Q4 2022 Broadcom Inc Earnings Call

December 8, 2022

Speaker 2: The conference will begin shortly. To raise your hand during Q&A, you can dial star 11. The conference will begin shortly. To raise your hand during Q&A, you can dial star 11.

Speaker 3: You you, you.

Speaker 4: The conference will begin shortly. To raise your hand during Q&A, you can dial star 11.

Speaker 5: Welcome to Broadcom Inc. fourth quarter and fiscal year 2022 Financial Results Conference call. At this time, for opening remarks and introductions, I would like to turn the call over to G.U., head of investor relations of Broadcom Inc.

Speaker 6: Thank you, Cherie, and good afternoon, everyone. Joining me on today's call are Hawk Tan, President and CEO , Kirsten Spears, Chief Financial Officer, and Charlie Kawa's President Semiconductor Solutions Group. The program distributed a press release and financial tables after the market closed.

Speaker 7: describing our financial performance for the fourth quarter and fiscal year 2022. If you did not receive a copy, you may obtain the information from the investors section of Broadcom's website at Broadcom.com.

Speaker 8: This conference call is being webcast live and an audio replay of the call can be accessed for one year through the investor section of Broadcom's website.

Speaker 9: During the prepared comments, Hawk and Kieresen will be providing details of our fourth quarter and fiscal year 2022 results, guidance for our first quarter, as well as commentary regarding the business environment.

Speaker 10: We'll take questions after the end of our prepared comments.

Speaker 11: 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.

Speaker 12: In addition to US GAAP reporting, Broadcom reports certain financial measures on a non-GAAP basis.

Speaker 13: A reconciliation between GAAP and non-GAAP measures is included in the tables attached to today's press release.

Speaker 14: Comments made during today's call will primarily refer to our non-GAAP results.

Speaker 15: I'll now turn the call over to Hawk.

Speaker 16: Well, thank you, Gee, and thanks everyone for joining us today.

Speaker 17: Before I provide color on a Q4 result,

Speaker 18: Let me put in perspective what we achieved in fiscal year 2022.

Speaker 19: For the year, I'm pleased to report that consolidated revenue hit a record of

Speaker 20: $33.2 billion, growing 21% year on year.

Speaker 21: Yet another year of double-digit organic growth.

Speaker 22: This growth was driven by our strong partnerships with customers.

Speaker 23: and increase R&D investments, which enable accelerated adoption of our next generation technologies.

Speaker 24: With our robust business model, we grew our fiscal 2022 operating profit by 28% year-on-year and our free cash flow per share by 25% year-upon-year.

Speaker 25: Now...

Speaker 26: to discuss details of our Cisco Q4.

Speaker 27: In our fiscal Q4-22, consolidated net revenue was a record $8.9 billion, up 21% year on year.

Speaker 28: Semiconductor Solutions revenue increased 26% year-on-year to $7.1 billion. And Infrastructure Software Revenue Group 4% year-on-year to $1.8 billion.

Speaker 29: In Q4, our semiconductor business continues to perform well across hyperscale, service providers, and enterprise.

Speaker 30: On top of this, wireless grew sequentially as we ramped up the new platform and our North American customers.

Speaker 31: In reporting this result,

Speaker 32: I'd like to emphasize we demonstrate our continued discipline.

in shipping our strong backlog.

Only as and when needed by our end customers.

So in contrast...

to weak consumer electronic spending today and despite concerns of a global recession.

We believe overall infrastructure spending remains strong.

and we continue to experience sustained demand in most of our end markets.

And this is what we continue to see in Q1. So let me expand on this.

Starting with networking.

Networking revenue was a record $2.5 billion and was up 30% year-on-year, representing 35% of our semiconductor revenue.

We see strong growth.

from deployment of Tomout 4 for data center switching at hyperscale customers.

and we see upgrades of edge and core routing networks with our next generation Jericho portfolio at cloud and service providers.

and multiple cloud customers, we continue to lead in delivering custom solutions for compute offload accelerators

and actually surpass the $2 billion mark in revenues in fiscal 2022.

Looking into Q1, we do expect networking revenue to be strong and grow about 20% year-over-year.

Next, our storage connectivity revenue was a record $1.2 billion, or 17% of semiconductor revenue, and I'm 50% year on year.

As we have mentioned in previous earnings calls,

We are benefiting here from substantial content increases.

as both cloud and enterprise customers adopt...

our next generation mega RAID and storage.

and storage adapters.

This trend will continue in Q1.

And we expect

server storage connectivity revenue to grow above 50% year-on-year.

Moving on to broadband, revenue of $1 billion grew 20% year-on-year and represented 15% of semiconductor revenue.

Our broadband business is benefiting from ongoing multi-year deployments by North American and European service providers of 10 gigabit PON and DOCSIS 3.1 with embedded Wi-Fi 6.0.

N6E. In Q1, we expect...

the secular drivers behind broadband to continue.

our business to be strong at about 30% year-on-year growth.

Moving on to wireless.

Q4 revenue of $2.1 billion represented 29% of semiconductor revenue.

with the 13% year on year on year increase coming.

largely from higher content.

And in Q1...

We expect wireless revenue to be sequentially flat.

and up low single digits year on year.

Finally, Q4 industrial resale of $234 million grew 1% year-over-year as softness in China mostly offset the strength in North American and European automotive.

In Q1, we forecast industrial resales to continue the trend of low single digit percent growth year on year.

So in summary, Q4 semiconductor solutions revenue was up 26% year on year. And in Q1, we thank semiconductor revenue growth to sustain at approximately 20% year on year.

Moving on to software. In Q4, infrastructure software revenue of 1.8 billion grew 4% year-on-year and represented 21% of total revenue.

Cost software revenue grew 5% year-on-year.

in spite of adverse forex imping

In dollar terms, consolidated renewal rates averaged 117% over expiring contracts.

And in our strategic accounts, we average 128%.

Within our strategic counts, annualized bookings of $357 million included $101 million of cross-selling of our portfolio products to these customers.

Over 90% of the renewal value represented recurring subscriptions and maintenance.

Over the last 12 months,

Consolidated renewal rates average 120% over expiring contracts.

in our strategic accounts we averaged 135%.

because of this.

Our ARR, which is annual recurring revenue, the indicator of forward revenue, at the end of Q4 was $5.4 billion, which was up 4% from a year ago.

And in Q1 we expect our infrastructure software segment revenue to be flat year on year, reflecting.

Core software revenue growth of mid-single digit percent year-over-year, offset by a year-on-year decline in the Brocade Enterprise SAND business.

In summary, we are guiding consolidated Q1 revenue of $8.9 billion, up 16% year-on-year.

While we are fully booked for fiscal 2023,

In this environment, we are not providing you guidance for the year.

Before Kirsten tells you more about our financial performance for the quarter, let me provide a brief update on our pending acquisition of VMware.

We are making progress.

with our various regulatory filings around the world, as we very much expect, having received merger clearance in Brazil, Canada and South Africa.

We anticipate the timeline for the review process will be more extended in other key regions.

especially given the size of this transaction.

Having said that, we are still confident that this transaction will close.

and be completed in our fiscal 2023.

The combination of Broadcom and VMware is about enabling enterprises to accelerate innovation and expand choice by addressing their most complex technology challenges in this multi-cloud era.

And we are confident that regulators will see this when they conclude their review.

With that, let me turn the call over to Kirsten.

Thank you, Hawk. Let me now provide additional detail on our financial performance.

Revenue was $8.9 billion for the quarter, up 21% from a year ago.

Gross margins were 75% of revenue in the quarter and 10 basis points year on year.

Operating expenses were $1.2 billion, up 3% year on year, driven by investment in R&D.

Operating income for the quarter was $5.5 billion and was up 25% from a year ago.

Operating margin with 62% of revenue, up approximately 240 basis points year on year.

Adjust to Deepa Dha with $5.7 billion or 64% of revenue.

This figure excludes $129 million of depreciation.

Now, a review of the P&L for our two reportable segments.

Revenue for our Semiconductor Solutions segment was $7.1 billion and represented 79% of total revenue in the quarter. This was up 26% year on year.

Gross margins for our semiconductor solution segment were approximately 71% of 70 basis points year on year driven by product mix and adoption of next generation products across our extensive product portfolio.

Operating expenses were $825 million in Q4, up 4% year on year.

R&D was $731 million in the quarter, up 4% year on year.

Q4 semiconductor operating margins were 59%.

So while semiconductor revenue was up 26%, operating profit grew 33% year on year. Moving to the P&L for infrastructure software segment.

Revenue for infrastructure software was $1.8 billion, up 4% year on year, and represented 21% of revenue.

Gross margins for infrastructure software were 91 percent in the quarter, and operating expenses were 348 million in the quarter, down 1 percent year over year.

Infrastructure software operating margin was 72% in Q4 and operating profit grew 6%.

Moving to cash flow.

Free cash flow in the quarter was $4.5 billion, representing 50% of revenue.

We spent $122 million on capital expenditures.

Day sales outstanding were 30 days in the fourth quarter compared to 29 days in the third quarter.

We ended the fourth quarter with inventory of 1.9 billion, up 5% from the end of the prior quarter, because we expect the mix of revenue in Q1 to have a higher cost of materials.

We ended the fourth quarter with $12.4 billion of cash and $39.5 billion of gross debt.

of which $440 million is short term.

Based on current business trends and conditions, our guidance for the first quarter of fiscal 2023 is for consolidated revenues of 8.9B and adjusted EBITDA of approximately 63% of projected revenue.

In forecasting such operating profitability,

We would like to point out that because of product mix changes.

Our non-GAAP gross margin could be down roughly 100 basis points from Q4. And R&D spending could be up sequentially as we step up hiring of engineers for multiple critical projects.

Let me recap our financial performance for fiscal year 2022.

Our revenue hit a record $33.2 billion, growing 21% year on year.

Semiconductor solutions revenue was $25.8 billion, up 27% year over year.

Infrastructure software revenue with $7.4 billion, up 4% year on year.

Gross margin for the year was 76% up 110 basis points from a year ago. Operating expenses were $4.8 billion up 6% year on year.

Fiscal 22 operating income was $20.3 billion, up 28% year over year, and represented 61% of net revenue.

Adjusted EBITDA was $21 billion, up 27% year over year, and represented 63% of net revenue.

This figure excludes 529 million of depreciation.

We spent $424 million on capital expenditures and free cash flow grew 22% year on year to $16.3 billion or 49% of fiscal 22 revenue.

Turning to capital allocation.

For fiscal 22, we spent $15.5 billion, consisting of $7 billion in the form of cash dividends, and $8.5 billion in repurchases and eliminations.

We ended the year with 13 billion of authorized share repurchase programs remaining and expect to resume our repurchase of common stock as soon as we can under SEC rules.

Excluding the potential impact of any share repurchases, in Q1 we expect the non-GAAP diluted share count to be $435 million.

Aligned with our ability to generate increased cash flows in the preceding year, we are announcing an increase in our quarterly common stock cash dividend in Q1 fiscal 2023 to $4.60 per share, an increase of 12% from the prior quarter.

We intend to maintain this target quarterly dividend throughout fiscal 23, subject to quarterly board approval.

This implies our fiscal 2023 annual common stock dividend to be a record $18.40 per share. I would like to highlight that this represents the 12th consecutive increase in annual dividends since we initiated dividends in fiscal 2011.

That concludes my prepared remarks. Operator, please open up the call for questions.

Thank you. To ask a question, you will need to press star 1 1 on your telephone. We ask that you please limit yourself to one question.

Please stand by while we compile the Q&A roster.

And today's first question will come from CJ Muse with Evercore ISI. Please go ahead.

Yeah, good afternoon. Thank you for taking the question. You talked about infrastructure holding up well across most segments. I guess I was hoping you could speak more to why infrastructure today has been so immune from the weakness we've seen elsewhere in some of these. Specifically, can you speak to trends you're seeing perhaps in hyperscale versus enterprise? Any differences there?

And also, can you speak to how you see these trends throughout all of fiscal 23? Thanks so much. Yeah, we'll go to next topic.

All right, great question. What we see now, last quarter and this current quarter as we progress, is hyperscale spending continues.

strong.

Enterprise consumption continues.

but strong.

and broadband deployment across North America, Europe , and even parts of Asia continues.

There are multi-year trends of growth, simply because out of COVID-19, there was a lot of investment, there was a lot of plans to invest, and these are multi-year. So the

Exactly as I said, all these areas currently continue to be...

very much on track as we've seen it.

And now keep in mind as I said in previous earnings call and I just re-emphasized here today, again it's

It's just what I show you. We don't believe we are

shipping beyond true demand. We continue to scrub, to basically judge

orders, the backlog we have, and we also take pains to only ship to customers who can consume it pretty much within the same quarter.

before we do it. And so as far as we can tell...

based on what we see as a willingness of our customers to accept and consume the products we ship.

That's what we see right now. I'm asking me for the rest of 23...

No, I tend to be more careful in being able to answer that. I don't know the answer to that is my opinion. I do not know whether the strength...

in acquisition and consumption of our products.

will continue to sustain for the rest of 23.

What we do see is over the next several months, we see those orders still in place. We see customers willing to take the products. We have talked to multiple, multiple CIOs among the largest enterprise customers we have out there.

We have not seen them talk about a reduction in their IT spending.

We have seen many saying it will grow and others saying it will at least remain flat.

So I guess I'm cautiously positive about trends looking forward.

Thank you. One moment for our next question. Okay, we'll go to the next question. Okay, we have a question from the chat box. This is from

will come from the line of Ross Seymour with Deutsche Bank. Please go ahead.

Hi everybody, thanks for letting me ask you a question. I want to follow on CJ's and maybe a similar question, but in a slightly different way. Last quarter you talked about actively scrubbing your backlog and clearly that's helped to avoid some of the inventory pitfalls that some of your peers have seen. But have you noticed since last quarter's call a change in either the rate of your backlog growth?

of it, et cetera. upcoming this morning's

You know, it comes down very simply to we continue to...

scrub our backlog in a manner this quarter, last quarter, no differently than we did it.

six months or a year ago. We haven't changed our focus on ensuring that we do not ship products to the wrong people who just put it on the shelves. That is still very much very very intact in our view.

Our backlog continues to be way up there and you're right, it makes us change. As you can see, one quarter it would be broadband growing 20% year on year and networking growing 30% year on year and the following quarter is broadband growing 30% year on year.

and networking growing 20% and it impacts not just from hyperscale, varying their purchases in a, you know, for want of a better word, seasonal manner, it's also the particular end markets it goes to. So there's a lot of, I won't make.

of backlog and products we ship in any particular quarter will vary. And they all change. But it doesn't change the fact that we have...

still a very, very strong backlog and what we're shipping, which is most important in the current quarter, we believe is what we are reflecting as end demand for our products.

Thank you.

One moment for our next question.

That will come from the line of Stacey Raskon with Bernstein.

Great, guys, thanks for taking my question. So, Hawk, I guess just to ask the question explicitly, last quarter I think you said your semiconductor backlog was $31 billion and your lead times were still 50 weeks, give or take. What are those numbers now? Like, where is backlog and where are lead times?

Safety, this is Kirsten Spears. We're not going to guide the year. I'm not asking you to guide the year.

I'm not asking to go to you right? We're fully booked for the year. So if I give you the backlog number, I'm effectively guiding you to the year. So we've chosen to not to provide that data this time. Okay. I guess. Can you just tell me is it is it is it gone up? We went from it and then itibrary

Our forecast for the year, if you want to call it forecast-based, our backlog is not a forecast.

For the year, we'll continue to grow. Other than that, I'm not telling you what it is. We don't got it.

Got it, but you think back back log will grow for the year is what you're saying.

Our year forecast will grow.

Got it. Thank you.

Thank you. One moment for our next question.

That will come from the line of Harlan Sir with JP Morgan.

Good afternoon. Thanks for taking my question. Haff, you know, your server storage connectivity business has been extremely strong, right? Up 50% plus in fiscal 2022. And more importantly, the business continues to sustain based on the January quarter outlook.

We typically tend to think about HDD controllers and preamps, but your business is much more diverse than this, so can you just, first of all, walk us through like what percentage is mega-rate, PCIe, or what I call overall storage connectivity versus your storage controller business, which is primarily...

HDD controller and preamps and maybe what's driving the near-term growth in the storage franchise when many of your storage competitors and customers are seeing major weakness in this segment.

Well, that's an interesting question. Our service storage connectivity, and you're right, which includes near-line hard drives, which includes some...

... you

on-prem server storage connectivity, host bus adapters included. It's broad. We'll return to it in just a moment.

I don't have the numbers on my mind exactly what it is. Just broad base, particularly from the mega rate business, as I said, a big part of the growth, the big percentage growth, as I indicated before.

is due to the fact that the newer generation of products are all subsystems, are boards. We're not just shipping chips. So that counts for a big part of the growth. Notwithstanding, we do need growth, it's out, but not as much as the 50% we announced, obviously. A big part of 50% is...

content growth as we ship subsystems and bots versus chips. But even then, you need growth itself, and it's across the board, and it's not everything that grows.

but enough said that overall it grows.

Thank you.

Thank you. One moment for our next question.

That will come from the line of Timothy Arcuri with UBS.

Thanks a lot. You know, you keep on scrubbing demand and you're shipping to what you think is consumption. So I guess I take it to believe that there's still a gap between what you're shipping and what. Customers want in any given quarter. I guess we could call that delinquency. Some others call that delinquencies.

You know, obviously you haven't changed your approach, but I would imagine that this delinquency or this gap between what you're shipping in a quarter and what your customers want, that's probably declining. So I guess the question is, can you quantify the gap and is the gap getting?

Thanks. That's an interesting question. And I'm going to ask a question. I'm going to ask a question.

we don't really try to quantify it again.

And a big part of it is...

I don't want to get you guys overly excited, but customers, you know, backlog is sometimes very often categorized or characterized under CRD or customer request dates. Our customer request date in this particular quarter, for instance, our last quarter.

was much, much higher.

than what we actually ship.

And it was the same way six months ago. Is it got better from six months ago?

I could only guess and in this forum is the last thing I want to do.

But there's still a big amount of CRDs backlog in excess of what we actually ship up.

Got it. Okay. Thanks.

Thank you. One moment for our next question.

That will come from the line of Vivek Arya with Bank of America.

Thank you. I actually have two very quick clarifications. First, Hock, have you seen the impact or you expect to see any impact of China lockdowns in your wireless business in Q2? I know there doesn't seem to be anything in Q1. I was just wondering if there's something we should be prepared for in Q2. And then on the growth margin, I thought I heard

gross margin goes down sequentially in your semiconductor business in Q1. Is that really all mix related or is there a like to like impact that we should keep in mind?

Okay, let's take your first question first and then go to your more interesting second question, which is interesting because connect a few dots here. On the first one, as you know, our wireless is one single customer and the Covid shutdown and all that does slow down interquarter shipments but nothing, we don't see.

Q2 is too far away for me to really give you any sense and no accuracy of what it's like. But there's obviously movements between Q4 and Q1 as our numbers does kind of reflect. But...

which is why year on year is a pretty good measure. As you see there, Q4 year on year was just 13%. I shouldn't say just, was 13% and Q1 was actually still 1% up. But there's obviously some movements in between.

But, and I'm sure that has something to do with COVID logistics, impact on logistics chain of our largest customer. I can't really tell in the bigger picture.

Now switching and certainly on Q2 I'm no position to give you any indication. We don't have visibility.

Now, turning to the second part of the question on gross margin, it's all product mix. And it's all product mix because there are some, depending on the particular product, there

products we ship, as I've said many times before.

we should, as I've said many times before, the margin.

Product managing, gross managing does vary.

simply because it's the nature of the market conditions, the ecosystem that we have in each of those markets, those niche markets we participated in. But broadly, to give you a sense, perhaps I'll give you more color.

simply because it's the nature of the market conditions, the ecosystem that we have in each of those markets, those niche markets we participated. But broadly, to give you a sense, perhaps I'll give you more color. Networking tends to have...

some of the highest margins collectively of our products and much higher than broadband. And of course wireless has the lowest.

and you look at Q4 to Q1, the mix shifts away from networking someone and more to broadband.

and wireless still remains a big chunk of it, even though it hasn't receded as a percent. So that's why you will see that impact on the gross margin sequentially. Nothing more than just the mix of products we ship and the natural gross margin of those products various levels of competition can produce.

one from the other. And you can actually see it with the way our inventory grew too. As we have seen them reported

Our inventory ending Q4 grew about 5% from that ending.

Q3, the quarter before. And obviously the Q4 inventory is positioned to ship in Q1. And you see that increase, even as our guidance on revenue remains pretty flat.

Thank you very useful.

One moment for our next question.

That will come from the line of Joseph Moore with Morgan Stanley .

Great. Thank you. You talked about being booked for the whole year, next year. How much visibility do you think that gives you really? And I guess what's your philosophy going to be if customers with non-cancelled backlog come to you and try to make an adjustment in a potentially weaker economic period next year?

Let's start with the first part.

When we're booked, we're really booked. I mean, we got paper that says they have committed orders for us to ship. And as you know, our orders are non-cancellable. Customers know that we have the paper, and when we say we are fully booked, it means we have the backlog.

Sitting there. Now, the second question you asked is a more interesting question. What if we all hit a massive recession, depression or recession?

late next year, in the next six months, nine months.

and customers and things really collapse around our ears. What would we do?

My answer is, I don't know, which is partly why we're not giving you annual guidance. It won't.

react as and when circumstances require us to do. But at this point we have the orders.

react as and when circumstances require us to do. But at this point, we have the orders. Thank you.

And one moment for our next question.

That will come from the line of William Stein with Truist.

Great, thanks for taking my question and congrats on the good results in Outlook. It seems that the capital allocation policy in terms of the outlook, maybe the policy didn't change, but at least the tactics did. The payout ratio relative to free cash flow.

You're setting that a little bit lower than 50% and you're resuming the buyback.

And I'm hoping you can just discuss why these decisions were made. Does it does it reflect an indication or a changing view about the timing of the VMware close or is it related to concerns around macro or anything else? Thank you.

Well, I would say that we are policy wise, we've always said we would pay out approximately 50% of the preceding years free cash flows. And in this economic environment that we're all seeing, we believe that 12% increase year over year is a robust dividend. And so, yeah, we're quite happy with that.

Thank you.

And don't forget, we're going to start bye-bye.

once the rules allow us to do that. And so that's another return of cash to shareholders. And we fully intend to get that going as soon as we could. As soon as we can, and we still have 13 billion under that program.

Thank you.

And one moment for our next question.

And that will come from the line of Matt Ramsey with Cowan. Please go ahead.

Yeah, thank you very much. Good afternoon. I'm Hawk, I think in some of the prepared script that you guys.

disclose that you're now sort of in the compute offload ASIC franchise. The fiscal year was 2 billion and I think that's maybe a third higher than it was last year. It looks like some of the, you guys did an event on that business earlier in the year and things really jumped up in fiscal 18 and then kind of went back, even getting cond inauguration. What ABOUT THAT similar term?

I'd just be interested in seeing some of the trends there. It seems like Hyperscale really wants custom silicon at this point. Thanks.

Yeah, you're right in that regard. We have multiple programs from...

the hyperscalers on custom or semi-custom silicon, and all actually collectively we call as offload compute. And they all do their own. So that's...

in one way that's very positive and very opportunistic for our technologies to be deployed. On an ongoing basis, you know that

The tricky thing in all this is more will come on, the rate of RAM is harder for us to predict. These are very lumpy programs.

fairly large and lumpy, which is why we can get to $2 billion and raise an increase of like, you correctly said, a third from a year ago. But it's lumpy and the trend is very hard for me to chart out unless you ask for it over the next five years.

And even then, if you look at it five years, become a question now, would these hyperscalers revert to merchant silicon versus continuing to use custom ASICs? And that poses another issue for me to figure it out. But you ask for me over the next year or two, where it will go.

I'd be honest and say I'm in no position to give you really a good forecast.

We have one moment for our next question.

That will come from the line of Erin Rakers with Wells Fargo.

Yeah, thanks for taking the question. I wanted to go back to the prior comment you had made, and I want to make sure I'm clear on it. I think possibly within the context of lead times. You talked about customers. I think it was, you know, giving you, giving you forecasts that were.

Notably longer, I just, I just want to understand a little bit of the context behind that comment earlier or any kind of. Appreciating that you're not giving backlog any kind of context around that lead time discussion would be helpful.

Oh, we haven't in any major substantive way changed

our lead times by any means as I've said before and we kind of go along on that practice mode.

We have forecast, but we're really not talking about forecast either as it relates to the previous comment. I think I was referring to backlog and paper that we use. And as I said before, even on those paper we have with customer request dates for shipments, we scrub each of those demands.

before we ship it out in the current quarter or the preceding quarter, depending on what it is. But we don't, we have forecast, but obviously we're not giving you any indication of our forecast at this point simply because we are still grinding our way through the backlog.

Thank you.

One moment for our next question.

That will come from the line of Toshiya Hari with Goldman Sachs.

Hi, thanks so much for taking the question. Haak, I was hoping you could talk a little bit about your business in China, not so much from a ship to perspective, but from an end consumption perspective. I know you don't have perfect visibility into what's being consumed at the end customer level. Have a great day.

Thank you.

Well, to answer your question directly is...

China has slowed down in terms of consumption of products across industrial, across even infrastructure. It has slowed down and we see that. This still... They're still...

You know, they're still not totally collapsed, but they have slowed down compared to what they were taking a year ago. And we see that particularly in our industrial business, which as I indicated in my prepared remarks.

strength in Europe , strength in North America, especially in automotive, but weakness in China, which is a big part of our industrial business, slowed it down. But beyond that, in the IT side, yeah, we have seen a slowdown, but keep in mind, China represents... meters, two kilometers, four kilometers, one meter engaged between equals.

less than 10% of the total revenues today.

So while it obviously has some level of offsetting effect, it's not sufficiently large to have that much impact on the overall growth trend for the entire company.

And any signs of improvement going forward, Hock, on the IT side? Or is it too early to tell? I think it's too early at this point for me to make a call.

You know, it's, there's a sense it's some reopening, but...

If I make a call, good chance I could be wrong in a month's time when things might shut down again.

Thank you.

One moment for our next question.

That will come from the line of Christopher Rowland with Susquehanna.

Thanks for the question and congrats on bucking the trend in semis here, Hawk. So my question, it was kind of addressed on the last one, but wanted to talk about the divergence particularly between storage and maybe China enterprise networking.

Your other competitor, and call it core hard disk drive, talked about a downturn in demand, in storage, a large inventory build, and something similar happening in China networking as well. And you guys have seemingly such a big divergence there.

And I was wondering if perhaps you had an explanation for some of that and why the difference.

The only explanation to an earlier question was...

our portfolio in server storage is pretty broad-based. Now with a couple of areas that are fairly large, areas like, you know, rate, mega rate, particularly pretty much, but they're more than mega rate we have, you're correct, and it's pretty broad-based and there's some puts and takes obviously, but overall

we see what we tell you. Okay, thank you.

see what we tell you.

That will come from the line of Edward Snyder with Charter Equity Research.

Thanks a lot. Clark, I'd like to talk a little bit about your wireless business, which is more retail focused and probably be the first one to see any recessionary pressures if you get them. I know your guide is really solid. First give us some idea of your firm order book. I know you get a projection when the model year starts of what the total number would be for the year.

think about overall content at the largest customer in the next year or so, because there's obviously increased competition in some of your core areas, and I was wondering if you're looking to shift more of your focus there into some of the mixed signal custom stuff and maybe wait for some of the RF. Thanks.

Okay, interesting question. Let me try and address it. First, I assume you imply when you say orders or forecast or shipment, we only guide Q1, so I can only give you Q1. planet.

We have it all on paper, orders. These are real orders, non-cancellable. So we're giving you numbers that we intend to ship, that we think the customer needs, as far as we can scrub. And we have it.

We have it all on paper, orders. These are real orders, non-cancellable. So we're giving the numbers that we intend to ship that we think the customer needs as far as we can scrub. And we have it. These are committed orders.

pretty committed revenue forecast. Just to make it clear Vietnam. And by the way, we have pretty good visibility from that particular customer too. Now beyond that, to the second part of your question, yeah, we're very pleased with content increase that we have experienced, not every year necessarily, as you know, but over a period of years, we always see this content increase. And we're still very, very, very, very, very, very, very,

well positioned in those few product lines that are, I call it almost, franchised in our North American customers.

this is Wi-Fi Bluetooth, this is RF front end, and this is a touchscreen controller, high performance mixing v

We can only, and that's all we focus on, because these are areas where we are the best. We believe we are the best technology and delivering value to our customers. There's no reason to find something else where you're not the best and hope to gain share from someone else.

I could apply the same to my competitors in their thinking.

You don't see the competitive landscape shifting.

And make things more difficult for you in that especially in the RF section in the next coming year So you think you know your franchises are your franchises and you know the screen

And today is snow.

Please say no. Great, thank you.

Thank you. And our last question of the day will come from the line of Pierre Farragou with New Street Research.

Hey, thanks for taking my question. I hope you mentioned you're fully booked for 2023 and you've had a lot of questions on that one. So I apologize in advance for squeezing in one last one. And I was wondering if you look at the year as you see booked today, if you could tell us.

in this like booking dynamics, where do you see for the full year 2023 the most growth and the least growth? I know you can't give us like numbers and you don't want to guide. I completely accepted that. But if you could give us like a kind of idea of.

where things keep growing very fast, where things are slowing down in your order dynamics over the full year.

Infrastructure is still holding up very well as we have said.

in this call so far. We see, we continue to see infrastructure and infrastructure by...

looking at it comes from hyperscale.

in building their data centers and components to their data centers, in service providers like telcos.

where we see our string in broadband.

access gateways and broadband.

access, gateways, and broadband.

I know people are finding it hard to imagine we are seeing it even in enterprise.

When

We do not where that's why I made a comment earlier

We do not see across a cross section of large enterprises

reduction

reduction in their IT spending.

for 2023. We have not seen, we have not come across too many customers, enterprise customers, and I'm talking real end-use customers, end-use enterprise customers, who are seeing their IT budget drop below 22.

For most that we have asked, it's either flat or even up as they all continue to have the compelling need to keep modernizing their platform and workloads.

and digitizing their business model. And I think that was the only explanation given to me why there was no such clear reduction, even as we all hear every day the likelihood possibility of a global recession.

Thank you very much.

Thank you. Thank you. If there are no further questions in the queue at this time, I would now like to turn the call back over to GU for any closing remarks.

Thank you, Cherie. Broadcom currently plans to report its earnings for the first quarter of Fiscal 23 after close of market on Thursday, March 2nd, 2023. A public webcast of Broadcom's earnings conference call will follow at 2 p.m. Pacific. That will conclude our earnings call today. Thank you all for joining.

Sheri, you may end the call. Thank you. Thank you all for participating. This concludes today's conference call. You may now disconnect.

The conference will begin shortly. To raise your hand during Q&A, you can dial star 11.

You.

conference will begin shortly. To raise your hand during Q&A, you can dial star 1-1.

The TR public.

I I you.

you

Welcome to Broadcom Inc. fourth quarter and fiscal year 2022 Financial Results Conference call. At this time, for opening remarks and introductions, I would like to turn the call over to G.U., Head of Investor Relations of Broadcom Inc. Thank you, Cherie, and good afternoon, everyone.

Joining me on today's call are Hawk Tan, President and CEO , Kirsten Spears, Chief Financial Officer, and Charlie Kawa, President, Semiconductor Solutions Group. Broadcom distributed a press release and financial tables after the market closed, describing our financial performance for the fourth quarter and fiscal year 2022.

If you did not receive a copy, you may obtain the information from the investors section of Broadcom's website at Broadcom.com.

This conference call is being webcast live and an audio replay of the call can be accessed for one year through the investor section of Broadcom's website.

During the prepared comments, Hawk and Kiehresen will be providing details of our fourth quarter and fiscal year 2022 results.

guidance for our first quarter, as well as commentary regarding the business environment. We'll 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 today's press release. The comments made during today's call will primarily refer to our non-GAAP results.

I'll now turn the call over to Hawk.

Well, thank you, Gee, and thanks everyone for joining us today.

Before I provide color on our Q4 results, let me put in perspective what we achieved in fiscal year 2022.

For the year, I'm pleased to report that consolidated revenue hit a record of

33.2 billion dollars, growing 21% year on year.

Yet another year of double-digit organic growth.

This growth was driven by our strong partnerships with customers.

and increase R&D investments, which enable accelerated adoption of our next generation technologies.

With our robust business model, we grew our fiscal 2022 operating profit by 28% year-on-year and our free cash flow per share by 25% year-on-year.

business model, we grew our fiscal 2022 operating profit by 28% year on year, and our free cash flow per share by 25% year upon year. Now, let's talk about the financial model. We have

to discuss details of our fiscal Q4. In our fiscal Q4-22, consolidated net revenue was a record $8.9 billion, up 21% year on year.

Semiconductor solutions revenue increased 26% year-on-year to $7.1 billion. And infrastructure software revenue grew 4% year-on-year to $1.8 billion.

In Q4, our semiconductor business continued to perform well across hyperscale, service providers, and enterprise. On top of this, wireless grew sequentially.

as we ramp up the new platform and our North American customer.

RAM are the new platform and our North American customer. In reporting these results

I'd like to emphasize we demonstrate our continued discipline in shaping our strong backlog.

only as and when needed by our end customers. So in contrast,

to weak consumer electronic spending today, and despite concerns of a global recession, we believe overall infrastructure spending remains strong.

and we continue to experience sustained demand in most of our end markets.

And this is what we continue to see in Q1. So let me expand on this.

Starting with networking.

Networking revenue was a record $2.5 billion and was up 30% year-on-year, representing 35% of semiconductor revenue.

We see strong growth from deployment of thermal fall for data center switching at hyperscale customers. And we see upgrades of edge and core routing networks with our next generation Jericho portfolio at cloud.

service providers. And at multiple cloud customers, we continue to lead in delivering custom solutions for compute offload accelerators and actually surpass the two billion dollar mark in revenues in fiscal 22.

Looking into Q1, we do expect networking revenue to be strong and grow about 20% year-over-year. Next, our storage connectivity revenue was a record $1.2 billion.

or 17% of semiconductor revenue. And I'm 50% year on year.

As we have mentioned in previous earnings calls, we are benefiting here from substantial content increases as both cloud and enterprise customers adopt our next generation mega rate and storage adapters. Market trend will continue in Q1.

and we expect server storage connectivity revenue to grow above 50% year-on-year. Moving on to broadband, revenue of $1 billion grew 20% year-on-year.

and represented 15% of semiconductor revenue. Our broadband business is benefiting from ongoing multi-year deployments by North American and European service providers of 10 gigabit PON.

and DOCSIS 3.1 with embedded Wi-Fi 6 and 6E.

In Q1, we expect the secular drivers behind broadband to continue.

and our business to be strong at about 30% year-on-year growth.

Moving on to wireless.

Q4 revenue of 2.1 billion represents 29% of semiconductor revenue.

with the 13% year on year on year increase coming.

largely from higher content. And in Q1

We expect wireless revenue to be sequentially flat.

and up low single digits year on year. Finally, Q4 industrial resale of $234 million grew 1% year over year as...

Softness in China mostly offset the strength in North American and European automotive. In Q1, we forecast industrial resales to continue the trend of low single digit percent growth year on year. If you are interested, contact the Bi tastANGEL name within the

So in summary, Q4 semiconductor solutions revenue was up 26% year on year. And in Q1, we expect semiconductor revenue growth to sustain at approximately 20% year on year.

Moving on to software. In Q4, infrastructure software revenue of 1.8 billion grew 4% year-on-year and represented 21% of total revenue.

Cost software revenue grew 5% year-on-year.

in spite of adverse forex impact

In dollar terms, consolidated renewal rates averaged 117% over expiring contracts. And in our strategic accounts, we averaged 128%.

Within our strategic counts, annualized bookings of $357 million included $101 million of cross-selling of our portfolio products to these customers.

Over 90% of the renewal value represented recurring subscriptions and maintenance.

Over the last 12 months, consolidated renewal rates averaged 120% over expiring contracts.

in our strategic accounts we average 135 percent because of this

Our ARR, which is annual recurring revenue, the indicator of forward revenue, at the end of Q4 was $5.4 billion, which was up 4% from a year ago.

And in Q1 we expect our infrastructure software segment revenue to be flat year on year, Reflecting

Core software revenue growth of mid-single digit percent year-over-year, offset by a year-on-year decline in the Brocade Enterprise SAND business. In summary, we are guiding consolidated Q1 revenue of $8.9 billion up to $7.9 billion.

16% year on year. While we are fully booked for fiscal 2023, in this environment, we are not providing you guidance for the year.

Before Kirsten tells you more about our financial performance for the quarter, let me provide a brief update on a pending acquisition of VMware.

Before Kirsten tells you more about our financial performance for the quarter, let me provide a brief update on our pending acquisition of VMware. We are making progress.

with our various regulatory filings around the world, as we very much expect, having received merger clearance in Brazil, Canada, and South Africa. We anticipate the timeline for the review process will be more extended in other key regions.

especially given the size of this transaction. Having said that, we are still confident that this transaction will close.

and be completed in our fiscal 2023.

The combination of Broadcom and VMware is about enabling enterprises to accelerate innovation and expand choice by addressing their most complex technology challenges in this multi-cloud era.

we are confident that regulators will see this when they conclude their review.

With that, let me turn the call over to Kirsten. Thank you, Hock. Let me now provide additional detail on our financial performance. Revenue was $8.9 billion for the quarter, up 21% from a year ago. Gross margins were 75% of revenue in the quarter.

and the 10 basis points year on year. Operating expenses were $1.2 billion, up 3% year on year, driven by investment in R&D. Operating income for the quarter was $5.5 billion and was up 25% from a year ago.

Operating margin was 62 percent of revenue of approximately 240 basis points year on year. Adjust to the Bata was 5.7 billion or 64 percent of revenue. This figure excludes 129 million of depreciation. Now a review of the P&L for our two reportable segments.

Revenue for our semiconductor solution segment was $7.1 billion and represented 79% of total revenue in the quarter. This was up 26% year on year.

R&D with $731 million in the quarter, up 4% year on year.

Q4 semiconductor operating margins were 59%.

So while semiconductor revenue was up 26%, operating profit grew 33% year on year. Moving to the P&L for infrastructure software segment. Revenue for infrastructure software was 1.8 billion up 4% year on year. And represented 21% of revenue.

Gross margins for infrastructure software were 91% in the quarter and operating expenses were 348 million in the quarter down 1% year over year. Infrastructure software operating margin was 72% in Q4 and operating profit grew 6%.

Free cash flow in the quarter was $4.5 billion, representing 50% of revenue. We spent $122 million on capital expenditures.

Day sales outstanding were 30 days in the fourth quarter compared to 29 days in the third quarter. We ended the fourth quarter with inventory of $1.9 billion, up 5% from the end of the prior quarter, because we expect the mix of revenue in Q1 to have a higher cost of materials.

We ended the fourth quarter with $12.4 billion of cash and $39.5 billion of gross debt.

Of which 440Million is short term. Based on current business trends and conditions, our guidance for the 1st quarter of fiscal 2023 is for consolidated revenues of 8.9Billion and adjusted EBITDA of approximately 63% of projected revenue.

In forecasting such operating profitability, we would like to point out that because of product mix changes, our non-GAAP gross margin could be down roughly 100 basis points from Q4, and R&D spending could be up sequentially as we step up hiring of engineers for multiple critical projects. Let me recap our financial.

year. Gross margin for the year was 76% up 110 basis points from a year ago. Operating expenses were 4.8 billion up 6% year on year. Fiscal 22 operating income was 20.3 billion up 28% year over year and represented 61% of net revenue.

adjusted EBITDA with 21 billion, up 27% year over year, and represented 63% of net revenue.

This figure excludes 529 million of depreciation. We spent 424 million on capital expenditures and free cash flow grew 22% year on year to 16.3 billion or 49% of fiscal 22 revenue. Turning to capital allocation. For fiscal 22 we spent 15.5 billion consisting of...

of any share repurchases, in Q1 we expect the non-GAAP diluted share count to be $435 million. Aligned with our ability to generate increased cash flows in the preceding year, we are announcing an increase in our quarterly common stock cash dividend in Q1 fiscal 2023 to $4.60 per share.

An increase of 12% from the prior quarter. We intend to maintain this target quarterly dividend throughout fiscal 23 subject to quarterly board approval.

To ask a question, you will need to press star 11 on your telephone. We ask that you please limit yourself to one question. Please stand by while we compile the Q&A roster. And today's first question will come from...

scale versus enterprise and any differences there? And also, can you speak to how you see these trends throughout all of fiscal 23? Thanks so much. All right, great question. What we see now, last quarter and this current quarter as we progress, as hyperscale spending continues.

and any differences there? And also, can you speak to how you see these trends throughout all of fiscal 23? Thanks so much. All right, great question. What we see now, last quarter and this current quarter, as we progress, is hyperscale spending continues strong.

Enterprise consumption continues strong, and broadband deployment across North America, Europe , and even parts of Asia continue their multi-year trend of growth.

simply because out of COVID-19, there was a lot of investment, there was a lot of plans to invest, and these are multi-year. So exactly as I said, all these areas currently continue to be very much on track as we've seen it.

And now keep in mind as I said in previous earnings call and I just re-emphasized here today. Again it's

I just want to assure you, we don't believe we are shipping beyond true demand. We continue to scrub, to basically judge orders, the backlog we have, and we also take pains to only ship. You know this stuff doesn't cross a line, right?

to customers who can consume it pretty much within the same quarter before we do it. And so as far as we can tell,

based on what we see as a willingness of our customers to accept and consume the products we ship.

That's what we see right now. Asking me for the rest of 23, no, I tend to be more careful in being able to answer that. I don't know the answer to that is my opinion. I do not know whether this strength in acquisition and consumption of our products.

will continue to sustain for the rest of 23. What we do see is over the next several months, we see those orders still in place. We see customers willing to take the products. We have been talking to multiple, multiple CIOs among the largest enterprise customers we have out there.

We have not seen them talk about a reduction in their IT spending. We have seen many saying it will grow and others saying it will at least remain flat.

So I guess I'm cautiously positive about trends looking forward.

Thank you. One moment for our next question. That will come from the line of Ross Seymour with Deutsche Bank. Please go ahead. Hi, everybody. Thanks for letting me ask you a question. I wanted to follow on CJ's and maybe a similar question but in a slightly different way. Last quarter you talked about actively scrubbing.

how actively and aggressively you need to scrub it, any sort of changes in those forward-looking metrics that would alter your view on kind of the sustainability demand, the duration of it, et cetera.

You know, it comes down very simply to we continue to scrub our backlog in a manner this quarter, last quarter, no differently than we did it six months or a year ago. We haven't changed our focus.

on ensuring that we do not ship products to the wrong people who just put it on the shelves. That is still very much very, very intact in our view. Our bike log continues to be way up there and you're right, it makes us change. As you can see, one quarter, it would be broadband growing 20% year on year.

and networking growing 30% year on year, and the following quarter is broadband growing 30% year on year, and networking growing 20%. And it impacts not just from hyperscale, varying their purchases in, you know, for want of a better word, seasonal manner.

is also the particular end markets it goes to. So there's a lot of, our mix of backlog and products we ship in any particular quarter will vary. And they all change. But it doesn't change the fact that we have still a very, very strong backlog.

And what we're shipping, which is most important in the current quarter, we believe is what we are reflecting as end demand for our products.

What we're shipping, which is most important in the current quarter, we believe, is what we are reflecting as end demand for our products. Thank you.

One moment for our next question. That will come from the line of Stacey Raskon with Bernstein.

Safety, this is Kirsten Spears. We're not going to guide the year. So we're not going to invite you to guide the year.

I'm not asking to go to you right? We're fully booked for the year. So if I give you the backlog number, I'm effectively guiding you to the year. So we've chosen not to provide that data this time. Okay. I guess can you just tell me is it is it is it gone up ladder down?

Our forecast for the year, if you want to call it forecast-based, our backlog is not a forecast.

For the year, we'll continue to grow. Other than that, I'm not telling you what it is. We don't got it.

Got it. But you think back back log will grow for the year is what you're saying. Our year forecast will grow. Got it. Got it. Thank you.

backlog will grow for the year is what you're saying? Our year forecast will grow. Got it. Got it. Thank you.

Thank you. One moment for our next question. That will come from the line of Harlan Sir with JP Morgan.

Good afternoon, thanks for taking my question. Haff, your server storage connectivity business has been extremely strong, right? Up 50% plus in Cisco 22. And more importantly, that business continues to sustain based on the January quarter outlook. We typically tend to think about HDD controllers and preamps, but your business is much more diverse than this, so.

Can you just first of all walk us through like what percentage is mega-raid, PCIE or what I call overall storage connectivity versus your storage controller business which is primarily HDD controller and preamps and maybe what's driving the near-term growth in the storage franchise when many of your storage competitors and customers are seeing major weakness in this segment.

Well, that's an interesting question. Our server storage connectivity, and you're right, which includes nearline hard drives, which includes some keynotes there.

that some of what I call Some of what I callued

on-prem server storage connectivity, host bus adapters included, is broad. And I don't have the numbers on my mind exactly what it is. Just broad base, particularly from the mega rate business, as I said, a big part of the growth,

A big part of 50% is...

content growth as we ship subsystems and bonds versus chips. But even then, you need growth itself, and it's across the board, and it's not everything that grows.

But enough said that overall it grows.

enough that overall it grows. Thank you.

Thank you. One moment for our next question. That will come from the line of Timothy Arcuri with UBS.

Thanks a lot. You keep on scrubbing demand and you're shipping to what you think is consumption. So I guess I take it to believe that there's still a gap between what you're shipping and what customers want in any given quarter. I guess we could call that delinquency. Some others call that delinquencies. Obviously you haven't changed your approach, but I would imagine that this delinquency or this gap in the market is going to be a little bit more difficult.

quantified again. And a big part of it is

much, much higher than what we actually ship.

And it was the same way six months ago. Is it got better from six months ago?

I can only guess. And in this forum is the last thing I want to do.

But, there's still a big amount of CRDs backlog in excess of what we actually ship out. Got it. Okay, hot. Okay, good.

One moment for our next question. That will come from the line of Vivek Arya with Bank of America. Thank you. I actually have two very quick clarifications. First, Hock, have you seen the impact or you expect to see any impact of China lockdowns in your wireless?

business in Q2. I know there's nothing, doesn't seem to be anything in Q1. I was just wondering if there's something we should be prepared for in Q2. And then on the gross margin, I thought I heard gross margin goes down sequentially in your semiconductor business in Q1. Is that really all mix related or is there a like to like?

impact that we should keep in mind. Okay, let's take your first question first and then go to your more interesting second question, which is interesting because it connects a few dots here. On the first one, as you know, our wireless is one single customer. And the COVID shutdown and all that,...

does slow down inter-quarter shipments, but nothing, we don't see, Q2 is too far away for me to really give you any sense and no accuracy of what it's like. But there's obviously movements between Q4 and Q1.

as our numbers does kind of reflect. But, which is why year on year is a pretty good measure. As you see there, Q4 year on year was just 13%. I shouldn't say just, was 13%. And Q1 was actually still 1% up. But there's obviously some movements in between.

But, and I'm sure that has something to do with COVID logistics, impact on logistics chain of our largest customer. But I can't really tell in the bigger picture.

Now switching and certainly on Q2 I'm in no position to give you any indication. We don't have visibility.

Now, turning to the second part of the question on gross margin, it's all product mix. And it's all product mix because there are some, depending on the particular product, products we ship, as I've said many times before, the margin, product margin, gross margin does vary. Short circuit paper persuasive,

some of the highest margins collectively of our products and much higher than broadband and of course wireless has the lowest.

and you look at Q4 to Q1, the mix shifts away from networking someone and more to broadband.

one from the other. And you can actually see it with the way our inventory grew too. As we as Kirsten reported

Our inventory ending Q4 grew about 5% from that ending Q3, the quarter before. And obviously the Q4 inventory is positioned to shift in Q1. And you see that increase even as our guidance and revenue remain pretty flat.

Thank you, very useful. One moment for our next question.

That will come from the line of Joseph Moore with Morgan Stanley .

Great, thank you. You talked about being booked for the whole year, next year. How much visibility do you think that gives you really? And I guess what's your philosophy going to be if customers with non-cancelled backlog come to you and try to make an adjustment in a potentially weaker economic period next year?

Let's start with the first part. When we're booked, we're really booked. I mean, we got paper that says they have committed orders for us to ship. And as you know, our orders are non-cancellable orders. Customers know that we have the paper and when we say we are fully booked, it means we have...

the backlog sitting there. Now, the second question you asked is a more interesting question. What if we all hit a massive recession, depression or recession?

late next year, in the next six months, nine months, and customers and things really collapse around our ears, what would we do?

My answer is, I don't know, which is partly why we are not giving you any guidance. We will.

react as and when circumstances require us to do. But at this point we have the orders.

react as and when circumstances require us to do. But at this point, we have the orders. Thank you.

One moment for our next question. That will come from the line of William Stein with Truist.

You're setting that a little bit lower than 50% and you're resuming the buyback.

And I'm hoping you can just discuss why these decisions were made. Does it does it reflect an indication or changing view about the timing of the VMware close or is it related to concerns around macro or anything else? Thank you.

Well, I would say that we are policy wise, we've always said we would pay out approximately 50% of the preceding years free cash flows and in this economic environment that we're all seeing. I, we believe that 12% increase year over year is a robust dividend. And so. Yeah, we're quite happy with that.

And don't forget we're going to start buyback once the rules allow us to do that. And so that's another return of cash to shareholders and we fully intend to get that going as soon as we could. And we still have 13 billion under that program.

Thank you. And one moment for our next question. And that will come from the line of Matt Ramsey with Cowen. Please go ahead. Yes, thank you very much. Good afternoon.

I think in some of the prepared script that you guys disclosed that you're now sort of in the compute offload ASIC franchise, the fiscal year was $2 billion, and I think that's maybe a third higher than it was last year. It looks like some of the...

You guys did an event on that business earlier in the year and things really jumped up in fiscal 18 and then kind of leveled off a bit in terms of revenue and this is a pretty big I guess acceleration in that compute offload business. Maybe you could talk a little bit about the trends there and are you seeing

broadening of the customer base or maybe higher volumes per tapeout as you go down the node stack? I'd just be interested in seeing some of the trends there. It seems like Hyperscale really wants custom silicon at this point. Thanks. Yeah, you're right in that regard. We have multiple programs from the Hyperscalers on custom or semi-custom silicon.

all actually collectively we call as offload compute. And they all do their own. So that's

in one way that's very positive and very opportunistic for our technologies to be deployed. On an ongoing basis, you know that...

The tricky thing in all this is more will come on, the rate of RAM is harder for us to predict. These are very lumpy programs, fairly large and lumpy, which is why we can get to $2 billion in moretime.

from a year ago, but it's lumpy and the trend is very hard for me to chart out unless you ask for it over the next five years. And even then, if you look at it five years, it's become a question now. Would these hyperscalers revert to merchant silicon versus continuing to use custom A6?

And that poses another issue for me to figure out. But if you ask for me over the next year or two where it will go.

I'd be honest and say I'm in no position to give you really a good forecast.

and say I'm in no position to give you really a good forecast. And one moment for our next question.

That will come from the line of Erin Rakers with Wells Fargo.

Yeah, thanks for taking the question. I wanted to go back to the prior comment you had made, and I want to make sure I'm clear on it. I think possibly within the context of lead times, you talked about customers. I think it was giving you forecasts that were...

notably longer. I just want to understand a little bit of the context behind that comment earlier or any kind of appreciating that you're not giving backlog, any kind of you know context around that lead time discussion would be helpful. Oh we haven't in any major substantive way changed

our lead times by any means as I've said before and we kind of go along on that practice mode.

ship it out in the current quarter or the preceding quarter, depending on what it is. But we don't – we have forecasts, but obviously we're not giving you any indication of our forecast at this point, simply because we are still grinding our way through the backlog. Thank you.

One moment for our next question. That will come from the line of Toshi Ihari with Goldman Sachs.

China has slowed down in terms of consumption of products across industrial, across even infrastructure. It has slowed down and we see that. They are still not totally collapsed but they have slowed down.

compared to what they were taking a year ago. But that's, and we see that particularly in our industrial business, which is, as we are indicating in my prepared remarks, strength in Europe , strength in North America, especially in automotive, but weakness in China, which is a big part of our industrial business, slowed it down. But beyond that, in the IT side, we have a lot of problems.

Yeah, we have seen a slowdown, but keep in mind China represents just less than 10% of our total revenues today.

So while it obviously has some level of offsetting effect, it's not sufficiently large to have that much impact on the overall growth trend for the entire company.

And any signs of improvement going forward, Hock, on the IT side? Or is it too early to tell? I think it's too early at this point for me to make a call.

You know, there's a sense it's some reopening, but if I make a call, good chance I could be wrong in a month's time when things might shut down again.

You know, it's, there's a sense it's some reopening, but if I make a call, good chance I could be wrong in a month's time when things might shut down again. Thank you.

One moment for our next question. That will come from the line of Christopher Rowland with Susquehanna.

Thanks for the question and congrats on bucking the trend in semis here, Hawk. So my question, it was kind of addressed on the last one, but wanted to talk about the divergence, particularly between storage and maybe China enterprise networking. You had a, there's a lot your other competitor and call it core hard disk drive.

and why the difference? The only explanation to an earlier question was...

Our portfolio in server storage is pretty broad-based. Now with a couple of areas that are fairly large, areas like rate, mega rate, particularly pretty much, but they are more than mega rate we have, you are correct, and it's pretty broad-based.

and there are some puts and takes obviously, but overall, we see what we tell you.

puts and takes obviously, but overall we see what we tell you. Okay, thank you.

One moment for our next question. That will come from the line of Edward Snyder with Charter Equity Research. Thanks a lot. Clark, I'd like to talk to you a little bit about your wireless business, which is more retail focused and probably be the first one to see any recessionary pressures if you get them.

I know your guide is really solid. First, give us some idea of your firm order book. I know you get a projection when the model year starts of what the total number would be for the year, but you don't get a firm order for that for some time. So just kind of what is, how would you characterize firm order book for that or orders?

per se, is it 30 days, 60 days, so it helped anticipate if you see a change, when would that be. And then maybe if you could touch on how we should think about overall content at your largest customer in the next year or so, because there's obviously increased competition in some of your core areas, and I was wondering if you're looking to shift more of your.

focus there into some of the mixed signal custom stuff and maybe wait for some of the RF. Thanks. Okay, interesting question. Let me try and address it. First, I assume you imply when you say orders or forecast on shipment, we only guide Q1, so I can only give you Q1 and

We have it all on paper, orders. These are real orders, non-cancellable. So we're giving you numbers that we intend to ship, that we think the customer needs, as far as we can scrub. And we have it.

We have it all on paper, orders. These are real orders, non-cancellable. So we're giving a number that we intend to ship that we think the customer needs as far as we can scrub. And we have it, these are committed orders.

These are not forecast at all, especially when you talk about Q1, which ends, by the way, end of January . We have orders beyond end of January as it is. So these are very committed orders, and by that same token, pretty committed revenue forecast. Thanks for listening to our toolkit stream!

Just to make it clear Vietnam. And by the way, we have pretty good visibility, from that particular customer too. Now beyond that, to the second part of your question, yeah, we're very pleased with content increase.

that we have experienced, not every year necessarily, as you know, but over a period of years, we always see this content increase. And we're still very, very well positioned in our product line, in those few product lines that I call it almost franchise.

in our North American customers. And this is Wi-Fi Bluetooth, this is RF front-end, and this is touch screen controllers, high-performance mixing. And that's...

You don't see the competitive landscape shifting and making things more difficult for you in that, especially in the RF section in the next coming year or so, you think your franchises are your franchises and you don't have the screen. Well, you say no. Okay.

But you don't see the competitive landscape shifting and making things more difficult for you in that, especially in the RF section, in the next coming year or so, you think your franchises are your franchises and you don't have to disagree. And so it's no. Great, thank you.

Thank you and our last question of the day will come from the line of Pierre Ferragu with New Street Research. Hey, thanks for taking my question. I hope you mentioned you're fully booked for 2023 and you've had a lot of questions on that one. So, I apologize in advance for squeezing in one last one. And.

I was wondering if you look at the year as you see books today, if you could tell us in this like booking dynamics, where do you see for the full year 2023 the most growth and the least growth? I know you can't give us like numbers and you don't want to guide, I can't really accept that, but if you could give us like a kind of idea of where things keep growing very fast, where things are slowing down.

in your order dynamics over the full year? Infrastructure is still holding up very well as we have said.

in this call so far. We see, we continue to see infrastructure and infrastructure by...

looking at it comes from hyperscale, in building the data centers and components to the data centers, in service providers like telcos where we see our strength in broadband.

access, gateways and broadband. And I know people are finding it hard to imagine, we are seeing it even in enterprise, where we do not, where, that's why I made the comment earlier.

We do not see a cross-section of large enterprises reduction.

We do not see, across a cross-section of large enterprises, a reduction in their IT spending.

for 2023. We have not seen, we have not come across too many customers, enterprise customers, and I'm talking real end-use customers, end-use enterprise customers who are seeing their budget drop below 22. For most that we have asked, we have not seen, we have not seen

It's either flat or even up as they all continue to have the compelling need to keep modernizing their platform and workloads and digitizing their business model.

I would now like to turn the call back over to GU for any closing remarks. Thank you, Cherie. Broadcom currently plans to report its earnings for the first quarter of Fiscal 23 after close of market on Thursday, March 2nd, 2023. A public webcast of Broadcom's earnings conference call will follow at 2 p.m. Pacific. That will conclude our earnings call today. Thank you all for joining.

Sheri, you may end the call. Thank you. Thank you all for participating. This concludes today's conference call. You may now disconnect.

And I think that was the only explanation given to me why there was no such clear reduction, even as we all hear every day the likelihood possibility of a global recession. Thank you very much. Thank you. Thank you. As there are no further questions in the queue at this time, I would now like to turn the call back over to GU for any closing remarks. Thank you, Cherie. Broadcom currently plans to report its earnings for the first quarter of fiscal 23 after close of market on Thursday, March 2nd, 2023. A public webcast of Broadcom's earnings conference call will follow at 2 p.m. Pacific. That will conclude our earnings call today. Thank you all for joining. Cherie, you may end the call. Thank you. Thank you all for participating. This concludes today's conference call. You may now disconnect.

Q4 2022 Broadcom Inc Earnings Call

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