Q1 2023 Broadcom Inc Earnings Call

Speaker 1: begin shortly. To raise and lower your hand during Q&A, you can dial star 1 1.

Speaker 1: the car

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Speaker 2: One.

Speaker 3: Welcome to Broadcom's Inc. First Quarter, school year 2023 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, operator, and good afternoon, everyone.

Speaker 3: Joining me on today's call are Hopp Tan, President and CEO , Kirsten Spears, Chief Financial Officer, and Charlie Kowaz, President, Semiconductor Solutions Group. The firm distributed a press release and financial tables after the market closed.

Speaker 3: describing our financial performance for the first quarter fiscal year 2023. If you did not receive a copy, you may obtain the information from the investors section of Broadcom's website at Broadcom.com.

Speaker 3: 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 3: During the prepared comments, Hawk and Kirsten will be providing details of our first quarter fiscal year 2023 results, guidance for our second quarter, as well as commentary regarding the business environment.

Speaker 3: 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 US GAAP reporting, we will continue to discuss the risk factors that could cause our actual results.

Speaker 3: 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. Comments made during today's call will primarily refer to our non-GAAP financial results. I'll now turn the call over to Hawk. Okay.

Speaker 4: Thank you, Gee, and thank you everyone for joining us today. In our fiscal Q123 consolidated net revenue, that was revenue was $8.9 billion up 16% year on year.

Speaker 4: Semiconductor solutions revenue increased 21% year-on-year to 7.1 billion. While as we expected, infrastructure software declined 1% year-on-year to 1.8 billion, even as our core software sustained growth of 5% year-on-year.

Speaker 4: stepping back let me sum up what happened in Q1 from our view infrastructure spending continues to be up

Speaker 4: particularly in service providers, even as hyperscale and enterprise sustained.

Speaker 4: Spending in technology for infrastructure has been strong, showing double-digit growth for 9 consecutive quarters.

Speaker 4: We continue to be booked for fiscal 23 and our lead times and visibility on semiconductors remain largely at 50 weeks.

Speaker 4: While there have been a small number of requests to push out certain orders, we note that these are the exceptions and they have not had a material impact on our business. Because we ship linearly throughout the quarter to our customers, inventory on our books.

Speaker 4: has been consistent around 80 days. And the overall inventory of Broadcom products across the ecosystem remains very well managed.

Speaker 4: We continue needless to say to be very disciplined in shipping our backlog only as and when needed by our end customers Let me now provide more color on each of our end markets

Speaker 4: We continue, needless to say, to be very disciplined in shipping our backlog only as and when needed by our end customers. With that, let me now provide more colour on each of our end markets. Starting with networking.

Speaker 4: Networking revenue was $2.3 billion and was up 20% year-on-year in line with guidance, representing 32% of our semiconductor revenue. We see continued deployment of our advanced Tomahawk switches by hyperscalers in their leaf and spine architectures. Even as we deliver on increased bandwidth for the hyperscalers, having said that, power remains a major challenge. So just this week...

Speaker 4: We announced the industry's first integrated silicon photonics networking solution, codename Bailey, which integrates the active optical photonics networking solution to the silicon

Speaker 4: interconnects with our next generation Tomahawk V switch.

Speaker 4: at 51.2 terabit per second. Bailey doubles switching performance.

Speaker 4: but it will reduce total system power. Keep in mind that as hyperscalers, a growing portion of our switches have been deployed within the AI network.

Speaker 4: which are separate from the traditional x86 CPU scale out running existing workloads. Now this is today. Tomorrow we generate this AI using large scale, large language models with billions of parameters.

Speaker 4: We have to run thousands of AI engines in parallel, enabling large and synchronized birth of data at speeds of 400 and 800 gig. The NAND works to support this massive processor density is critical and as important as the AI engines.

Speaker 4: Such networks have to be lossless, low latency and be able to scale.

Speaker 4: So, as you know, such AI networks are already been deployed at certain hyperscalers through our Jericho 2 switches and Ramon fabric. In fact, in 2022, we estimated our Ethernet switch shipments deployed in AI.

Speaker 4: in 2023. We anticipate this trend will continue to accelerate and mindful that we need even more higher performance networks in the future.

Speaker 4: We have been investing in a new generation of this lossless low latency internet fabric designed specifically to handle such data and compute intensive AI workloads.

Speaker 4: Of course, additionally, the exciting growth prospects for Generative AI are driving our compute-offload accelerated business at hyper-scalers.

Speaker 4: As we have indicated to you last quarter, this business achieved over $2 billion in revenue in 2022. We on track to exceed $3 billion in revenue in our fiscal 23.

Speaker 4: In Q2, looking forward, short term, we expect these tailwinds to drive our networking revenue to grow.

Speaker 4: About another 20% year over year.

Speaker 4: Moving on next to our server storage connectivity revenue, there was a record $1.3 billion, or 18% of Semican Dr. Revenue, and up 57% your own year.

Speaker 4: Once again, as we discussed in preceding quarters, the rapid transition to next generation mega rate solutions drove this substantial year-on-year content increase. After four consecutive quarters of such increases, this transition, however, is significantly complete.

Speaker 4: and we expect any Q2 on a year-on-year basis service storage connectivity revenue will moderate towards 20% year-on-year growth.

Speaker 4: Moving on to broadband. Revenue grew 34% year-on-year to a record 1.2 billion.

Speaker 4: and represented 17% of semiconductor revenue. During this quarter, our broadband business particularly benefited from robust deployments of vitalcos of 10G pawn and cable operators of Doxys 3.1.

Speaker 4: These gateways have high attachments of Wi-Fi 6 and 6E. And in Q2 we expect

Speaker 4: The secular drivers behind broadband to sustain momentum on a sequential basis and year on year broadband will grow a solid 10%.

Speaker 4: Moving on to Wallace, Q1 revenue of 2.1 billion represented 29% of semiconductor revenue.

Speaker 4: Demand from our North American customer drove wireless revenue up 4% year-on-year, reflecting content increases which we had previously indicated last quarter. Sequentially,

Speaker 4: Wireless was flatish compared to Q4 and Seasonally we expect wireless to be down sequentially in Q2 and down high single digit percentage year on year Finally Q1 industrial resale of 229 million

Speaker 4: decrease 4% year over year as softness in China offset strength in renewable energy and medical.

Speaker 4: and in Q2 we focus industrial resales to be down low single digit percentation year on continuing softness in China.

Speaker 4: So in summary, Q1 semi-conductor solutions revenue was up 21% year on year. And in Q2, we expect semi-conductor revenue growth of high single-digit percentage year on year.

Speaker 4: Turning to software. In Q1 infrastructure software revenue or 1.8 billion declined 1% year on year, ran represented 20% of total revenue. While call software revenue grew 5% year on year,

Speaker 4: the brocade business decline because of lumpiness in enterprise consumption in this very narrow vertical of same stories

Speaker 4: For call software, consolidated renewal rates average 119% of the expiring contracts, and within our strategic accounts we average 129%.

Speaker 4: Within this strategic accounts, annualized bookings of $536 million included $197 million, which represent 37% of cross-selling of our portfolio products to these same core strategic customs. Over 90% of the renewal value represented recurring subscription

Speaker 4: And maintenance. Now, by way of comparison over the last 12 months, consolidated renewal rate average 119% over expiring contracts, and in our strategic accounts, we average 134%.

Speaker 4: Because of this, our ARR, the indicator of forward revenue at the end of Q1 was 5.3 billion, which is up 3% from a year ago.

Speaker 4: In Q2, we expect our infrastructure, software, and segment revenue to be a low-to-meet single-digit percentage year on year, as the stable core software growth continues to be partially offset now by weakness in brocade.

Speaker 4: So in summary, we are guiding consolidated Q2 revenue for the company to be $8.7 billion up 8% year-on-year.

Speaker 4: Before Kirsten tells you more about our financial performance for the quarter, let me provide a brief update on our pending acquisitions of VMware. We continue to make progress with our various regulatory filings around the world.

Speaker 4: Having now received legal major clearance in Brazil, South Africa and Canada and foreign investment control clearance in Germany.

Speaker 4: Friends, Austria, Denmark, Italy and New Zealand. As we stated on our last earnings goal, we continue to anticipate that the timeline for the review process will be extended in other key regions, especially given the size of this transaction. Having said that, the

Speaker 4: we continue to expect the transaction to close within our fiscal 2023. We believe 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 regulators will see this when they conclude their review.

Speaker 4: Finally, Broadcom recently published its third annual ESG report available on a corporate citizenship website which discusses the company's ESG initiatives. As a global technology leader, we recognize Broadcom's responsibility.

Speaker 4: to have a positive impact on our customers, employees and communities through our product and technology innovation and operational excellence we remain committed to this mission.

Speaker 5: We then must meet them to call over to kisses. Thank you, Hawk. Let me now provide additional detail on our financial performance.

Speaker 5: Broadcom had another great quarter with robust financials. Consolidated revenues was $8.9 billion for the quarter, up 16% from a year ago. Gross margins were 74% of revenue in the quarter, about 10 basis points higher than we expected.

Speaker 5: Operating expenses were $1.1 billion, down 1% year on year.

Speaker 5: R&D of 929 million was also down 1% year on year, primarily from streamline project and other variable spending offset and part by higher people cost resulting from increased headcount as we are hiring. Operating income

Speaker 5: for the quarter was 5.4 billion and was up 17% from a year ago. Operating margin was 61% of revenue up approximately 50 basis points year on year.

Speaker 5: Adjusted EBITDA with $5.7 billion or $64% of revenue, this figure excludes $127 million of depreciation.

Speaker 5: Now a review of the P&L for our two reportable segments. Revenue for our semiconductor solution segment was $7.1 billion and represented 80% of total revenue in the quarter. This was up 21% year on year.

Speaker 5: As Hock discussed, this came from strength across all of our semiconductor end markets. Gross margins for semiconductor solution segment were approximately 69 percent. Down approximately 160 basis points year on year driven primarily by product mix.

Speaker 5: within our semiconductor end markets. Operating expenses were 802 million in Q1, down 2% year-on-year. R&D was 716 million in the quarter, down 1% year-on-year. Q1 semiconductor operating margins were 58%.

Speaker 5: So while semiconductor revenue was up 21%, operating profit grew 23% year-on-year. Moving to the P&L for our Infrastructure Software Reportable Segment.

Speaker 5: Revenue for Infrastructure Software was $1.8 billion down 1% year-on-year and represented 20% of revenue.

Speaker 5: Growth margins for infrastructure software were 91% in the quarter and operating expenses were 346 million in the quarter down 1% year over year. Infrastructure software operating margin was 72% in Q1 and operating profit was stable year on year. Moving to cash flow.

Speaker 5: Free cash flow in the quarter was 3.9 billion, representing a 16 percent increase year, year over year. Free cash flow represented 44 percent of revenues in Q123, consistent with what we achieved the same quarter last year. We spent 103 million on capital expenditures.

Speaker 5: Day sales outstanding were 33 days in the first quarter compared to 30 days in the fourth quarter. We ended the first quarter with inventory of 1.9 billion, down 1% from the end of the prior quarter, or 78 days on hand.

Speaker 5: Overall, inventory of Broadcom's products across the ecosystem, as Hach indicated, remains well managed. We ended the first quarter with $12.6 billion of cash and $39.3 billion of gross debt, of which $1.1 billion is short term. During the quarter, we repaid $260 million in senior net loss.

Speaker 5: In the quarter, we paid stockholders 1.9 billion of cash dividends.

Speaker 5: Consistent with our commitment to return access cash to shareholders, we repurchased 1.2 billion of our common stock and eliminated 333 million of common stock for taxes due on vesting of employee equity, resulting in the repurchase and elimination of approximately 2.7 million AVGO shares.

Speaker 5: The non-GAAP diluted share count in Q1 was $434 million.

Speaker 5: As of the end of Q1, $11.8 billion was remaining under the share repurchase authorization.

Speaker 5: excluding the potential impact of any share repurchases. In Q2, we expect the non-gap diluted share count to be 438 million. Based on current business trends and conditions, our guidance for the second quarter of fiscal 2023 is for consolidated revenues of $8.7 billion.

Speaker 5: and adjusted EBITDA of approximately 64.5% of projected revenue.

Speaker 5: In forecasting such profitability, we expect gross margins to be up approximately 150 basis points sequentially on product mix, and R&D spending to be up sequentially on continuing hiring of engineers and seasonal payroll tax step-ups.

Speaker 5: That concludes my prepared remarks. Operator, please open up the call for questions.

Speaker 6: Thank you. As a reminder to ask a question, you will need to press star 11 on your telephone. To withdraw your question, press star 11 again. Due to time restraints, we ask that you please limit yourself to one question.

Speaker 6: Please stand by while we compile the Q&A roster. Our first question will come from the line of Harsh Kumar with Piper Sandler. Your line is open.

Speaker 4: Yeah, hey guys, congratulations on your another solid quarter and guide and thanks for all the color you guys provided Talked you mentioned generative models in your commentary. I wanted to understand the difference between what you're doing in AI so far Versus maybe what our understanding of generative is you talked about 200 million in Ethernet

Speaker 7: related to AI, is that largely generated? Because we've heard other companies say that for large parts, you know, the generated models are using a Twitter band. And then you talked about two billion in computer offload going to sort of three billion. My understanding was that was mostly for video processing. Maybe help us.

Speaker 4: think about how we think of Avago's place or Broadcom's place and in the generative process. Well, yeah, thank you for that question and opportunity to clarify why we highlighted, why I highlighted it very purposefully.

Speaker 4: You know, in 2022, generative is barely starting to kick off, but there exists AI networks within the hyperscale, particularly in fairly significant volume. And one we're trying to see is...

Speaker 4: very similar to CPUs, traditional CPUs in traditional workloads in those same data centers. You know, we've...

Speaker 4: constrained on performance of those silicon CPUs and a MOSLAW.

Speaker 4: on performance of those silicon CPUs and a mass law. We're starting to see.

Speaker 4: scale out by positioning rows and rows of servers, CPUs, and networking them together to work.

Speaker 4: with positioning, rows and rows of servers, CPUs, and net working them together to work closely in parallel.

Speaker 4: As we step up to large language models in AI, I generate AI in particular coming to play.

Speaker 4: GPUs are starting to be strung together in hundreds.

Speaker 4: soon to be thousands of Rags and working in peril.

Speaker 4: And you don't know how that goes. And basically those GPUs work in parallel, in a fairly synchronous manner to basically

Speaker 4: Run and do what you call bulk parametric exchange. Basically you run GPUs together, all AI engines together, whether they're GPUs, AI, or PPUs, or other AI engines. You run and run and together. It becomes network.

Speaker 4: The network becomes now potentially the critical part of this whole AI phenomenon in hard ways. To make it work, you've got to put together...

Speaker 4: many racks of AI engines in parallel, very similar to what we have been doing, hyperscalers have been doing on CPUs to make them run faster, higher performance as most of all come to an end. And doesn't make any difference here in the form of AI engine. They come...

Speaker 4: 2022

Speaker 4: This are more what you call the AI workloads that are running a hyperscale and the advent of a generative AI is still relatively fresh and new. We are doing $200 million as far as we could estimate of silicon internet switches.

Speaker 4: and fabric that goes into those AI networks as far as we could identify in hyperscalers. With generative AI and the urgency and excitement of it coming in, we are seeing today that...

Speaker 4: that goes into those AI networks as far as we could, identifying in hyperscalers. We generate AI and the urgency and excitement of it coming in, that we are seeing today, we are seeing that increase.

Speaker 4: very very dramatically and we see urgency in our hyperscale customers coming towards

Speaker 4: dramatically. And we see urgency in our hyperscale customers coming towards to secure.

Speaker 4: products to secure ability to put in place those very very low lossless I would call very low latency networks that can scale

Speaker 4: and Ethernet is what makes those networks scale.

Speaker 6: Thank you. One moment for our next question.

Speaker 2: And that will come from the line of Harlan Sir with JP Morgan. Your line is open. Good afternoon. Thanks for taking my question. Hop, you know, as your cloud customers are now aggressively focused on generative AI development and deployment across their data center footprints.

Speaker 2: This is driving strong AI focus. It's in a switch port demand and demand for a compute off low basics like TPU for this year. As you mentioned, but from a new product ramp and design wind funnel perspective, is this also causing your cloud customers to want to pull forward some of your future programs like Tomahawk 5 or

Speaker 2: Jericho 3, next gen switching and routing products and or you know pulling the design and tape out of their next generation compute offload AI ASIC programs. Yes, we're seeing all of the for going by the way and that that happened over the last 90 days.

Speaker 4: We have seen a lot of that urgency, a lot of that. You can call it excitement, but you hit it right on. Yes, which is accounting for the color in my commentary about both. Net AI, a Generative AI-based net worth.

Speaker 4: and pushing us to develop a new generation altogether of Ethernet switching that can support this kind of very compute and data intensive workloads. So that's one side of it. And the other side of it, you're right. We are typically not going to talk much about compute overload.

Speaker 4: which is another way of saying, yeah, these are very related to some of the engines that are fairly customized dedicated to certain hyperscalers.

Speaker 2: Thank you, Hawk.

Speaker 6: Thank you. One moment for our next question.

Speaker 8: And that will come from the line of visit, Arya, with Think of America. Your line is open. Thank you for taking my question. How can I just curious to understand just the views about the second half? If I look at the last few years, Broadcom has managed to grow a semiconductor sales right through the front page of the picture. What is free? I can't say that's free. Let me give you all youngsters your questions in the description box. portions of the class. Let, to say, I need you to

Speaker 4: Ah, in a sort of broadly conceptual, not a guidance, as you see, but trained this way.

Speaker 4: We are kind of getting rather hopeful that it will be a soft landing.

Speaker 4: There will be moderation as we are indicating in this Q2 quarter, moderating growth, but we see it nonetheless as probably leading to a soft landing of still a year on year.

Speaker 6: I think improve from even a second half. Thank you. Thank you. One moment for our next question.

Speaker 6: And that will come from the line of Stacey Raskon with Berenson. Your line is open. You can now go to the line of Stacey Raskon and click on the line of Stacey Raskon.

Speaker 9: Hi guys, thanks for taking my question. I just wanted to, the air thing is that did you say that you started hearing urgency from your hyper-scale customers around the AI in the last 90 days? And that should have given that, how do I think about that in the context of read times that are still 50 weeks?

Speaker 9: You've got like sounds like $1.6 billion in incremental networking growth in the year of a year in 23 from the AI to crossbow from Ethernet and And the ASICs I guess given that the lead times is that more of a second half kind of thing when that contributes the model Does it contribute more linearly for the air for the year or I guess just how do I think about the timing level is in the wake of the strong demand right now I'm just giving the broader lead times

Speaker 4: Stacey, thank you for your question, very perceptive. And as I say, we're not, we're trying not to, we're not guiding you guys what happens beyond the second quarter, not the second half of this year. Well, you did give us some guidance for the year on this, right? So no guidance, sorry. I give you a conceptual trend. How's that? But

Speaker 4: But having said that, now we're still working through timing of when our customers need those urgent products in a fairly urgent manner and our ability to obviously want to be very, very helpful to help customers.

Speaker 4: launch aggressively into generative AI. So we're in the midst of that.

Speaker 9: Because like the networking implied guide for Qt has got to be up like you know call it mid-teens Sequentially is that some of that contributing or do I get even more? I guess as we go beyond because we're already once you get through this quarter We're already through the first half right so I guess I guess you have to hit the second half right

Speaker 4: Stacy, I wish you guys would not do too much analysis, but I know that won't happen. I'm only guiding Q2. I let you figure out what happens in a second. I think you're probably better off at it than I am.

Speaker 6: Thank you so much. Thank you. Thank you. One moment for our next question.

Speaker 9: And that will come from the line of CJ Muse with Evercore ISI. Your line is open. Yeah, good afternoon. Thank you for taking the question. And I know that it might be difficult to share too much on the ongoing review from the European Commission, but was hoping maybe you could speak a little bit about, you know, where they're concerned.

Speaker 9: I.E. Next Fiber Channel Host Plus adapters and other storage adapters. You know, do you view these as core businesses within Broadcom? Are they easy to extract out of your portfolio? And is there, you know, IP that is critical for these businesses that are clearly used by your other larger core businesses?

Speaker 4: Anything to kind of help us understand would be grateful. Thank you. CJ, I appreciate the fact that you have been definitely reading a lot of those Reuters and Bloomberg and Lexicon reports. Appreciate that fact. And you equally know that...

Speaker 4: I cannot and will not comment on any of this as we are working very, very positively and progressively with regulators on all the issues related to our clearance. So sorry, I can't comment.

Speaker 4: but just to let you know we're making good progress. Thank you. Thank you. We're moment for our next question.

Speaker 6: And that will come from the line of the gyro cache with Mizzouho. Your line is open.

Speaker 8: Hi, Hock. Just a quick question. You talked about generative AI. Just wondering as you look at the workload, what percent of the workload would be on generative AI like exiting calendar 23 or 24? And also, I want to hit on the silicon photonics side. I think you briefly mentioned the silicon photonics cable with integrated switch, the 51.2 terabyte switch. When do you see this ramping and what's the power advantage on that? Okay.

Speaker 4: Okay, well, I'm sure I don't need to elaborate on what we all hear about on Generative AI. And I think it's still early innings on Generative AI, but...

Speaker 4: We obviously are also indicating, as we are seeing, a very

Speaker 4: strong and strong sense of urgency among our customers, especially in the hyperscale environment, to

We do not miss out, not to be late in this trend. What we generate for AI, as I said, with many more, much more, billions, billions.

of parameters that come into the models that they're doing. You're talking about scale out.

of data centers driving AI engines.

network together in a manner that we probably have not seen before. It's not a problem that's not solvable. It is very, very clearly solvable. There is evidence by the fact that we have...

and deploying technology to support AI networks even today to certain hyperscalers where we're talking about

At least hundreds of thousands of AI engines, AI servers, network together and working in a synchronous manner. So this is about ability to scale out in a fairly substantial manner. And that was what the color was providing. And it's really about trying to make sure that happens and not be the bottleneck.

to our ability to get the best performance system performance, and I emphasize the word system performance of an AI data center. And what's coming from right now is frankly,

how to network them and how to do those massive parametric exchange so this way when you run large numbers of engines or machines in parallel as you grind through this huge database and that we need to do so that's

We are in early innings and which is why we think we have time to start to work on even a new generation of

switches in Ethernet that are specifically designed dedicated to these kind of workloads, which are very different from the normal workloads that we see today traditionally in data centers.

And we have to address that there have to be, as I say, literally lossless, virtually lossless, very low latency.

and be able to scale into thousands of engines. And that's the main three criteria we are aware of, and we're driving silicon solutions that enable that. We have it.

But we think we need to improve the performance of what we have to do in anticipation of a trend. Trender we foresee over the next several years.

So we're putting all investment in that direction. I'm the civil-confortronics cable. I'm just wondering when the time of ramp and air part I do want to say thanks.

Well, we intend to launch tomorrow 5.

Well, we intend to launch tomorrow 5 early 24.

as we indicated previously and that's the conventional silicon base with pluggable optics switch top of the rack switch, come out 5, 51.2, there a bit per second.

Bayley which is the fully integrated silicon photonic version, you know fully integrate the active component element, active elements of those plugable optics into the switch. We anticipate launching that shortly thereafter. Power wise, you can see silicon photonics. Our

That's a lot. Tomahawk 5 compared to what we have today is 2x the performance of Tomahawk 4.

But we believe we can do Tomahawk 5 at the same power close to the same power is not lower than a Tomahawk 4.

Okay. Thank you. One moment for our next question.

And that will come from the line of Ross Seymour with Deutsche Bank. Your line is open. Thanks, Robert and I asked the question. I wanted to go into the compute offload number that you talked about. Hock, the 2 billion last fiscal year, going to 3 billion this year. I know it's a touchy subject and so no customer specifics, of course, but generally speaking

us highly sensitive to some of my very limited customer base. But as I said, it includes some of the engines, the compute engines, and some of the related components that support this engine.

Is the concentration changing? So are you broadening customers in that growth? No, very concentrated.

Is the concentration changing? So are you broadening customers in that growth? No, very concentrated. OK, thank you.

Thank you. Thank you. One moment for our next question. And that will come from the line of Edward Snyder with charter equity. Your line is open. Thank you very much. Good quarter hawk. So apparently with the last quarter you were getting out of wireless or getting into wireless or hands that you're going to be doing wireless.

So I want to get a couple of updates. So maybe you could set the record straight. First of all, even if you see a C change and let's say Silicon, Mix Silicon, based band providers in the next year or two, does that fundamentally change your opinion of your wireless group? And either way, actually, does it get better? Does it get worse? Because obviously, if architecture's changed, it has begun to...

next year to visit that's a few you get greater.

Thanks, good question and as you know, our wireless

A group, as you call it, not division. It's really not one single product line or one single division. It's not one homogeneous group either. It's a few key products that comprises this wireless division. All selling, you're right, you're correct, to the same application.

and very high end flagship status handset. And largely focus on one key customer, not American, or much beloved, not American OEM customer. So in that sense, it's one single focus area. And to answer your question, well, we're among these multiple products, and they tend to keep...

progress as each new generation happens may not be every year but it happens pretty fairly regular frequency on a cadence that is pretty predictable otherwise each on its own cadence.

It's a very, very good business for us and to answer your question directly.

No, nothing significant, meaningful has changed. Our relationship, our strategic engagement continues very much the same as it has for the last multiple years.

and we see that to continue in a fairly predictable stable manner. And I just remind you, if you could, it's a three-year road map. I mean, you see stuff pretty far out, right?

to continue in a family predictable stable manner. And I just remind you, if you could, three year road map, I mean, you see stuff pretty far out, right? Yes. And I just remind you, if you could, three year road map, I mean, you see stuff pretty far out, right?

Great, thank you. Thank you. Thank you. One moment for our next question. That will come from the line of Pierre Faragou with New Street Research, your line is open.

Great, thank you. Thank you. Thank you. One moment for our next question. That will come from the line of Pierre Ferragu with New Street Research. Your line is open. Hey, thank you for taking my question. Can you hear me well?

Yes. Yes. Great. So I'm trying to pull together a perspective of what's happening at high-period scale clients this year. So if I look at the networking division, if you grow like at least $600 million this year in AI and its computer flood division grows. So I'm trying to pull together a perspective of what's happening at high-period scale clients.

that might represent all your growth in networking. So that would mean you're missing that is re-growing and that is bringing a lot of this share in that space is AI.

And when I look at outside of a bottom, what we've seen is memory and like the X-HZ6 CPU servers are having a very good time at the moment, expect a recovery in the second half while like the GPU segment of the market is a very, very good shaving.

growing very well and accelerating again. So my question at the end of the day is, is it fair to say that in these last data some present year on the AI is growing?

And is that the sign of what the future will be? Do you think the general purpose factors in the past, like the other X86 are similar, general purpose CPUs is a very good growth market?

You know, you pose very, very interesting and good questions, Pierre. The problem is...

I do not get my customers, hyperscale customers, do not necessary, honor me my sharing, all those insights that you are asking. I do not know. I do not know. All I know is what I do know because I don't sell MCPUs.

I don't even sell them GPUs, right away. But I know what you know out there, which is in certain areas of their business, we're seeing some of these hyperscalers bringing on a sense of urgency and focus. And of course,

to be up to speed, if not to not be left behind as we see the excitement hype perhaps in pushing applications and

and workloads in Generative AI. That's what we see driving a lot of this excitement. And we're always saying is we think some of that affects on our networking business with those hyper scalers. That's what it is. Beyond that,

We unfortunately, other than the backlog, we get in normal networking switches, routers and key components. We see that, and as indicated in our last quarter's result, we continue to see sustained strength.

Now, last quarter and continuing as we indicate this particular quarter Q2.

and continuing as we indicate this particular quarter Q2. Beyond that,

We don't get to see, we do not want to guide what we're going to see beyond that. But right now, last quarter, this quarter, yeah, tradition data centers, scale out in networking, in deployment in networking, continues to be strong and sustained.

in hyperscalers as well, I might indicate in the end of the price. Okay, right. And just to clarify specifically on what you are doing, is that certain to assume that the majority of your very large majority of your growth this year in net working is going to come from AI, which you have 600 million.

early stage.

Yeah.

Okay, that's very clear. Thanks.

Thank you. Thank you. And we do have time for one final question and that will come from the line of Carl Ackerman with BNP Paribas. Your line is open.

Thank you for taking my question. There were many great questions, quite frankly, on the networking business, which I think is quite significant for you. Maybe if I could, a clarification on that and then a broader question that I want to address on broadband. On the networking piece, the new combination of Elijah, Mark,

I was curious if you could discuss the growth opportunity in your Tomahawk portfolio now that a peer has elected to stop investing in their switch division.

And then as well as the broadband, you know, several companies across the broadband ecosystem have guided a software outlook due to a buildup of inventory. But quite frankly, that's been on the customer premise side. You obviously have more waiting towards fiber until into the infrastructure portion. And so I was hoping you could discuss how you're thinking about the growth of your fiber business within broadband.

very good business and I'm very sustaining. Used to be boring. Boring is good at this point. And last quarter, Q1 as I reported, we actually grew 34% year on year. I know. I might view that's

That's rather exceptional even though in broadband we have been seeing your near growth now at least for the past four, five quarters. But still 34% was rather exceptional and sure enough Q2, it normalizes to a more sedate level but still growing. And the growth in that is simply because...

We are very well positioned, we respect to next generation Pond. Dan Geck Pond, which has been deployed in big volumes now by telcos, supported by their governments, countries all over Europe , and even in the United States, not to mention other nations beyond that. Basically, it is about reaching...

this key utility broadband service to every household and we see a lot of deployment and then more vertical marker we also see simultaneous with pawn or fiber as you call it.

A large, a strong, continued deployment of cable ducts, so it's very coaxial, to the home because cable operators, a few of them, who are on the scale?

of the telcos and we need to maintain competitiveness as the telcos launch 10 gigabit pawn that cable has to update.

Doxies to be able to compete and not lose subscribers in the same market they compete against each other. So we see strength both in cable, Doxies 3.1 as I call it and potentially next generation not yet happening but hopefully.

within the next couple years, DOX is 4.0. Meanwhile, PON is happening, which accounts for the strength we saw in last quarter and continuing strength over the last several quarters. Content increases come to not just unit

deployment of those gateways and infrastructure but also the fact that a lot of these deployments come with very high Attach rates of Wi-Fi 6 and 6E

and that provides additional boosts containing increases more, what I will call it, to our revenue growth in broadband.

provides additional boosts, containing increases, more, I assume, what I'll call it, to our revenue growth in broadband. So that's...

widely still jogging along very nicely for us. All right. Thank you. As I'm showing 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, Sir E.

In closing, we would like to highlight that Broadcom will be attending the Morgan Stanley Technology Media and Telecom Conference on Tuesday, March 7th. Broadcom currently plans to report its earnings for the second quarter of fiscal 23 after close of market on Thursday, June 1st, 2023.

A public webcast of Broadcom's earnings conference call will follow at 2pm specific time. That will conclude our earnings calls today. Thank you all for joining. Shireen, you may end the call.

Thank you all for participating. This concludes today's program. You may now disconnect.

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Thank you, operator, and good afternoon, everyone. Joining me on today's call are Hock Tan, President and CEO , Kirsten Spears, Chief Financial Officer, and Charlie Kowaz, President, Semiconductor Solutions Group. outcome distributed a press release and financial tables after the market closed.

and an audio replay of the call can be accessed for 1 year through the investor section of Broadcom's website. During the prepared comments, Hawk and Kirsten will be providing details of our first quarter fiscal year 2023 results, guidance for our second 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 US 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. Comments made during today's call will primarily refer to our non-GAAP financial results. I'll now turn the call over to Huk. Thank you, Jie. And thank you, everyone, for joining us today.

In our fiscal Q123 consolidated net revenue, revenue was $8.9 billion up 16% year on year. Semiconductor solutions revenue increased 21% year on year to 7.1 billion. While as we expected, infrastructure software declined 1% year on year.

scale and enterprise sustain.

Spending in technology for infrastructure has been strong, showing double-digit growth for nine consecutive quarters. We continue to be booked for fiscal 23, and our lead times and visibility on semiconductors remain largely at 50 weeks.

While there have been a small number of requests to push out certain orders, we note that these are the exceptions and they have not had a material impact on our business. Because we ship linearly throughout the quarter to our customers, inventory on our books has been consistent around 80 days.

and the overall inventory of Broadcom products across the ecosystem remains very well managed. We continue, needless to say, to be very disciplined in shipping our backlog only as and when needed by our end customers.

With that, let me now provide more color on each of our end markets. Starting with networking, networking revenue was $2.3 billion and was up 20% year-on-year in line with guidance, representing 32% of our semiconductor revenue. We see continued deployment.

of our advanced tomahawk switches by hyperscalers in their leaf and spine architectures.

Even as we deliver on increased bandwidth for the hyperscalers, having said that, power remains a major challenge.

So just this week, we announced the industry's first integrated silicon photonics networking solution, codename Baily.

which integrates the active optical interconnects with our next generation Tomahawk V switch.

at 51.2 terabits per second. Barely doubles switching performance, but it will reduce total system power.

Keep in mind that as hyperscalers a growing portion of our switches.

have been deployed within their AI networks, which are separate from the traditional x86 CPU scale out running existing workloads.

Now this is today. Tomorrow with generative AI using large scale, large language models with billions of parameters. We have to run thousands of AI engines in parallel.

enabling large and synchronized bursts of data at speeds of 400 and 800 GB.

enabling large and synchronized bursts of data at speeds of 400 and 800 GB.

to support this massive processor density is critical and as important as the AI engines.

Such networks have to be lossless, low latency, and be able to scale. So as you know, such AI networks are already been deployed at certain hyperscalers through our Jericho II switches and Ramon fabric. In fact, in 2022,

we estimated our Ethernet switch shipments deployed in AI was over 200 million dollars. With the expected exponential demand from our hyperscale customers, we forecast that this could grow to well over 800 million dollars in 2023.

We anticipate this trend will continue to accelerate, and mindful that we need even more higher performance networks in the future.

We have been investing in a new generation of this lossless low latency Ethernet fabric designed specifically to handle such data and compute intensive AI workloads. Of course additionally, we have been investing in a new generation of this lossless low latency Ethernet fabric designed specifically to handle such data and compute intensive AI workloads.

The exciting growth prospects for generative AI are driving our compute offload accelerated business at hyperscalers. As we have indicated to you last quarter, this business achieved over $2 billion in revenue in 2022.

We are on track to exceed $3 billion in revenue in our fiscal year 2023.

In Q2, looking forward short term, we expect these tailwinds to drive our networking revenue to grow.

about another 20% year-over-year. Moving on next to our server storage connectivity revenue, there was a record 1.3 billion dollars or 18% of

and up 57% year-on-year. Once again, as we discussed in preceding quarters, the rapid transition to next generation mega-rate solutions drove this substantial year-on-year content increase. After four consecutive quarters of such increases, this transition, however, is significantly complete.

17% of semiconductor revenue.

15% of semiconductor revenue. During this quarter,

Our broadband business particularly benefited from robust deployments by telcos of 10G PON and cable operators of DOCSIS 3.1. These gateways have high attach rates of Wi-Fi 6.0.

particularly benefited from robust deployments by telcos of 10G PON and cable operators of DOCSIS 3.1. These gateways have high attach rates of Wi-Fi 6 and 6E.

And in Q2, we expect the secular drivers behind broadband to sustain momentum on a sequential basis. And year on year, broadband will grow a solid 10%. Moving on to wireless, Q1 revenue of 2.1 billion represented 29% of semiconductor revenue. Demand from our North American customer drove wireless revenue up.

Finally, Q1 industrial resale of 229 million decreased 4% year over year as softness in China offset strength in renewable energy and medical. And in Q2 we forecast industrial resales to be down low single digit.

percentage year-on-year on continuing softness in China. So in summary Q1 semiconductor solutions revenue was up 21% year-on-year and in Q2 we expect semiconductor revenue growth of high single digit percentage year-on-year.

Turning to software, in Q1, infrastructure software revenue of 1.8 billion declined 1% year-on-year and represented 20% of total revenue. While core software revenue grew 5% year-on-year, the core software revenue grew 20% year-on-year.

the brocade business decline because of lumpiness in enterprise consumption in this very narrow vertical of sand storage.

For core software, consolidated renewal rates average 119% over expiring contracts and within our strategic accounts we average 129%.

And within these strategic accounts, annualized bookings of $536 million included

Within the strategic accounts annualized bookings of $536 million included $197 million.

which represent 37% of cross-selling of our portfolio products to these same call strategic customers. Over 90% of the renewal value represented recurring subscription and maintenance. Now in by way of comparison over the last 12 months

Consolidated renewal rates averaged 119% over expiring contracts, and in our strategic accounts we averaged 134%. Because of this, our ARR...

the indicator of forward revenue at the end of Q1 was 5.3 billion, which was up 3% from a year ago. In Q2, we expect our infrastructure, software and segment revenue to be up low to mid-single digit percentage year on year as the stable core software growth...

continues to be partially offset now by weakness in brokades. So in summary, we are guiding consolidated Q2 revenue for a company to be $8.7 billion, up 8% year-on-year. Before Kirsten...

tells you more about financial performance for the quarter, let me provide a brief update on our pending acquisitions of VMware. We continue to make progress with our various regulatory filings around the world.

Having now received legal merger clearance in Brazil, South Africa and Canada, and foreign investment control clearance in Germany, France, Austria, Denmark, Italy and New Zealand. As we stated on our last earnings call, we continue to anticipate that the timeline for the review process will be extended in other key regions.

especially given the size of this transaction. Having said that, we continue to expect the transaction to close within our fiscal 2023. We believe 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 regulators will see this when they conclude their review. Finally, Broadcom recently published its third annual ESG report available on our corporate citizenship website, which discusses the company's ESG initiatives.

As a global technology leader, we recognize Broadcom's responsibility to have a positive impact on our customers, employees and communities.

Through our product and technology innovation and operational excellence, we remain committed to this mission. With that, let me turn the call over to Kirsten.

Thank you, Hawk. Let me now provide additional detail on our financial performance. Broadcom had another great quarter with robust financials. Consolidated revenue was $8.9 billion for the quarter, up 16% from a year ago. Its margins were 74% of revenue in the quarter.

about 10 basis points higher than we expected. Operating expenses were 1.1 billion down 1% year-on-year. R&D of $929 million was also down 1% year-on-year, primarily from streamlined project and other variable spending offset in part by higher people costs.

resulting from increased headcount as we are hiring. Operating income for the quarter was $5.4 billion and was up 17% from a year ago. Operating margin was 61% of revenue, up approximately 50 basis points year on year. Adjusted EBITDA was $5.7 billion or 64% of revenue.

This figure excludes 127 million of depreciation. Now, a review of the P&L for our 2 reportable segments. Revenue for our semiconductor solution segment was 7.1 billion and represented 80% of total revenue in the quarter. This was up 21% year on year.

As Hach discussed, this came from strength across all of our semiconductor end markets. Gross margins for a semiconductor solution segment were approximately 69%, down approximately 160 basis points year on year, driven primarily by product mixed within our semiconductor end markets. Operating expenses were 802 million in Q1.

Down 2% year on year R and D was 716Million in the quarter down 1% year on year. Q1 semiconductor operating margins were 58%. So while semiconductor revenue was up 21%, operating profit grew 23% year on year.

Moving to the P&L for our Infrastructure Software Reportable Segment. Revenue for Infrastructure Software was $1.8 billion down 1% year on year and represented 20% of revenue. Growth margins for an Infrastructure Software were 91% in the quarter.

and operating expenses were $346 million in the quarter, down 1% year over year. Infrastructure software operating margin was 72% in Q1 and operating profit was stable year on year. Moving to cash flow. Free cash flow in the quarter was $3.9 billion.

representing a 16% increase year over year. Free cash flow represented 44% of revenues in Q123, consistent with what we achieved the same quarter last year. We spent $103 million on capital expenditures.

Day sales outstanding were 33 days in the first quarter compared to 30 days in the fourth quarter. We ended the first quarter with inventory of 1.9 billion, down 1% from the end of the prior quarter, or 78 days on hand.

Overall, inventory of Broadcom's products across the ecosystem, as Hach indicated, remains well managed.

We ended the first quarter with $12.6 billion of cash and $39.3 billion of gross debt, of which $1.1 billion is short term. During the quarter we repaid $260 million in senior notes that were due on maturity. The weighted average coupon rate and years to maturity of our fixed rate debt is 3.6

billion of our common stock and eliminated $333 million of common stock for taxes due on vesting of employee equity, resulting in the repurchase and elimination of approximately 2.7 million AVGO shares.

The non-GAAP diluted share count in Q1 was $434 million. As of the end of Q1, $11.8 billion was remaining under the share repurchase authorization.

excluding the potential impact of any share purchases. In Q2, we expect the non-gap diluted share count to be 438 million. Based on current business trends and conditions, our guidance for the second quarter of fiscal 2023 is for consolidated revenues of $8.7 billion.

and adjusted EBITDA of approximately 64.5% of projected revenue. In forecasting such profitability, we expect gross margins to be up approximately 150 basis points sequentially on product mix.

and R&D spending to be up sequentially on continuing hiring of engineers and seasonal payroll tax step-ups. That concludes my prepared remarks. Operator, please open up the call for questions.

Thank you. As a reminder, to ask a question, you will need to press star 1 1 on your telephone. To withdraw your question, press star 1 1 again. Due to time restraints, we ask that you please limit yourself to one question.

Please stand by while we compile the Q&A roster. Our first question will come from the line of Harsh Kumar with Piper Sandler. Your line is open. Yeah, hey, guys. Congratulations on yet another solid quarter and guide and thanks for all the color you guys.

that largely generative because we've heard other companies say that for a large part the generative models are using it could have been. And then you talked about $2 billion in compute offload going to sort of $3 billion. My understanding was that was mostly for video processing. Maybe help us think about how we think of Avago's place or Broadcom's place in the generative process.

Well, Jan, thank you for that question and opportunity to clarify why we highlighted and why I highlighted it very purposefully. You know, in 2022 generative is just barely starting to kick off, but there exists AI networks within the hyperscalers particularly in fairly significant volume. And one we're trying to say is very similar to…

traditional CPUs in traditional workloads in those same data centers, we've constrained on performance of those silicon CPUs. coppertri apply we've measured the number of values and the most long and we've measured the number of files okay so I'vess three

traditional CPUs in traditional workloads in those same data centers, you know, we've constrained on performance of those silicon CPUs and on Moore's Law, we're starting to see

scale out by positioning rows and rows of servers, CPUs, and networking them together to work closely in parallel. As we step up to launch language models in AI.

Generative AI in particular coming to play GPUs, starting to be strung together in hundreds.

soon to be thousands of racks and working in parallel. And you know how that goes. And basically those GPUs work in parallel in a fairly synchronous manner to basically run and do what you call bulk parametric exchange.

basically you run GPUs together, all AI engines together, whether they're GPUs, AI, TPUs, or other AI engines, you run them together, becomes network. The network becomes now potentially a critical part of this whole AI phenomenon in hardware. To make it one, you gotta put together,

Many, many, many wrecks of AI engines in parallel, very similar to what we have been doing, hyperscalers have been doing on CPUs to make them run faster high performance as more slow come to an end and doesn't make any difference here in the form of AI engines. They come from silicon, they have...

they face similar constraints. So network becomes a problem and becomes a constraint. Network becomes a very key part of fulfilling generative AI dream. we have

saying here, what I'm saying in my comments is last year 2022, these are more what you call the AI workloads that are running hyperscale and the advent of generative AI is still relatively fresh and new. We're doing 200 million dollars as far as we can estimate of silicon Ethernet switches.

and fabric that goes into those AI networks as far as we could identify in hyperscalers. With generative AI and the urgency and excitement of it coming in, that we are seeing today, we are seeing that increase very, very dramatically.

And we see urgency in our hyperscale customers coming to us to secure products, to secure ability to put in place those very, very lossless, I would call, very low latency networks that can scale.

and Ethernet is what makes those networks scale.

And Ethernet is what makes those networks scale. Understood. Thanks.

Thank you. One moment for our next question. And that will come from the line of Harlan Sir with JP Morgan. Your line is open. Good afternoon. Thanks for taking my question. Hawk, you know, as your cloud customers are now aggressively focused on generative AI development and deployment across their data center footprints, this is driving strong AI focused Ethernet switch port demand.

generation compute offload AI ASIC programs.

Yes, we are seeing all of the foregoing, by the way. And that happened over the last 90 days. We have seen a lot of that urgency, a lot of that, you might call it excitement, but you hit it right on. Yes, which is accounting for the color in my commentary about both.

generative AI-based networks and pushing us to develop a new generation altogether of Ethernet switching that can support this kind of very compute and data intensive workloads. So that's one side of it. And the other side of it, you're right, we typically not want to talk much about compute offload.

which is another way of saying, yeah, these are very related to some of the engines that are fairly customized, dedicated to certain hyperscalers. Thank you, Hawk. Thank you. One moment for our next question. And that will come from the line of Vivek Arya with Bank of America. Your line is open.

Thank you for taking my question. Hawke, I'm just curious to understand just the views about the second half. If I look at the last few years, Broadcom has managed to grow a semiconductor sales anywhere between five to kind of double digit second half, half over half. Just the broader business environment, so it's kind of more of a broader business environment question, not guidance per se. What could change that trend for Broadcom in a positive or negative way this year?

broadly conceptual, not a guidance as you said, but trend this way. We're kind of getting rather hopeful that it would be a soft landing. There will be moderation as we are indicating in this Q2 quarter, moderating growth, but we see it nonetheless as probably a

leading to a soft landing of still a year-on-year improvement in the second half. Thank you. Thank you. One moment for our next question. And that will come from the line of Stacey Raskon with Berenstain. Your line is open.

Hi guys, thanks for taking my question. I just wanted to verify and conclude that did you say that you started hearing urgency from your hyperscale customers around the AI in the last 90 days and it meant you're given that. How do I think about that in the context of lead times that are still 50 weeks, you've got like sounds like $1.6 billion in incremental rule.

I guess just how do I think about the timing level in the wake of the strong demand right now just given the broader lead times? I think the question is, how do we think about the timing level in the wake of the strong demand right now just given the broader lead times? I think the question is, how do we think about the timing level in the wake of the strong demand right now just given the broader lead times?

Stacey, thank you for your question, very perceptive. And as I say, we're not, we're trying not to, we're not guiding you guys what happens beyond the second quarter, not the second half of this year. Well, you did give us some guidance for the year on this, right? So... No guidance, sorry. I give you a conceptual trend, how's that? But having said that, no, we're still working through timing of when our customers need those urgent...

those products in a fairly urgent manner, and our ability to obviously want to be very, very helpful to help customers launch aggressively into generative AI. So we're in the midst of that. Because like the networking implied guide for Qt has got to be up like, you know, call it mid-teens sequentially. Is that some of that contributing or do I get even more, I guess, as we go beyond, because we're already, once you get through this quarter, we're already to the first half, right?

So I guess you'd have to hit the second half. Stacy, I wish you guys would not do too much analysis, but I know that won't happen. I'm only guiding Q2. I let you figure out what happens in the second half. I think you're probably better off at it than I am.

Thank you so much. Thank you. Thank you. One moment for our next question. And that will come from the line of CJ Muse with Evercore ISI. Your line is open. Yeah, good afternoon. Thank you for taking the question. And I know that it might be difficult to share too much on the ongoing review from the European Commission. But I was hoping maybe you could speak a little bit about where they're concerned, i.e. Nix fiber channel host bus adapters and other storage adapters.

Do you view these as core businesses within Broadcom? Are they easy to extract out of your portfolio? And is there IP that is critical for these businesses that are clearly used by your other larger core businesses? Anything to kind of help us understand would be grateful. Thank you. CJ, I appreciate the fact that you have been...

and progressively we've regulators on all the issues related to our clearance. So sorry, I can't comment. But just to let you know, we're making good progress. Thank you.

Thank you. One moment for our next question. And that will come from the line of Vijay Rakesh with Mizzouho. Your line is open. Yeah. Hi, Hawk. Just a quick question on – you talked about generative AI. Just wondering, as you look at the workload, what percent of workload would be on generative AI, like exiting calendar 23 or 24?

And also, I want to hit on the silicon photonics side. I think you briefly mentioned the silicon photonics cable with integrated switch, the 51.2 terabyte switch. When do you see this ramping, and what's the power advantage on that? Thanks. OK. Well, I'm sure I don't need to elaborate on what we all hear about on generative AI. And I think it's still early innings on generative AI. But we obviously are also indicating

We are seeing a very strong and strong sense of urgency among our customers, especially in the hyperscale environment, to not miss out, not to be late in this trend. And what we generally see for AI, as I said, with many, much more billions of parameters that come into the models,

that they are doing. You're talking about scale out of data centers, driving AI engines, network together in a manner that we probably have not seen before. It's not a problem that's not solvable. It is very, very clearly solvable, as evidenced by the fact that we have and deploying technology to support AI networks even today to certain hyperscalers.

where we're talking about at least hundreds, if not thousands of AI engines, AI servers, network together and working in a synchronous manner. So this is about ability to scale out in a fairly substantial manner. And that was the color I was providing. And it's really about trying to make sure that happens and not be the bottleneck to our ability to get.

the best system performance, and I emphasize the word, system performance of an AI data center. And where it's coming from right now is frankly,

how to network them and how to do those massive parametric exchange so this way when you run large numbers of engines or machines in parallel as you grind through this huge database and that we need to do so that's

We are in early innings, which is why we think we have time to start to work on even a new generation of switches in Ethernet that are specifically designed, dedicated to this kind of workloads, which are very different from the normal workloads that Believe in the

we see today traditionally in data centers. And we have to address that. They have to be, as I say, literally lossless, virtually lossless, very low latency, and be able to scale into thousands of engines. And that's the main three criteria we're aware of. And we're driving solutions, silicon solutions.

that enable that. We have it, but we think we need to improve the performance of what we have to do in anticipation of a trend, trend that we foresee over the next several years. And so we're putting our investment in that direction. On the silicon photonics cable, just wondering when the time of ramp and power advantage is there, thanks. Well, we intend to launch Tomahawk 5.

early 24, as we indicated previously. And that's the conventional silicon base with pluggable optics switch, top of the rack switch, timeout 5, 51.2 terabits

Bayley which is the fully integrated silicon photonic version, you know fully integrate the active component element, active elements of those plugable optics into the switch. We anticipate launching that shortly thereafter. Power wise, you can see silicon photonics.

That's a lot. A Tomahawk 5 compared to what we have today is 2x the performance of Tomahawk 4, but we believe we can do Tomahawk 5 at the same power, close to the same power, if not lower than a Tomahawk 4. Great. Thank you. Sure. Thank you. One moment for our next question. And that will come from the line of raw...

3 billion this year.

Well, you know, I'd rather not answer that question, Ross. Highly sensitive to some of my very limited customer base, but as I said, it includes some of the engines, the compute engines, and some related components that support this engine. Is the concentration changing? You know, so are you broadening customers in that growth?

No, no, very concentrated. Okay, thank you. Thank you. Thank you. One moment for our next question.

And that will come from the line of Edward Snyder with Charter Equity. Your line is open. Thank you very much. Good quarter, Hawk. So apparently over the last quarter you were getting out of wireless, you were getting into wireless, or hands-on guys are going to be doing wireless. So I wanted to get a couple of updates so maybe you could set the record straight. First of all, even if you see a sea change in let's say silicon.

all the other pieces of the puzzle like transceivers that are required if you're going to do your own. So maybe you could just kind of reset the bar on what you expect for, without guides, but in general the wireless division in the next year or two, does it, you know, does it atrophier get greater? Thanks. Thanks. Good question, Ed. As you know, our wireless division, our group as you call it, not division, is really

largely focus on.

one key customer, a much beloved North American OEM customer. So in that sense, it's one single focus area. And to answer your question, well, with these multiple products, and they tend to keep, you know, progress as each new generation happens. May not be every year, but it happens pretty fairly regularly.

frequency on a cadence that is pretty predictable after a while, each on its own cadence.

It's a very, very good business for us. And to answer your question directly, no. Nothing significant, meaningful has changed. Our relationship, our strategic engagement continues very much the same as it has for the last multiple years. And we see that...

to continue in a fairly predictable, stable manner. And just to remind if we could, it's a three-year roadmap. I mean, you see stuff pretty far out, right?

continue in a fairly predictable, stable manner. And just to remind if we could, three year roadmap, I mean, you see stuff pretty far out, right? Yes.

Great, thank you. Thank you. Thank you. One moment for our next question. That will come from the line of Pierre Ferragu with New Street Research. Your line is open. Hey, thank you for taking my question. Can you hear me well? Yes. Yes. Great. So I'm trying to put together a perspective of what's happening at hyperscale clients this year. So if I look at your networking division.

if you grow like at least $600 million this year in AI and if your computer flow division grows by a billion, that might well represent all your growth in networking. So that would mean the only thing that is really growing and that is growing a lot this year in that space is AI. And when I look at outside of Vodcom, what we've seen is memory and like the x86 CPU servers are having a very difficult time at the moment, expect the recovery in the second part while like the GPU segment of the market is actually very, very good.

I do not get my customers, hyperscale customers, do not necessarily honor me by sharing all those insights that you are and on those questions you are asking. I do not know.

I do not know. All I know, and what I do know, because I don't sell them CPUs, I don't even sell them GPUs, by the way. But I know what you know out there, which is in certain areas of their business, we're seeing some of these hyperscalers bringing on a sense of urgency and focus, and of course, spending to be up to speed, and if not, to not be left behind as we see the excitement hype, perhaps, in pushing applications and...

and put our workloads in generative AI. That's what we see driving a lot of this excitement. And we're always saying is, we're seeing some of that effect on our networking business with those hyperscalers. That's what it is. Beyond that, we unfortunately, other than the backlog we get in normal networking switches, routers, and key components, we see that, and as I indicated in this last quarter's result.

we continue to see sustained strength. Now, last quarter and continuing as we indicate this particular quarter Q2. Beyond that, we don't get to see, we do not want to guide what we're going to see beyond that. But right now, last quarter, this quarter, yeah, traditional data centers, scale out in networking in deployment, in networking continues to be strong and sustained in hyperscalers as well, and I indicate in enterprise.

Okay, right. And just to clarify specifically on what you are doing, is it fair to assume that the majority, a very large majority of your growth this year in networking is going to come from AI, which you have 600 million coming from AI Ethernet and a billion coming from off-grid chips? Or is that not the right way to think about it? Just for your business, not looking at anything else? I will not think about it at this point. It might be a bit too mature. Don't forget, generative AI.

you. Maybe if I could, a clarification on that and then a broader question that I want to address on broadband. On the networking piece, I was curious if you'd discuss the growth opportunity in your tomahawk portfolio now that a peer has elected to stop investing in their switch division.

And then as far as the broadband, you know, several companies across the broadband ecosystem have got a software outlook due to a build up of inventory, but quite frankly, that's been on the customer premise side. You obviously have more waiting towards fiber and sell into the infrastructure portion. And so I was hoping you could discuss how you're thinking about the growth of your fiber business within broadband, both from an infrastructure side and a consumer equipment standpoint.

As governments begin to deploy funds for broadband infrastructure. Thank you Thank you for that question. Yes, broadband is to us a very, very good business and very sustaining. Used to be boring. Boring is good at this point. And last quarter Q1 as I reported we actually grew 34% year on year. I know I might view that's that's rather exceptional even though

In broadband, we have been seeing year-on-year growth now at least for the past four, five quarters. But still 34% was rather exceptional. And sure enough, Q2, it normalizes to a more sedate level, but still growing. And the growth in that is simply because we're very well positioned with respect to next generation PON, 10 gig PON, which has been deployed in big volumes now by telcos, supported by their governments and countries all over Europe and even in North America.

not to mention other nations beyond that. Basically, it is about reaching this key utility, broadband service to every household. And we see a lot of deployment. And then more vertical market, we also see simultaneous with PON or fiber as you call it, a strong continued deployment of cable, Doxy, so it's very coaxial to the home because the cable operators, a few of them, move on the scale.

of the telcos and who need to maintain competitiveness as the telcos launch 10 gigabit PON, that cable has to update DOCSIS to be able to compete and not lose subscribers in the same market they compete against each other. So we see strength both in cable DOCSIS 3.1 as I call it, and potentially next generation, not yet happening, but hopefully within the next couple of years DOCSIS 4.0. Meanwhile, PON is happening.

which accounts for the strength we saw last quarter and continuing strength over the last several quarters. And content increases come to not just unit deployment of those gateways and infrastructure, but also the fact that a lot of these deployments come with very high attach rates of Wi-Fi, thanks.

and 60 and that provides additional boosts, containing increases, more, and some what I'll call it, to our revenue growth in broadband. So that's widely still chugging along very nicely for us. All right. All right.

Thank you. As I'm showing 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, Sheri. In closing, we would like to highlight that Broadcom will be attending the Morgan Stanley Technology Media and Telecom conference on Tuesday, March 7. Broadcom currently plans to report its earnings for the second quarter of fiscal 23. Thank you.

after close of market on Thursday, June 1, 2023. A public webcast of Broadcom's earnings conference call will follow at 2 p.m. Pacific time. That will conclude our earnings calls today. Thank you all for joining. Shireen, you may end the call. Thank you all for participating. This concludes today's program. You may now disconnect.