guess reinforcement that we still very much are the leader.
Thank you Adnan.
Thank you at this time I would like to turn the call back over to MS. <unk> for closing remarks.
Thank you operator in closing please note that hock Tan, we'll be presenting at the Deutsche Bank Technology Conference on Thursday September nine and the Citi Technology Conference on Tuesday September 14.
Houston experience will participate in the Piper Sandler Tech Conference on September 13.
We will also be hosting a broadcom software investor meeting on Tuesday November nine in New York Tom.
Tom crowd.
Broadcom software group will be leading the event and senior leadership from our software business will present.
We will be sending invitations to analysts and investors in the coming week.
That will conclude our earnings call today. Thank you all for joining operator, you may end the call.
This concludes today's conference call. Thank you for participating you may now disconnect.