Q4 2021 Broadcom Inc Earnings Call
Ladies and gentlemen, todays conference is scheduled to begin shortly please continue to standby and thank you for your patience.
[music].
Yeah.
Hello, and welcome to Broadcom, Inc, fourth quarter and fiscal year 2021 financial results Conference call.
At this time for opening remarks, and introductions I will turn the call over to <unk> director of Investor Relations of Broadcom, Inc. You may begin.
Thank you operator, and good afternoon, everyone. Joining me on today's call are Hock Tan President and CEO, Kirsten Spears, 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 close describing our financial performance for the fourth quarter and fiscal year 2021.
If you did not receive a copy of 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 comments hocking Kirsten will be providing details of our fourth quarter and fiscal year 2021 results Guy.
Guidance for our first quarter as well as commentary regarding the business environment well.
Well 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 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 Hakan.
Thank you Gigi and thank you everyone for joining us today, so in the environment we have today.
Brian demand rebounded sharply over 30% year on year.
And service provider.
<unk> continued to be strong.
Strong wireless growth in Q4, and it was driven by to see some of the launch.
Next generation smartphones by our North American OEM.
Meanwhile, I'll close software business.
Continuous to be steady with a focus on strategic customers.
On the supply side.
Our lead times remain extended and stable.
Inventory in the channels and our customers remain very lean.
Accordingly in Q4.
Semiconductor solutions revenue grew 17% year on year to $5 6 billion.
<unk> infrastructure software revenue growing 8% yield and yield to one $8 billion.
Consolidated net revenue was a record seven $4 billion.
15% year on year.
Let me now provide more color by end markets, let's start with networking.
Net working revenue of $1 9 billion was up 13% year on year in line with our focus for low double digit growth and represented 34% of our semiconductor revenue.
Did you year on year growth was primarily by strong demand from campus switching both from a merchant silicon as well as a sleep solutions through Oems that Cisco and HP.
We also experienced similar double digit growth with the deployment of Jericho routers within large scale.
It works in the cloud edge.
Well as Combe run in five gene infrastructure in D C young.
Oh, what a unique capability beach, our unique capability here to deliver ultra low latency Ethernet Nic was enables large scale deployment of AI compute for the club member.
<unk> alone in the call.
Large data centers, we have begun to Rem tried didn't fall and come out for the walls for.
First $25 six better bits per second switch tools, several hyperscale cloud customers.
As they address their ever growing meaningful bandwidth demand in scaling out missing data centers.
Now within the Hyperscale cloud, we continue to lead in delivering a <unk> silicon for multiple compute offload accelerators, which has manifested into being 20% of our networking revenue.
We expect continued growth in the next fiscal year's here over $2 billion.
It's key to our success here lines, we've a robust design methodology.
<unk> integrates all brawn and substantial silicon IP edge.
And rapidly delivers world class customized silicon src's to enable AI.
Virtualization orchestration video transcoding and.
Security.
We have now extended our footprint here beyond Gpus.
At multiple cloud customers.
In Q1 networking is is firing on all cylinders and we expect networking revenue growth to accelerate to close to 30% year on year.
Next our server storage connectivity revenue was $815 million.
Up 21% year on year in sharp contrast to the first half of 2021 and represented 15% of semiconductor revenue.
After than expected results were driven by robust demand for storage controllers and whole swathes of sepsis from renew spend by enterprises upgrading their compute and storage infrastructure.
Additionally.
<unk> cloud storage.
We saw celebrate their migration.
Two eight.
That we're buying and.
And the start of 20 terabyte hard disk drives.
Drove a near line storage revenue.
To put things in perspective today or near line storage business is close to $1 billion on an annualized basis.
We continue to gain share in server storage connectivity as we expand our leadership in Nic generation says fall PCI Express Gen five and <unk>.
Spending point the price continues to recover and we expect this will accelerate growth in our server storage connectivity revenue in Q1.
Proximately, 30% year on year growth.
Moving onto broadband revenue of $872 million grew 29% year on year and represented 16% of semiconductor revenue.
This was driven by the continued strong growth in deployment by service providers globally of next generation PON wave Wi Fi six and <unk> <unk> gateways.
We continue to lead the industry with the <unk>.
<unk> end to end integrated solutions across multiple access protocols.
<expletive> cable modem and DSL.
All.
SLC controllers.
Each we've integrated Wi Fi managed to southwest states to reliably deliver more bandwidth faster data speeds from the call service provider and that was to the homes.
And a critical element in our broadband platform and he's leading edge Wifi.
660 today and Wi Fi seven two model.
Having leading edge wired wireless it's important for our service provider customers to reach digital holdings from their networks.
By the same token in campus switching in enterprises.
Also critical that our Oems can connect enterprise data centers.
Peru campus switches Tuesday access points, we have leading edge Wifi in both markets.
Our platforms, which encompass wired and wireless silicon and software.
Uniquely differentiate broadcom and sustain our market leadership.
So in Q1, we expect this double digit percent year on year growth rate in broadband to continue.
We have seen for the last few.
<unk>.
Moving on to wireless consistently with the launch of our customers' next generation phone during the quarter.
Q4 revenue of $1 $8 billion represented 32% of semiconductor revenue and was up 21% our gains.
<unk> Q4 quarter.
Nevertheless, we expect continuing strong demand into Q1.
And which will drive wireless revenue to be up sequentially single digit.
<unk> be flat to up low single digit percentage year on year from the peak of a year ago.
Finally industrial revenue.
<unk> hundred $97 million represented approximately 3% of our Q4 semiconductor solutions revenue.
Having said this re sales.
All of industrial of $232 million grew 36% year over year in Q4, driven by strong demand from Oems for electric vehicles Robotics factory automation in health care as a result, our inventory in the channel.
Declined further.
Two below a month and turning to Q1, we expect <unk> sales to continue to be strong.
At the levels, we saw in Q4.
In summary, Q4 semiconductor solutions revenue was up 17% year on year and in Q1, we expect the momentum to continue.
Our revenue growth to be.
Double digits again year on year. This implies that Q1 semiconductor revenue will be low single digits sequentially.
Turning to software to fall.
Infrastructure software revenue of $1 8 billion grew 8% year on year represented 24% of total revenue within this brocade showed strong growth of 19% year on year consistent with strong enterprise recovery.
The quarter and deployment of our next generation generation, 7% fibre channel San products now excluding brocade.
Call software revenue grew 6% year on year in dollar terms.
Consolidator renewal rates averaged 116% over expiring contracts one within our strategic accounts.
<unk> average 127%.
Consistent with prior quarters.
Over 90% of the region.
<unk> represented.
Recurring subscription and maintenance.
Stepping back and following the software Investor day last month.
Let me provide an update on the entire fiscal 'twenty one.
Sulfur fall call softwood.
Total backlog at the end of the year totaled $49 billion.
15% from a year ago with average duration of contracts.
Extending from two six to two nine years.
These backlog translates into an <unk> or annual recurring revenue up $5 2 billion, which was up 5% from a year ago.
74% of this.
Uh huh.
It comes from our approximate.
Approximately 600 strategic accounts, which in fiscal 'twenty, one we renewed at 129%.
$2 4 billion.
Of annual annualized booking venue.
One 9 billion of these represented renewals uninspiring contracts and roughly $500 million represented cross selling including.
<unk>.
All of our portfolio of products to these strategic.
<unk> customers.
For the year, we booked over 300 contracts generating greater than $1 million of revenue annually.
Over 30 contracts generating over $10 million annually.
With such stability in Q1, we expect our infrastructure software revenue to continue to sustain around mid single digit percentage growth.
Over a year.
Okay.
So let me summarize with the continued strength in our semiconductor segment and stay steady growth in our southwest segment total Q4 net revenue grew 15% year on year.
Turning to Q1.
We conduct the revenue excluding wireless is expected to be up 28% year on year.
Wireless is expected to grow flat to low single digit percentage compared to the peak of a year ago. So semiconductor revenue in total is expected to grow 7% year on year again.
And consolidated revenues expected to grow 14% year on year.
Sequentially.
This will drive revenue to grow from seven $4 billion in Q4 276 billion in Q1.
We are very well positioned.
In every one of our franchise markets.
In fiscal 'twenty, two and beyond.
We continue to significantly invest anyone else across our platforms and switching and routing.
<unk> computes.
Silicon Photonics and wireless connectivity to accelerate our next generation road maps as we continue to gain market share.
We've done it.
Let me turn the call over to Kim.
Thank you Hock, let me now provide additional detail on our financial performance revenue was $7 4 billion for the quarter up 15% from a year ago gross margins were 75% of revenue in the quarter and up approximately 105 basis points year on year.
Operating expenses were $1 1 billion up 3% year on year driven by investment in R&D.
Operating income for the quarter was $4 4 billion and was up 20% from a year ago operating margin was 59% of revenue up approximately 286 basis points year on year.
Adjusted EBITDA was $4 5 billion or 61%.
This figure excludes 134 million of depreciation.
Now I will review of the P&L for our two segments.
Revenue for our semiconductor solutions segment was $5 6 billion and represented 76% of total revenue in the quarter. This was up 17% year on year.
Gross margins for semiconductor solutions segment, where approximately 70% up 170 basis points year on year, driven by favorable product mix and content growth in next generation products across our extensive product portfolio.
No.
We have been able to continue to expand our semiconductor gross margin despite higher wireless revenue mix.
Operating expenses were $790 million in Q4 up 3% year on year R&D was $701 million in the quarter up 6% year on year as a side note for fiscal 'twenty. Two we are planning to increase R&D spend in semiconductors by mid to high single digit percent year on year.
As hock indicated in his remarks, we are committed to investing heavily in our next generation products to maintain and even increase our leadership across all of our franchises.
Q4, operating margins increased to 56% up 350 basis points year on year.
While semiconductor revenue was up 17% operating profit grew 24%.
Moving to the P&L for our infrastructure software segment.
Revenue for infrastructure software was $1 8 billion and represented 24% of revenue this was up 8% year on year.
Gross margins for infrastructure software, where 90% in the quarter up 19 basis points year over year.
Operating expenses were $353 million in the quarter up 1% year over year.
R&D spending at $220 million is up 9% year over year, and SG&A of 133 million is down 10% year over year.
Operating margin was 70% in Q4 up 166 basis points year over year and operating profit grew 11%.
Moving to cash flow.
Free cash flow in the quarter was $3 5 billion, representing 47% of revenue, we spent 88 million on capital expenditures.
Days sales outstanding were 25 days in the fourth quarter compared to 32 days a year ago.
We ended the fourth quarter with inventory of $1 3 billion, an increase of $137 million or 12% from the end of the prior quarter in preparation to meet customer demand in Q1.
We ended the fourth quarter with $12 2 billion of cash and $39 7 billion of total debt of which 290 million is short term.
Turning to capital allocation.
In the quarter, we paid stockholders 1 billion.
Million of cash dividend, we also paid $266 million in withholding taxes due on vesting of employee equity, resulting in the elimination of 525000 <unk> shares.
We ended the quarter with $413 million outstanding common shares and 448 million diluted shares.
Based on current business trends and conditions our guidance for the first quarter of fiscal 2022 is for consolidated revenues of $7 6 billion and adjusted EBITDA of approximately 61, 5% of projected revenue.
Let me recap our financial performance for fiscal year 2021.
Our revenue hit a new record of 27 5 billion growing 15% year on year.
Semiconductor solutions revenue was $20 4 billion up 18% year over year infrastructure software revenue was $7 1 billion up 7% year on year.
Gross margin for the year was 75% up 100 basis points from a year ago.
Operating expenses were $4 5 billion down 2% year on year as we completed the integration of Symantec.
Operating income from continuing operations was $15 9 billion up 23% year over year and represented 58% of net revenue.
Adjusted EBITDA was $16.
Up 21% year over year and represented 60% of net revenue.
This figure excludes 539 million of depreciation.
We spent $443 million on capital expenditures and free cash flow represented 49% of revenue or $13 3 billion free cash flow grew 15% year over year.
For the year, we returned $7 5 billion to our stockholders consisting of $6 2 billion in the form of cash dividends and $1 3 billion for the elimination of $2 8 million <unk> shares.
We have extended our weighted average debt maturity to approximately 10 six years with a weighted average interest rate of approximately three 6%.
Looking ahead to fiscal 2022, we remain committed to returning approximately 50% of our prior year free cash flow to stockholders in the form of cash dividends.
Consistent with that we are increasing our quarterly common stock cash dividend in Q1 fiscal 'twenty two to $4 10 per share an increase of 14% from the prior quarter.
We intend to maintain this target quarterly dividend throughout this year subject to quarterly board approval.
Today as part of our commitment to return capital to shareholders, We announced that the company's board of directors has authorized the repurchase 10 billion of our common stock.
Under Broadcom new share repurchase program.
The authorization is effective until December 31, 2022.
This new share repurchase program reflects our confidence in the company's ability to generate strong and sustainable cash flow.
Note that we expect the diluted share count to be $448 million in Q1. This excludes the potential impact of any share repurchase.
That concludes my prepared remarks.
Operator, please open up the call for questions.
Thank you, ladies and gentlemen to ask a question with Star then one on your telephone.
We ask that you limit yourself to one question and one follow up.
May rejoin the queue, if you'd like to ask other questions.
Again, Thats star one to ask a question please.
Please stand by while we compile the Q&A roster.
Our first question comes from the line of Toshi Hari with Goldman Sachs. Your line is open.
Hi, Thank you so much for taking the question and congrats on the very solid results.
I know you guys don't guide for the full year, but I was hoping you could.
Kind of walk us through how youre thinking about fiscal year 'twenty two on the semiconductor side.
Obviously bookings have been strong continued to be strong across most of your buckets or.
Our end markets within the <unk>, but if you can talk about bookings trends in the quarter, what youre seeing there that would be super helpful.
Sort of answered the fiscal 'twenty two question, if you can touch on supply.
To what extent supply could be a gating factor over the next 12 months that would be helpful. Thank you.
That's a very good question.
So let me try to address them.
It's pedros component.
What we continue to see.
With the recovery in EMEA.
A point of saying that.
And there is now well known to many of the very strong.
Spending recovery in the enterprise.
Particularly so we're continuing to see.
Strong demand bookings in the semiconductors.
But a big part of that and demand an increasing part of that demand is now coming from.
Enterprise spending which translates to end markets tends to drive a lot of broadband continuing to drive the broadband which has been strong and most of 'twenty one.
Continuing to drive the enterprise part of our networking business.
And of course silver storage and industrial is just very very strong having said that on the hyper cloud spending site.
A lot of ways.
Resides in obviously in our networking business.
Things are still fairly very elevated dean.
Continues to be strong.
And so when you combine all this together we continue to see booking rates being at a fairly and continue to be a very elevated level wake up the week so far.
And as of right now we're pretty much.
Both all the way through 'twenty, two and even beyond 'twenty two into 'twenty three if youre thinking about 50 week lead time no surprise. It goes through late 'twenty, two but we're going even in many cases don't gone beyond 'twenty two 'twenty three and that's partly because one timing of our customers' planning very far.
And two as I said are continuing disciplined approach to ensuring that we deliver products.
The right time to the right place and we see that going on.
And I hate to disappoint you.
Still we are still not radio for phase two.
Give you a guidance on.
Fiscal year.
Thank you.
Thank you.
Our next question comes from the line of Stacy <unk> with Bernstein Research. Your line is open.
Hi, guys. Thanks for taking my question.
I wanted to follow up on on those lead times and order count. So you said, obviously on the industrial space your channels, bringing it sounds like your bookings overall is very strong.
Same time, we know you've been taking efforts to limit like worries around stockpiling over shipping whether its parsing orders.
I was wondering if you could just talk a little bit about what you were doing in that space. How are you feeling right now in terms of your shipments versus where end demand is.
And how meaningful those like long with 50, plus week lead times actually hard do they actually represent demand even if it's that far out like if you could just talk about your Africa that'd be that'd be helpful.
Yeah.
Well, we've been doing this 50 weeks now for just since the beginning of 'twenty one.
So.
And.
And we have been.
Delivering very much as much as we can to those lead times. So in some ways I'd like to believe.
It's giving some met some method to DS booking maintenance I guess is one of I would call. It in terms of our ability and in terms of.
We are shipping the products and by keeping lead times very stable and predictable as we're doing now.
So.
Clearly communicating to our end users the way they should be planning their business and I like to sing. This all of this is working out in terms of <unk>.
Allowing us to making sure we don't overshoot.
And bill.
Buffalo inventory through our controller.
<unk> ecosystem outbound.
Distributors channels and customers and all of that has been done purposefully.
The truth be told that the day will come when things have to land.
And we'd like to make sure a lens very gently in software.
And we'd like to think that that's working very well.
But so what we are reporting in some sectors now what we are guiding in some sectors are reporting where you see growth of some 20% 30%.
I know even from our perspective it seems.
Very hot excessively hot and in those areas in particular.
Strong particular.
At them to make those attempts to ensure these products reshape.
For programs that get deployed rather than sit on the shelves full of future needs.
So I'd like to believe that that growth in networking.
<unk> band service storage lately of some 20% to 30% year on year.
Rail true end demand.
Got it that's helpful.
Just a quick follow up along those lines on an enterprise you gave some numbers for year over year growth.
Things like networking and storage in those year over year numbers does that imply a sequential decline, especially for networking and storage or just I'm not sure. If my year ago numbers are tied in or not.
Do you expect those businesses declined sequentially.
Within the comp guidance.
Inmate, depending then we're talking met the medical numbers now and how we should because some of the shipments are lumpy and you may see that from quarter to quarter. When you talk about sequential quarter you may sometimes see then.
And what I'm trying to say and we May also chose to deploy supplying to one market versus another as you go quarter by quarter. So looking at it sequentially split.
Specific verticals.
Verticals.
Sometimes four months for all case level point of view would be.
Rather misleading unintentionally simba.
Simply because we may chose to deep will ship more tools for instance, sometimes to server storage because there is a hot day verses the networking and you may see then because of that networking see some sequential weakness in one particular quarter, which is why we re.
Not as much as we can on the year on year basis way then you take out the effects of this short term lumpiness.
Short term discontinuing fees.
That's helpful. Thank you so much.
Thank you.
Our next question comes from the line of Harlan sur with Jpmorgan. Your line is open.
Good afternoon, and congratulations on the strong results and execution Hock on your networking business had been somewhat conservative on your view on the sustainability of the strong cloud and hyperscale growth, but yet and cloud I mean, you guys are ramping seven nanometer Tomahawk four and tried in for Darrin.
Early innings as the ramp demand is strong you talked about general colon cwmbran being strong and morality.
With cloud eastern customers ramping their seven nanometer GPU and you have more programs firing.
<unk> you mentioned and then on the enterprise side your large and.
OEM customers are benefiting from the strong recovery, so you're starting off the fiscal year.
In networking with strong double digit growth, but do you see your networking business continuing to drive double digits year over year growth for the full year and will the growth be driven by all three of your end markets cloud enterprise and service provider.
Holland is a hell of a question, yes and.
And the only way I can answer that is if this is a way of training for me to ask me to guide you on networking for the year and looking and not doing that.
But but you're right, though there are a lot of levels.
Particularly quite a few of them and maybe a more phased in some cases and they seem to be as I use the expression.
So as we sit here today and going into 'twenty two firing on all cylinders.
And by that I mean more than just forecasting.
We actually have seen the backlog, we had the bank loan and it keeps building up and Youre right hyper cloud guys.
E <unk>.
You asked me six months ago.
We believe the level of spending that embarking on.
Right now in 2018.
They appear to be.
So we have enterprise has been strong and you've seen the rate of growth of enterprise yield yield 30% across broadly.
And Clos.
Pass through it Ed.
The current elevated levels, we are seeing in networking has not.
As though we could still sustaining now it started recovering obviously year on year basis as fast.
<unk> enterprise is showing simply because enterprise starting from a lower point.
But <unk> is still growing.
We're seeing hyper cloud growing and it's growing from not just network switching and.
Routing that's our traditional strength is growing now flows.
On a one for one of a better expression selectively coal.
All flow building.
Locations.
Virtualization orchestration and more and more AI beyond just a single lead customer we have in Cpus to date.
So we're seeing multiple.
As I said in multiple levels, all moving in the right direction for fiscal 'twenty two and.
Chip good possibility, what we've seen today.
In Q1.
Run for a large part of fiscal 'twenty two.
Great. Thank you for the insight.
Thank you.
Our next question comes from the line of <unk> <unk> with Bank of America Securities. Your line is open.
Alright. Thank you for taking my question and congratulations on the strong consumption.
<unk>.
So hawkeye and find two things interesting vendors you use the word makeovers in your commentary but.
Part of my question.
The question is on the buyback announcement.
What changed your view because for some time you are not as favorable towards buybacks.
The 10 billion announcement is that more of a statement about business trends is it lack of M&A targets.
Are you going to be more consistent in buybacks.
That's part of the question and part B is that if I take that.
$6 7 billion in dividends that you will pay next year and another 10 billion in buybacks.
And apply the free cash flow range do you have it suggests sales of somewhere in the low to mid <unk> billion right using that math and I know youre, not giving guidance, but does that.
Math makes sense.
Hey, you're very good at this numbers I shall just ball do those are.
Those better judgment and wisdom here. Thank you.
Next question.
Thank you.
You have another follow through.
Yes, Thank you yes.
So.
Wireless you know as you more most seasonal business is there a way you are thinking about wireless. So you said it could be up somewhat.
Right.
The January quarter, how you're thinking about seasonality for that business going into the April quarter.
Oh April quarter is hard to focus I mean decent consumer so.
It's very hard I can't even begin to focus much less.
Thank my customer will be better it isn't even then I suspect they are very challenged.
But what we do see interestingly enough is demand for our components.
For the January quarter is good.
And hence you see the.
And the fact that even as we measure year on year to all time peak a year ago, but still.
Flattish to slightly up and sequentially from Q4.
This in this current round you are correct in this regard Q4.
Supposed to be back to normality.
<unk> D in seasonality has been the big quarter I'll.
Q1 World.
Exceed our Q4 shipments as we focus to date so its sounds like even that part is doing quite well, it's just that year on year Kobe in percentage terms may not be exciting at the rest of the.
The semiconductor verticals that we're in but is still holding up very nicely.
Thank you.
Thank you.
Our next question comes from the line of Ross Seymore with Deutsche Bank. Your line is open.
Hi, Thanks for letting me ask a question I guess, the two questions and then I'll listen to the answers for the question on the follow up so first hock I wanted to revisit kind of the quality of demand and maybe ask it a different way you've talked about under shipping what the actual demand or what your bookings are because you believe you can ship to.
<unk> actual demand so that delta between whats your shipping and what is being booked is that changing is it shrinking growing basically trying to get at any change in customer behavior and then the second question would be separate and one for tiers and then you mentioned about the opex on the semiconductor side rising going forward any more color about the linearity of Opex as we go.
Throughout the year and any color on kind of the areas that would be focuses of that investment.
On the first Ross.
That's that's a very very clever question.
Yes.
Has anything changed between.
What we're booking versus what we are shipping.
I'm trying to answer and not because.
I'm not trying to answer is because the the main by verticals.
Rotate it somewhat.
And you can probably understand it.
So what I'm, saying is one clear example is what I am saying no enterprises actually waking up big time.
And they on.
Asking for products, they asking for product in a very very urgent manner and so we're seeing.
More ship a lot more shipments to Oems, who support those enterprises and by verticals, we are seeing strength.
In the in basically in server storage in particular and also the enterprise portion.
Uh huh.
Networking tends the strength in as I mentioned campus switching.
And one client in many in many ways because the enterprise.
Campus switching now for enterprise switching needs of wireless.
Strategy components, and so we're seeing a Wi Fi business explore excess gateways and enterprise.
Really take off now having said that.
Our classification of clout in close telco service providers.
<unk> been steady is interesting.
And telcos has been steady and <unk> been stating in different manner. The cloud guys are now pushing more and more into compute offload in many of the programs Youre working on starting to starting to manifest as deployment. So we're seeing that and that is <unk>.
Really driving some more growth than just normal switching and routing that we have seen super strong in 2021.
We've seen areas like in some of the massive scale of <unk>.
Machine learning or AI in networks.
Yeah, you'd need a different kind of performance of those networks. So we've seen a different kind of products going into that areas.
And I highlighted in my remarks.
<unk>.
Jericho.
Going into many of those AI networks in the hyper plant and of course <unk> continues to be.
It goes through cycles and happened to be a cycle.
<unk> deployment and backhaul strong a reshape of lot of covenants.
It varies but if you take it from a macro point of view.
Not hasnt changed from six months ago, Ross, which is the under shipment from the level of bookings we are seeing.
So the alcohol Pearson sure Hi, Ross.
What I would expect the way I look at Opex I will comment on our consolidated view for the company Youre going to see a step up in Q1.
Definitely and then you remember in Q2, we have the payroll.
Payroll taxes that we pay in Q2, so we have another step up in Q2, and then for the rest of the year I'd look at that continuing out.
How I would model that.
Great. Thank you.
Mhm.
Thank you.
Our next question comes from the line of John Pitzer with Credit Suisse. Your line is open.
Yes. Good afternoon, guys. Thanks for letting me ask the question and congratulations on the strong results.
Maybe just a follow on to Ross's question about the R&D commentary that Kirsten had in the prepared comments.
With the growth that you're expecting in the semi R&D do you think that that will outstrip the semiconductor revenue growth for the year or not and not having had the time yet to go back and look at it is this an unusual spend year and if so what's driving it is is it concerned about increased competition is it the opportunity.
He said getting a lot bigger and kind of what areas are you focused on and then I have a follow up.
Oh I think we have continued to be to have been spending on R&D in the silicon side.
On a fairly consistent basis.
And so we have and.
But.
In some other areas and its not so much about worrying about competition as soon as the underlying part of our business model across our various fringe franchises is simply that we always out invest our engineers.
Anybody else in the verticals within those franchise verticals we are in.
And.
So from our point of view he now.
<unk> is a great because <unk>.
During COVID-19.
In 'twenty and in part of 'twenty one.
Things.
Non S.
Moving as fast as perhaps we believe a normal cadence of product cycle.
The logos should be product lifecycle. So we are not jumping in 'twenty two.
So basically bring it back.
Two away should be in terms of a normal product cycle cadences and duck.
That sense Youre right. Some because of competition is because we believe we need to deliver new generation.
To better features better bandwidth low latency.
Our customers.
And who are now ready and willing to take it on.
And having said that May invest now you don't see the impact of that probably in 'twenty three 'twenty four.
So, but we feel that.
There's some hiatus of.
New technology been absorbed in 2021.
So now is the time to really accelerate new technology, new generation of products voice absorption.
As much as we could into a new tool and definitely in 2003. So it's logical that spending would go up and we are <unk>.
Wrapping up for that.
And hockey's is the message that R&D could grow faster than semi revenue growth. This year youre not ready to make that statement yet.
Oh I don't think so we never tend to do that we're very well behaved very disciplined.
That's helpful and then as my follow up hockey guys, just set up a really consistent track record around the dividend.
Buy backs have been a little bit more episodic, especially given the M&A strategy just with the authorization today is the intent to do all of that within the next 12 months why not an ASR component around that authorization today, just to give investors confidence that you will fall through on the buyback.
Jack.
Postponing.
But we intend to follow through and we intend to do this and build in.
The reason we're doing it as you guys can give us.
We haven't done a deal and we did not do a deal in 'twenty did not do a deal in 'twenty one.
But tons of Kent, we have fallout a ton of cash and debt as edge.
Italy somewhat the growth that essentially decline someone and walnut cash position is building out and while we may still do a deal in 'twenty. Two it's just that we will still be generating a lot more cash in 'twenty two so.
And at this whole thing is just a very logical conclusion for us to not just sit on the cash.
In some ways you may call. It by just returning to <unk> guys edge.
We continue to accumulate cash.
And keep in mind, we still have a lot of debt and grow expanding that capacity.
EBITDA.
EBITDA expense and still be within investment grade of course.
And this is clear often we have consistently said that we would return capital to shareholders. We didn't announce an M&A by December and so this is in line with what we've been saying and we plan to follow through on it the $10 billion authorization will be executed pursuant to a trading plan and it'll be thought.
Poland and in line with what we said we'd do.
Perfect. Thanks for some great color.
Thank you.
Our next question comes from the line up for rainy for Jerry with Mizuho.
Nicole Your line is open.
Thank you and let me also echo my congrats on the solid numbers.
You called out your AC business I think you said its roughly 20% of the networking business and also said, it's going to be about $2 billion.
I'm just curious if you could maybe provide us some additional color as to what's going on with that business I mean, you've been a leader in this market historically.
And are you seeing more interest given whats going on with the Hyperscale customers and their interest in developing in house silicon or is this a continuation of a trend or any additional color you could provide I think that would be helpful.
Alright, thank you for that and by the way <unk> business is actually larger than the 2 billion. We indicated it's only that part of the ASIC business sitting in networking that we highlighted is that there are a couple of other areas, where we do it.
And it's done on a platform under one.
Club franchise.
A business that we run fairly separately as one of the product divisions, but you are right, though the larger part of it sits in networking and.
And a big behind its half of it roughly I would say maybe growing more than half, though is still the high book club.
As the Oems to still remain very much OEM related business as well.
<unk>.
Youre right, but.
But your point is well taken this is a steady stable business.
And growing over time that we've had for many many years and it has as I said long time ago 2015 years ago 10 years ago been very much on networking merchant silicon showroom in networking.
<unk>.
Which is switching and routing and it has not grown as much in networking, but in this place having said that.
Other opportunities sure.
Lot of it is what I'd call collectively offload computing, which is very much tied to high book club and debts.
Is that is that has been slowly but steadily growing but it's slow.
It's not something that should some.
Exponentially overnight because.
Lot of the hyper cloud guys much as they have ambitions to do their own designs I'd like to make that point very clear.
A very difficult thing for them to do.
Because they can go into the highest silicon architects and designers.
Doesn't mean you can define.
<unk> silica.
At the moment chip that addresses what theyre looking for whether it's the transcoding whether its in security all.
Even in virtualization or even in his heart when you don't do it on a full time basis. So we have been working with these hyper cloud guys for the last five years there has been.
Fits and starts in many many situations.
Among these type of club debt, but the message I want to say is we have never given that we continue to work with them.
And more slowly more and more of the many sites some of them become successful more and more successful and to see the trend of growth in our ASIC business for offload computing.
Those of you have followed me consistently for the last 345 years you have heard me talk about wait 345 years ago, then two years ago just shut up.
It takes longer to get it going.
And it's starting to.
Translated into revenues and ramps down and it will be a nice driver to growth.
<unk> for us over the next.
Two years I would say so.
And bringing it back up again, but there's always been that.
Got it and then.
Just to follow up on wireless Hawk, obviously, the current demand looks pretty healthy and supply is very tight but I guess, if you take a you know maybe a couple of your view out there.
Like there's somewhat of a concern about <unk> cycle, peaking so I'm just curious about how you're thinking about in wireless, especially in terms of your content opportunities for the next couple of years. Thank you.
Wireless is strong is a great franchise and it continues to chug, along very well and that's probably been the.
I'm definitely wearing rose tinted glasses in this environment because demand is good.
It's holding up still very well beyond that I really don't know.
The answer to it.
Did you say I do see content increasing over the next several years, because we have various products multiple products not.
Just one particular product and we have multiple with various products.
Into every one of those very high end smartphones and that gives us.
Opportunity to expand.
And to strengthen and increase our content.
<unk>.
But and we never really plan for unit increases actually in all our plants, we just.
The plan on some content increase year after year, but nevertheless, any unit increase so I guess I don't I stopped thinking and worrying about whether the number of phones is going to decline in <unk> in the next one or two years as much as where the content declined.
And we have not really seen it on the.
Any.
Fashion that will make us worried.
Thank you very helpful.
Thank you.
Our last question comes from the line of Timothy Arcuri with UBS. Your line is open.
Thanks, a lot Hock I had two the first is on customer behavior and I'm wondering if you've seen any change there. So I guess the question really is around are you seeing any change in the portion of customers that want product inside of lead time and are willing to pay your expedite fees and I guess does that sort of inform you to the degree to which your shipments or the orders are.
Sort of matching underlying assumption and then I had a second question too.
Uh huh.
Not really.
Because I think we have done we have gone through it now for one year.
And I think our customers are.
<unk> passed most of them anyway can say all of them have started to plan their needs. Accordingly now it doesn't mean they are puffing in their planning and sold case shade happen they come running in and out of all the expert expedite deliveries within lead time.
<unk> edge.
And we see that and we worked through that but by and large customers are planning better and better.
Gossip practice at doing that.
It's perfect and in some cases way we can do it.
They probably are.
Well look fall.
If they can find alternatives.
And so they send out alternatives.
Mine competition get some benefit on those.
Spot situations and that will happen.
Yeah.
I love to be phosphate, while we cannot be and sometimes like customer misses we missed and that happens.
In situations and because of previous commitments, we cannot obviously pulling that demand, but what those are.
Getting.
Those are still happening.
Has that changed since then no not fall months I think as I say customers are much better at doing it.
At least when it comes to dealing with us.
Got it. Thank you and then I guess.
Last question really is around wireless and now that you're into December you should I think having pretty good handle on how much your content is going to grow for fiscal 'twenty. Two. So I was just wondering if you can sort of give us a sense of maybe how much content is growing and the growing trade, let's say, 10%. This year type of thing. Thank you.
Above 10%.
Very consistent with what we thought it would be six months ago.
Perfect. Okay. Thank you so much.
Yes.
Thank you.
I would now like to turn the call back over to you for closing remarks.
Thank you operator that will conclude our earnings call today. Thank you all for joining operator, you may end the call.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
Yeah.
Yeah.
[music].
[music].
[music].
[music].
Hello, and welcome to Broadcom, Inc, fourth quarter and fiscal year 2021 financial results Conference call.
At this time for opening remarks introductions I will turn the call over to <unk> director of Investor Relations of Broadcom, Inc. You may begin.
Thank you operator, and good afternoon, everyone. Joining me on today's call are Hock Tan President and CEO, Kirsten Spirit's 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 close describing our financial performance for the fourth quarter and fiscal year 2020 one.
You did not receive a copy of the information from the investors section of <unk> Com's 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 comments hawking Kirsten will be providing details of our fourth quarter and fiscal year 2021 results.
<unk> for our first quarter as well as commentary regarding the business environment well.
Well 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 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 Hawk.
Thank you Gigi and thank you everyone for joining us today, so in the environment we have today.
Brian demand rebounded sharply over 13% year on year.
Hi book loan.
Service provider demand continued to be strong.
And strong wireless growth in Q4, and it was driven by to see some of the launch of next generation smartphones by our North American OEM.
Meanwhile, our core software business continues to be steady with a focus on strategic customers.
On the supply side.
Lead times remain extended and stable.
Inventory in our channels.
Our customers remains very lean.
Accordingly in Q4.
Semiconductor solutions revenue grew 17% year on year to $5 6 billion.
<unk> infrastructure software revenue growing 8% year on year to one 8 billion.
Billion.
Consolidated net revenue was a record $74 billion.
15% year on year.
Let me now provide more color by end markets, let's start with networking.
Networking revenue of $1 9 billion was up 13% year on year in line with our forecast for low double digit growth and represented 34% of our semiconductor revenue.
Double digit year on year growth was primarily led by strong demand from campus switching.
From a merchant silicon as well as a six solutions through Oems at Cisco and HP.
We also experienced similar double digit growth with the deployment of Jericho route those within large scale.
AI networks in the cloud as well as Combe run in five gene infrastructure in Dci.
Our unique capabilities and our unique capability here to deliver ultra low latency Ethernet Nic words enables large scale deployment of AI compute for the club.
<unk> alone in the call. These large data centers, we have begun to Rem Trident four and come up for the world's first.
25, six terabits per second switch.
Several hyperscale cloud customers.
As they address the ever growing need for bandwidth demand in scaling out the massive data centers.
Now within the Hyperscale cloud, we continue to lead in delivering a six silicon for multiple compute offload accelerators, which has manifested into being 20% of our networking revenue.
We expect continued growth in the next fiscal year's here to over $2 billion.
The key to our success here lines with a robust design methodology.
<unk> integrates our brawn and substantial silicon IP edge.
And rapidly delivers world class customized silicon src's to enable AI.
Virtualization orchestration video transcoding.
In security, we have now extended our footprint.
Beyond Gpus.
As multiple cloud customers.
In Q1 net working his focus is firing on all cylinders and we expect networking revenue growth to accelerate to close to 30% year on year.
Next our server storage connectivity revenue was $815 million up 21% year on year in sharp contrast to the first half of 2021 and represented 15% of semiconductor revenue the better than expected results were driven.
And by robust demand for storage controllers and horsepower successes from renewable spend by enterprises upgrading their compute and storage infrastructure.
Additionally, Hyatt.
<unk> cloud storage, we saw accelerate their migration.
Two eight terabytes and the start of 20 terabyte hard disk drives we drove our near line storage revenue to put things in perspective today, our near line storage business is close to a $1 billion on an annualized basis.
We continue to gain share in server storage connectivity as we expand our leadership in next generation says fall PCI Express Gen five and <unk> spend.
Spending for enterprise continues to recover and we expect this will accelerate growth in our server storage connectivity revenue in Q1 to approximately 30% year on year growth.
Moving onto broadband revenue and 872 million grew 29% year on year and represented 16% of semiconductor revenue.
This was driven by the continued strong growth in deployment by service providers globally of next generation PON wave Wi Fi six and 60 <unk> gateways.
We continue to lead the industry with a portfolio of end to end integrated solutions across multiple access protocols.
<expletive> cable modem and DSL.
All.
SLC controllers.
Each with integrated Wi Fi and manage to a software stacks to reliably deliver more bandwidth faster data speeds from the call service provider and that was to the homes.
And a critical element in our broadband platform I might add is leading edge Wifi.
660, today, and Wi Fi seven tomorrow.
Leading edge wired wireless is important for our service provider customers to reach additional homes from their networks.
By the same token in campus switching in enterprises is also critical that our Oems can connect enterprise data centers through campus switches to the access point with leading edge wildfire in both markets.
All our platforms, which encompass wired and wireless silicon and software.
We uniquely differentiate broadcom and sustain our market leadership.
So in Q1.
We expect this double digit percent year on year growth in.
In broadband to continue as we have seen for the last few.
Moving on to wireless consistent with the launch of our customers' next generation phone during the quarter Q4 revenue of $1 $8 billion represented 32% of semiconductor revenue and was up 21% against.
A softer Q4 quarter a year ago. Nevertheless, we expect continuing strong demand into Q1.
And which will drive wireless revenue to be up sequentially single digit.
It can be flat to up low single digit percentage year on year from the peak of a year ago.
Finally industrial revenue.
$197 million represented approximately 3% of our Q4 semiconductor solutions revenue.
Have incentives.
Re sales.
All the industrial of $232 million grew 36% year over year in Q4, driven by strong demand from Oems for electric vehicles Robotics factory automation and healthcare.
As a result, our inventory in the channel declined further.
Two below a month and turning to Q1, we expect <unk> sales to continue to be strong.
At the levels, we saw in Q4.
In summary, Q4 semiconductor solutions revenue was up 17% year on year and in Q1, we expect the momentum to continue.
Our revenue growth to be.
Double digits again year on year. This implies that Q1 semiconductor revenue will be low single digits sequentially.
Turning to software Q4.
Infrastructure software revenue of $1 8 billion grew 8% year on year represented 24% of total revenue within this brocade showed strong growth of 19% year on year consistent with strong enterprise recovery.
In the quarter and deployment of our next generation generation, 7% fibre channel San products now excluding brocade.
Call software revenue grew 6% year on year in dollar terms.
Consolidator renewal rates averaged 116% over expiring contracts one within our strategic accounts.
<unk> average 127%.
System with prior quarters.
Over 90% of the <unk>.
<unk> represented.
Recurring subscription and maintenance.
Stepping back and following the software Investor Day last month, let me provide an update on.
On the entire fiscal 'twenty one for sulfur.
Call software.
Total backlog at the end of the year totaled $14 9 billion.
15% from a year ago with average duration of contracts extending from two 6% to two nine years.
This backlog translates into a R. R.
<unk> annual recurring revenue up $5 2 billion, which was up 5% from a year ago.
74% of this.
It comes from our approximate.
Approximately 600 strategic accounts, which in fiscal 'twenty, one we renewed at a 129% or $2 4 billion.
Of annual annualized booking value.
One 9 billion of this represented renewals uninspiring contracts and roughly $500 million represented cross selling including.
<unk>.
All of our portfolio of products to these strategic customers.
For the year, we booked over 300 contracts generating greater than $1 million of revenue annually with over 30 contracts generating over $10 million annually.
With such stability in Q1, we expect our infrastructure software revenue to continue to sustain around mid single digit percentage growth year over year.
Okay.
So let me summarize with a continued strength in our semiconductor segment and stay steady growth in our southwest segment total Q4 net revenue grew 15% year on year.
Turning to Q1.
Semiconductor revenue, excluding the wireless is expected to be up 28% year on year.
Wireless is expected to grow.
Led to low single digit percentage compared to the peak of a year ago. So semiconductor revenue in total is expected to grow 17%.
Year on year again and.
And consolidated revenues expected to grow 14% year on year.
Sequentially.
This will drive revenue to grow from seven $4 billion in Q4 276 billion.
In Q1.
We are very well positioned.
In every one of our franchise markets.
In fiscal 'twenty, two and beyond.
We continue to significantly invest anyone else across our platforms.
Switching and routing offload compute silicon photonics and wireless connectivity to accelerate our next generation road maps as we continue to gain market share.
With that let me turn the call over to kiss them.
Thank you Hock, let me now provide additional detail on our financial performance revenue was seven 4 billion for the quarter up 15% from a year ago.
Gross margins were 75% of revenue in the quarter and up approximately 105 basis points year on year.
Operating expenses were $1 1 billion up 3% year on year driven by investment in R&D.
Operating income for the quarter was $4 4 billion and was up 20% from a year ago operating margin was 59% of revenue up approximately 286 basis points year on year.
As to EBITDA was $4 5 billion or 61%.
This figure excludes 134 million of depreciation.
Now I will review of the P&L for our two segments.
Revenue for our semiconductor solutions segment was $5 6 billion and represented 76% of total revenue in the quarter. This was up 17% year on year.
Gross margins for our semiconductor solutions segment, where approximately 70% up 170 basis points year on year, driven by favorable product mix and content growth in next generation products across our extensive product portfolio.
Note that we have been able to continue to expand our semiconductor gross margin despite higher wireless revenue mix.
Operating expenses were $790 million in Q4 up 3% year on year R&D was $701 million in the quarter up 6% year on year as a side note for fiscal 'twenty. Two we are planning to increase R&D spend in semiconductors by mid to high single digit percent year on year.
As hock indicated in his remarks, we are committed to investing heavily in our next generation products to maintain and even increase our leadership across all our franchises Q.
Q4, operating margins increased to 56% up 350 basis points year on year.
While semiconductor revenue was up 17% operating profit grew 24%.
Moving to the P&L for our infrastructure software segment.
Revenue for infrastructure software was $1 8 billion and represented 24% of revenue this was up 8% year on year.
Gross margins for infrastructure software, where 90% in the quarter up 19 basis points year over year.
Operating expenses were $353 million in the quarter up 1% year over year.
R&D spending at $220 million is up 9% year over year, and SG&A of $133 million is down 10% year over year.
Operating margin was 70% in Q4 up 166 basis points year over year and operating profit grew 11%.
Moving to cash flow.
Free cash flow in the quarter was $3 5 billion, representing 47% of revenue, we spent 88 million on capital expenditures.
Days sales outstanding were 25 days in the fourth quarter compared to 32 days a year ago.
We ended the fourth quarter with inventory of $1 3 billion, an increase of $137 million or 12% from the end of the prior quarter in preparation to meet customer demand in Q1.
We ended the fourth quarter with $12 2 billion of cash and $39 7 billion of total debt of which 290 million is short term.
Turning to capital allocation.
In the quarter, we paid stockholders 1 billion of cash dividend. We also paid $266 million in withholding taxes due on vesting of employee equity, resulting in the elimination of 525000 <unk> shares.
We ended the quarter with $413 million outstanding common shares and 448 million diluted shares.
Based on current business trends and conditions our guidance for the first quarter of fiscal 2022 is for consolidated revenues of $7 6 billion and adjusted EBITDA of approximately 61, 5% of projected revenue.
Let me recap our financial performance for fiscal year 2021.
Our revenue hit a new record of 27 5 billion growing 15% year on year.
Semiconductor solutions revenue was $20 4 billion up 18% year over year infrastructure software revenue was $7 1 billion up 7% year on year.
Gross margin for the year was 75% up 100 basis points from a year ago operating expenses were $4 5 billion down 2% year on year as we completed the integration of Symantec.
Operating income from continuing operations was $15 9 billion up 23% year over year and represented 58% of net revenue.
Adjusted EBITDA was $16.
Up 21% year over year and represented 60% of net revenue.
This figure excludes 539 million of depreciation.
We spent $443 million on capital expenditures and free cash flow represented 49% of revenue or $13 3 billion free cash flow grew 15% year over year.
For the year, we returned $7 5 billion to our stockholders consisting of $6 2 billion in the form of cash dividends and $1 3 billion for the elimination of $2 8 million <unk> shares.
We have extended our weighted average debt maturity to approximately 10 six years with a weighted average interest rate of approximately three 6%.
Looking ahead to fiscal 2022, we remain committed to returning approximately 50% of our prior year free cash flow to stockholders in the form of cash dividends.
Consistent with that we are increasing our quarterly common stock cash dividend in Q1 fiscal 'twenty two to $4 10 per share an increase of 14% from the prior quarter.
We intend to maintain this target quarterly dividend throughout this year subject to quarterly board approval.
Today as part of our commitment to return capital to shareholders, We announced that the company's board of directors has authorized the repurchase 10 billion of our common stock.
To drive comps new share repurchase program.
The authorization is effective until December 31, 2022.
This new share repurchase program reflects our confidence in the company's ability to generate strong and sustainable cash flow.
Note that we expect the diluted share count to be $448 million in Q1. This excludes the potential impact of any share repurchase.
That concludes my prepared remarks.
Operator, please open up the call for questions.
Thank you, ladies and gentlemen to ask a question Press Star then one on your telephone.
We ask that you limit yourself to one question and one follow up and you may rejoin the queue, if you'd like to ask other questions.
Again, Thats star one to ask a question. Please standby, while we compile the Q&A roster.
Our first question comes from the line of Toshi Hari with Goldman Sachs. Your line is open.
Hi, Thank you so much for taking the question and congrats on the very solid results.
I know you guys don't guide for the full year, but I was hoping you could.
Kind of walk us through how youre thinking about fiscal year 'twenty two on the <unk>.
Semiconductor side.
Obviously bookings have been strong continuing to be strong across most of your buckets.
Our end markets with them.
But if you can talk about bookings trends in the quarter, what youre seeing there that would be super helpful.
Sort of answered the fiscal 'twenty two question, if you can touch on supply.
And to what extent supply could be a gating factor over the next 12 months that would be helpful. Thank you.
That's a very good a hell of a question I may edge. So let me try to address them.
<unk>.
Ferrous component.
What we continue to see.
With the recovery and I made a point of saying that.
There is now well known in the midst of a very strong.
Spending recovery in the enterprise.
Particularly so whilst continuing to see.
Strong demand bookings in the semiconductor side, but a big part of that demand an increasing part of that demand is now coming from enterprise spending which translates to end markets tends to drive a lot of broadband continuing to drive the broadband which has.
Been strong and most of 'twenty one.
Continuing to drive.
Enterprise pod also our networking business.
And of course server storage and industrial is just very very strong having said that on the hybrid cloud spending site.
A lot of with a resigned in obviously in our networking business.
Things are still fairly very elevated dean.
Continues to be strong.
And so when you combine all this together we continue to see booking rates.
<unk> had a fairly and continue to be a very elevated level wake up the week so far.
And as of right now we're pretty much.
Booked all the way through 'twenty, two and even beyond 'twenty two into 'twenty. Three if you think about 50 week lead time no surprise. It goes through late 'twenty, two but we're going even in many cases now gone beyond 'twenty two 'twenty three and that's partly because one timing of our customers' planning very far.
And two as I said are continuing disciplined net approach to ensuring that we deliver products at the right time to the right place and we see that going on.
And I hate to disappoint you.
<unk>, we're still not ready or prepared to give you a guidance on.
Fiscal year.
Thank you.
Thank you.
Our next question comes from the line of Stacy <unk> with Bernstein Research. Your line is open.
Hi, guys. Thanks for taking my question.
Hock I wanted to follow up on on those lead times in order to answer you said, obviously on the industrial space your channels, bringing it sounds like your bookings overall is very strong.
Same time, we know you've been taking efforts to limit like worries around stockpiling over shipping whether its parsing orders.
I was wondering if you could just talk a little bit about what you were doing in that space. How are you feeling right now in terms of your shipments versus where end demand is.
And how meaningful those like long with 50, plus week lead times are actually or do they actually represent demand even if it's that far out like if you could just talk about your efforts there that'd be that'd be helpful.
Yeah.
Well, we've been doing this 50 weeks now for just since the beginning of 'twenty one.
And.
And we have bins.
Delivering very much as much as we can to those lead times. So in some ways I'd like to believe.
It is giving some mentioned some method to this booking maintenance I guess is one I would call. It in terms of our ability and in terms of.
We are shipping the products and by keeping lead times very stable and predictable as we're doing now.
So.
Clearly communicating to our end users the way they should be planning their business and I would like to think this all of this is working out in terms of <unk>.
Allowing us to making sure we don't over ship.
And bill.
Buffalo inventory through our controller.
<unk> ecosystem outbound it means distributors channels and customers and all of that has been done purposefully.
The truth be told that the day will come when things have to land.
All the NDA and relate to make sure a lens very gently in software.
And we'd like to think that is working very well.
But so what we are reporting in some sectors now what we are guiding in some sectors are reporting where you see growth of some 20% 30%.
I know even from our perspective, it seems very hot excessively hot and in those areas in particular, we think strong particular.
At them to make those attempts to ensure these products reshape.
For programs that get deployed rather than sit on the shelves for future needs.
So I'd like to believe that that.
<unk> growth in networking broadband service storage lately.
Some 20% to 30% year on year.
Rail true end demand.
Got it Thats helpful.
Just a quick follow up along those lines on an enterprise you gave some numbers for year over year growth for.
For things like networking and storage in both year over year numbers does that imply a sequential decline, especially for networking and storage or just I'm not sure if our year ago numbers are tied in or not but.
Do you expect those businesses declined sequentially.
Within the comp guidance.
In Maine, depending then we're talking met them medical numbers now and how we should because some of the shipments are lumpy and you may see that from quarter to quarter. When you talk about sequential quarter, you may sometimes see then and and what I'm trying to say and we may also chose to deploy.
<unk> supplying to one markets versus another as you go quarter by quarter. So looking at it sequentially split in specific.
Verticals.
Sometimes four months for arm case level point of view be.
Rather misleading unintentionally Sims.
Simply because we may chose to deploy ship more tools for instance, sometimes to server storage because there is a wholesale named edge versus networking and you may see them because of that networking see some sequential weakness in one particular particular quarter, which is why we report.
As much as we can on the year on year basis, where then you take out the effects of this short term lumpiness.
Short term discontinuing Ts.
That's helpful. Thank you so much.
Thank you our.
Our next question comes from the line of Harlan sur with Jpmorgan. Your line is open.
Good afternoon.
Afternoon, and congratulations on the strong results and execution Hock on your networking business had been somewhat conservative on.
Your view on the sustainability of the strong cloud and Hyperscale growth, but yet in cloud I mean do you guys are ramping seven nanometer Tomahawk, four and tried and four.
During the early innings as the ramp demand is strong you talked about general colon cwmbran being strong in reality with cloud eastern customers ramping their seven nanometer GPU and you have more programs firing next year as you mentioned and then on the enterprise side. Your large enterprise OEM customers are benefiting from the strong.
So you're starting off the fiscal year.
Working with strong double digit growth, but do you see your networking business continuing to drive double digits year over year growth for the full year and will the growth be driven by all three of your end markets cloud enterprise and service provider.
Holland is a hell of a question, yes, and the only way I can answer that is if this is a way of training for me to ask me to guide you on networking for the year and looking and not doing that.
But but your ISO there are a lot of levels and I articulate quite a few of them and maybe a more phased in some cases.
And they seem to be as I use the expression.
As we sit here today and going into 'twenty two firing on all cylinders.
And by that I mean more than just forecasting.
We actually have seen the backlog, we had the bank loan and we keep building up and Youre right hyper cloud guys I, Let you go where you would've asked me six months ago.
I would not believe the level of spending them banking on in.
Right now in 2018, but they appear to be.
So we have been euro enterprise has been strong and you've seen the rate of growth of enterprise year on year or 30% of growth broadly.
And Clos.
Pass through it Ed.
The current elevated levels, we are seeing in networking has not.
So also as though we could still sustaining now it's still recovering obviously year on year basis as fast.
<unk> enterprise is showing simply because enterprise starting from a lower point.
But cloud is still growing.
We're seeing hyper cloud growing.
It's growing from not just <unk>.
Net switching and routing that's our traditional strength is growing now for us on a one for one of a better expression selectively calls offload computing.
Applications.
From virtualization orchestration.
More and more AI.
Beyond just the single lead customer we have in TPU to date.
So we're seeing multiple.
As I said in multiple levels, all moving in the right direction for fiscal 'twenty two and.
Good good possibility, what we're seeing today.
In Q1.
Run for a large part of fiscal 'twenty two.
Great. Thank you for the insights.
Thank you.
Our next question comes from the line of <unk> ARIA with Banc of America Securities. Your line is open.
Thank you for taking my question and congratulations on the strong results and the guidance so.
So hawkeye and find two things interesting bundles you didn't use the word makeovers in your commentary, but that's part of my question.
The question is on the buyback announcement.
What changed your view because for some time you were not as favorable towards buybacks.
The 10 billion announcement is that more of a statement about business trends is it lack of M&A targets.
Are you going to be more consistent in buybacks.
That's part of the question and part B is that if I take that.
$6 7 billion in dividends that you will pay next year and another 10 billion in buybacks.
And apply the free cash flow range do you have it suggests sales of somewhere in the low to mid 30 billion right using that math and I know youre, not giving guidance, but does that mean.
Makes sense. Thank you.
Hey, you're very good at this numbers I shall just bow to those and those better judgment and wisdom here. Thank you.
Next question.
Thank you.
You have another follow through yeah. Thank you yeah.
So.
Bartlett.
Our most seasonal business is there a way you are thinking about wireless. So you said it could be up somewhat.
In.
The January quarter, how you're thinking about seasonality for that business going into the April quarter.
Oh on April quarter is hard to sort of focus I mean, it is consumer Ryan so.
It's very hard I can't even begin to forecast much less.
I think my customer will be better it isn't even then I suspect they are very challenged.
But what we do see interestingly enough is demand for our components.
Yeah.
For the January quarter is good.
And hence you see.
And the fact that even as we measure year on year to all time peak a year ago, but still slow.
Flattish to slightly up and sequentially from Q4.
Which this in this current round you are correct in this regard Q4, what's supposed to be back to normality.
<unk> D in seasonality has been the big quarter I'll.
Our Q1 world.
Exceed our Q4 shipments as we focus today so its sounds like even that part is doing quite well, it's just that year on year compare in percentage terms may not be exciting at the rest of.
The semiconductor verticals that we're in but is still holding up very nicely.
Thank you.
Thank you.
Our next question comes from the line of Ross Seymore with Deutsche Bank. Your line is open.
Hi, Thanks for letting me ask a question I guess, the two questions and then I'll listen to the answers for the question on the follow up so first hock I wanted to revisit kind of the quality of demand maybe.
Maybe ask it a different way you've talked about under shipping what.
The actual demand or what your bookings are because you believe you can ship to actual demand so that delta between whats your shipping and what is being booked is that changing is it shrinking growing basically trying to get at any change in customer behavior and then the second question would be separate and one for <unk> you mentioned about the opex in the summer.
Conductor side rising going forward any more color about the linearity of Opex as we go throughout the year and any color on kind of the areas that would be focuses of that investment.
On the first Ross.
That's a very very clever question.
Uh huh.
Anything changed between.
What we're booking versus what we are shipping.
Yeah.
I'm trying to answer and not because.
I'm not trying to answer is because the main by verticals.
Rotate it somewhat.
And you can probably understand that.
What im saying is one clear example is what I'm, saying now and the prices actually were.
Making up big time.
They are.
Asking for products, they asking for product in a very very urgent manner and so we're seeing.
More ship a lot more shipments to Oems will support those enterprises and by verticals, we are seeing strength.
In the.
Basically in server storage in particular and also the enterprise portion of.
Our networking, hence the strength in as I mentioned campus switching.
And why flying across in many in many ways because the enterprise.
Campus switching now for enterprise switching needs of wireless.
Strategy components, and so we're seeing our Wi Fi business explore excess gateways and enterprise.
Take off now.
Having said then.
On our classification of clout in close telco service providers.
They've been steady is interesting cloud.
Telcos has been steady.
And but they have been stating in different manner. The cloud guys are now pushing more and more in the compute offload in many of the programs are working on starting to happen are starting to manifest as the volume and so we're seeing that and that is.
Really driving some more growth than just normal switching and routing that we have seen super strong in 2021.
We've seen areas like in some of the massive scale of Av.
Machine learning or AI in networks.
CA you'd need a different kind of performance of those networks. So we've seen a different kind of products going into that areas.
And I highlighted in my remarks about.
Jericho Dean going into many of those AI networks in the hyper cloud and of course <unk> continues to be a.
It goes through cycles and happened to be a cycle of GE.
Deployment and backhaul strong a reshape of lot of covenants. So it varies but if you take it from a macro point of view.
Not hasnt changed from six months ago, Ross, which is the under shipment from the level of bookings risking.
So the arbitrage Kirsten sure Hi, Brock.
What I would expect when I look at Opex I will comment on our consolidated view for the company Youre going to see a step up in Q1.
Definitely and then you remember in Q2, we have the <unk>.
Payroll taxes that we pay in Q2, so we have another step up in Q2, and then for the rest of the year I would look at that continuing out.
How I would model that.
Great. Thank you.
Mhm.
Thank you.
Our next question comes from the line of John Pitzer with Credit Suisse. Your line is open.
Yes. Good afternoon, guys. Thanks for letting me ask the question and congratulations on the strong results.
Just a follow on to Ross's question about the R&D commentary that Kirsten had in the prepared comments.
With the growth that you're expecting in the semi R&D do you think that that will outstrip the semiconductor revenue growth for the year or not and not having had the time yet to go back and look at it is this an unusual spend year and if so what's driving it is is it concerned about increased competition is it the opportunity.
Is that getting a lot bigger and kind of what areas are you focused on and then I have a follow up.
Oh I think we have continued to be to have been spending on R&D in the silicon side.
On a fairly consistent basis.
And so we have.
But.
In some other areas and its not so much about worrying about competition as soon as the underlying part of our business model across our various transit franchises is simply that we always our invest our engineers.
Anybody else in the verticals within those franchise verticals we are in.
Then.
So from our point of view.
<unk> now has a great.
During COVID-19.
In 'twenty and in part of 'twenty one.
Things were non S.
Moving as fast as perhaps we believe a normal cadence of product cycle.
The logos should be product lifecycle. So we are now jumping in 'twenty two.
So basically bringing it back to.
Two way should be in terms of a normal product cycle cadences.
And in that sense, you're right because of competition is because we believe we need to deliver this new generation.
Products with better features better bandwidth low latency to our customers.
Who are now ready and willing to take it on.
And with having say that May invest now you don't see the impact of that probably until 'twenty three 'twenty four.
So, but we feel that it does.
Some hiatus of.
New technology been absorbed in 2021.
Now is the time to really accelerate new technology, new generation of products for its absorption.
As much as we could in 'twenty, two and definitely in 2003. So it's logical that spending would go up and we are setting up for that.
And hockey's is the message that R&D could grow faster than semi revenue growth. This year youre not ready to make that statement yet.
Oh I don't think so we never tend to do that we're very well behaved very disciplined.
That's helpful and then as my follow up Hock you guys have set up a really consistent track record around the dividend buybacks have been a little bit more episodic, especially given the M&A strategy.
What's the authorization today. It is the intent to do all of that within the next 12 months why not an ASR component around that authorization today, just to give investors confidence that you will fall through on the buyback.
Good point.
But we intend to follow through and we intend to do this 10 billion.
The reason we're doing it as you guys can get as well.
We haven't done a deal we did not do a deal in 'twenty did not do a deal in 'twenty one.
But tons of can we have fall out a ton of cash and debt has actually somewhat growth that essentially declined somewhat.
<unk> cash position is building out and while we may still do a deal in 'twenty. Two it says we will still be generating a lot more cash in 'twenty. Two so when you add up this whole thing is just a very logical conclusion for us to not just sit on the cash.
<unk> added in some ways you may call. It by just returning to your guidance.
We continue to accumulate cash.
And keep in mind, we still have a lot of debt and grow our expanding debt capacity as our EBITDA.
EBITDA expense and still be within investment grade of course.
And this is clear I think we have consistently said that we would return capital to shareholders. If we didnt announce an M&A by December and so this is in line with what we've been saying and we plan to follow through on it the $10 billion authorization will be executed pursuant to a trading plan and it'll be thought.
Poland and in line with what we said we'd do.
Perfect. Thanks for some great color.
Thank you.
Our next question comes from the line up for rainy for Jerry with S. M. D. C. Nico your line is open.
Thank you and let me answer I call my congrats on the solid numbers.
<unk> you called out your <unk> business I think you said its roughly 20% of the networking business and also said, it's going to be about $2 billion.
I'm just curious if you could maybe provide us some additional color as to what's going on with that business I mean, you've been a leader in this market historically.
Are you seeing more interest given what's going on with the hyperscale customers and their interest in developing in house silicon or is this a continuation of a trend or any additional color you could provide I think that would be helpful.
Right. Thank you for that and by the way.
Business is actually larger than the $2 billion, we indicated.
Only that part of the ASIC business sitting in networking that we highlighted is actually there are a couple of other areas, where we do <unk>.
And he has done on our platform under one.
The club franchise.
A business that we run fairly separately as one of the product divisions, but you are right, though the larger part of it sits in networking.
And at the end.
And a big spine is half of it roughly I would say maybe growing more than half now is to the hybrid cloud.
Is the OEM stood still remain very much OEM related business as well and.
Youre right.
But your point is well taken this is a steady stable business.
And growing over time that we've had for many many years.
It has as I said long time ago, 2015 years ago, 10 years ago been very much on networking merchant silicon showdown in networking.
And.
Which is switching and routing and it has not grown as much in networking, but in this place having said that other opportunities sure.
A lot of it is what I'd call collectively offload computing, which is very much tied to hybrid cloud and that's a business that is that has been slowly but steadily growing but it's slow.
It's not something that should edge.
Financially overnight because.
A lot of the hyper cloud guys much as they have ambitions to do their own designs I'd like to make that point very clear.
A very difficult thing for them to do.
Because no. They can go ahead and highest silicon architects and designers.
Does it mean you can define.
<unk> silicon system on a chip that addresses what theyre looking for whether it's the transcoding whether its in security all.
Even in virtualization or even in AI is hot when you don't do it on a full time basis. So we have been working with this hyper cloud guys for the last five years there has been.
<unk> stance in many many situations.
Among these hyper closeouts, but the message I wanted to say is we have never given that we continue to work with them.
In more slowly more and more of the many sites some of them become successful more and more successful and to see the trend of growth in our ASIC business for offload computing.
Those of you have followed me consistently for the last 345 years you have heard me talk about 345 years ago, then two years ago just shut up.
It.
It takes longer to get it going.
It's starting to.
Translate into revenues and rents are now.
And it will be a nice driver to growth I believe for us over the next year two years, I would say, so and bringing them back up again, but there's always been that.
Got it and then.
Just to follow up on wireless.
Obviously, the current demand looks pretty healthy and supply is very tight but I guess, if you take a you know maybe.
Maybe a couple of your view out there it looks like there's somewhat of a concern about five G cycle, peaking so I'm just curious about how you're thinking about in wireless, especially in terms of your content opportunities for the next couple of years. Thank you.
Wireless is strong is a great franchise and it continues to chug, along very well and has probably been.
You know I am definitely wearing rose tinted glasses in this environment because demand is good.
It's holding up still very well beyond that I really don't know.
The answer to it but what did you say.
I do see content increasing over the next several years, because we have various products multiple products not just one particular product.
We have multiple <unk> products.
Into every one of those very high end smartphones and that gives us.
Opportunity to expand.
And to strengthen and increase our content.
<unk>.
But and we never really plan for unit increases actually in all our plants, which is.
The plan on some content increase year after year, but nevertheless, any unit increase so I guess I don't I stopped thinking and worrying about whether the number of phones is going to decline in <unk> in the next one or two years as much as where the content decline.
And we have not really seen it on the oil.
Fashion that will make us worried.
Thank you very helpful.
Thank you.
Our last question comes from the line of Timothy Arcuri with UBS. Your line is open.
Thanks, a lot Hock I had two the first is on customer B Havier and I'm wondering if you've seen any change there. So I guess the question really is around are you seeing any change in the portion of customers that want product inside of lead time and are willing to pay your expedite fees and I guess does that sort of inform you to the degree to which your shipments or the <unk>.
Orders are sort of matching underlying assumption and then I had a second question too.
Uh huh.
Not really.
Because I think we have done we've gone through it now for one year.
And I think our customers.
Test most of them anyway, and the tendency of all of them have started to plan their needs. Accordingly, now it doesn't mean, there puffing in their planning and so occasionally happen they come running in and asked for all the expert expedite.
Deliveries.
Within lead times.
And we see that and we worked through that but by and large.
Our customers are planning better and better.
Gossip practice is doing that.
It's perfect and in some cases, where we can do in.
They probably.
We will look for.
If they can find alternatives and to the extend their alternatives.
My competition get some benefit on.
Those are spot situations and that will happen.
Because we.
Love to be perfect, but we cannot be and sometimes like customer misses we missed and that happens.
In situations and because of previous commitments, we cannot obviously pull in demand, but what those are.
Getting.
Those are still happening.
Has that changed since then no not fall months, adding as I say customers are much better at doing it at.
At least when it comes to dealing with us.
Got it. Thank you and then I guess.
Last question really is around wireless and now that Youre ended December you should I think having a pretty good handle on how much your content is going to grow through fiscal 'twenty. Two. So I was just wondering if you can sort of give us a sense of maybe how much content is growing and the growing trade, let's say, 10%. This year type of thing. Thank you.
While slide 10%.
Very consistent with what we thought it would be six months ago.
Perfect. Okay. Thank you so much.
Yes.
Thank you.
I would now like to turn the call back over to you for closing remarks.
Thank you operator that will conclude our earnings call today. Thank you all for joining operator, you may end the call.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.