Q3 2023 Broadcom Inc Earnings Call
[music].
Okay.
Welcome to the Broadcom, Inc. Third quarter fiscal year 2023 financial results conference call. At this time for opening remarks, and introductions I would like to turn the call over to G. You head of Investor Relations of Broadcom, Inc.
Thank you operator, and good afternoon, everyone. Joining me on today's call are Hock Tan President and CEO , Kirsten Spears, Chief Financial Officer, and Charlie Collier, President Semiconductor solutions group.
Broadcom distributed a press release and financial tables after the market close describing our financial performance for the third quarter fiscal year 2023.
If you did not receive a copy you may obtain the information from the investors section of Broadcom website at Broadcom com.
This conference call is being webcast live and then audio replay of the call can be accessed for one year through the investors section of Broadcom is website.
During the prepared comments Hawkins, Kirsten, who will be providing details of our third quarter fiscal year 2023 result.
Guidance for our fourth quarter as well as commentary regarding the business environment.
We will take questions. After the end of our prepared comments.
Please refer to our press release today and our recent filings with the SEC for information on the specific risk factors that could cause our actual results to differ materially from the forward looking statements made on this call.
In addition to U S GAAP reporting Broadcom reports certain financial measures on a non-GAAP basis.
A reconciliation between GAAP and non-GAAP measures is included in the tables attached to todays press release.
Comments made during today's call will primarily refer to are non-GAAP financial results I'll now turn the call over to Hawk.
Thank you gene.
And thank you everyone for joining us today.
Fiscal Q3 2023 consolidated net.
Revenue, we achieved $8 $9 billion up 5% year on year.
Semiconductor solutions revenue increased 5% year on year to $6 9 billion.
Infrastructure software grew 5% year on year to $1 9 billion.
Hyper scale continue to grow double digits year on year, but enterprise and telco spending moderated.
Meanwhile.
Virtually defying gravity.
Wireless business has remained stable.
No generally.
That's really driving the continued strength in hyperscale spending for us.
As you know we supply a major.
Hyperscale customers with custom AI compute engines.
We are also supplying.
Several hyperscale is.
What folio of networking technologies.
They scale up and scale out AI clusters within their data centers.
Now representing over $1 billion.
This represented virtually.
All the girls.
In our infrastructure business in Q3 this year on year.
So we've owned the benefit of generating revenue in Q3.
Our semiconductor business was.
Approximately flat year on year and.
In fact.
Since the start of the year the fiscal year, our quarterly semiconductor revenue.
Excluding AI has stabilized at around $6 billion.
And as we had indicated to you a year ago, we expect that.
Soft lending during fiscal 'twenty three and it appears this is exactly what is happening today.
Now, let me give you more color on our end markets.
As we go through this soft lending.
We see though that our broad portfolio of products.
Influencing the puts and takes across revenues within all our end markets.
Except one.
Networking and so in my remarks today.
We focus on net working way generating for AI.
That's a significant impact.
Networking Rab acute treatment working revenue was $2 8 billion.
And what's up 20% year on year in line with guidance, representing 40% of our semiconductor revenue.
As we indicated.
Our switches and routers as well as our custom silicon AI engines.
Drove growth in this end market as they were deploying in scaling out AI clusters.
Among the Hyperscale.
We've always believed.
And more than ever now with AI networks. That's Ethernet is the best networking protocol to scale out AI clusters.
Ethernet today already offers the lowliest latency attributes for machine learning and AI.
Broadcom has the best technology.
Today and tomorrow.
As a founding member of the Altra Ethernet consortium, we found the industry partners, we are driving Ethernet for scaling deployments in lunch language model networks Importantly, we're doing this based on open standards.
And the broader ecosystem.
Over the past quarter.
We have already received substantial orders for our next generation Tomahawk.
Tomahawk five switch.
And Jericho three AI route this.
And plan to begin shipping this product.
Over the next six months to several hyperscale customers.
This will replace the existing four.
<unk> hundred gigabit networks with 800 gigabit connectivity.
And beyond this for the next generation one six terabits connectivity, we have already started development on the Tomahawk six switch, which has among other things 200 G cities January thing throughput capacity capacity of over 100.
There are bits per second.
We are obviously excited that generator is pushing our engineers to develop cutting edge technology in silicon.
That's a technology that has never been developed before we know the end of Moore's law has set limits on computing and silicon technology.
What we are developing today.
Feels very much like a revival.
We invest in fundamental technologies to enable our hyperscale customers with the best hardware capabilities too.
Due to scale generating for AI.
We invest in industry, leading 200 G cities that can drive upticks and even.
Copper cables.
We have differentiating technology that breaks current bottlenecks in high bandwidth memory access.
We also have ax high speed and ultra low power chip.
To chip connectivity to integrate multiple AI compute engines, but you also have invested heavily in complex packaging technologies.
Grading from today's 2.5 D two treaty, which enables.
Large memory to be integrated with the AI compute engines and accelerate this.
In sum.
We have developed.
End to end platform of plug and play Silicon IP.
And ables Hyperscale is to develop.
And deployed.
AI clusters in an extremely accelerated time to market.
Not surprisingly in Q4, but moving onto Q4.
G nearing to be driven by generative AI deployments, we expect our networking revenue to accelerate in excess of 20% year on year.
This has been driven by the strength, obviously in generating for AI.
We forecast to grow about 50% sequentially.
Almost two X year on year.
Up 4% sequentially flat year on year.
To be deep and multi year.
Cross Wi Fi Bluetooth touch RF front ends and inductive power.
So in Q4 consistent read that sweep.
The seasonal launch we expect wireless revenue to grow over 20% sequentially.
And down low single digit percent year on year.
On our server storage connectivity revenue.
It was $1 1 billion or 17% of semiconductor revenue and flat year on year.
If a difficult year on year compare.
We expect server storage connectivity revenue in Q4 to be down.
Teens percent year on year.
And moving onto broadband following nine consecutive quarters of double digit growth revenue moderated to 1% year on year growth to $1 1 billion or 16% of semiconductor revenue.
In Q4, despite increasing penetration of deployment of 10 G PON among.
Telcos, we expect broadband revenue to decline high single digits year on year.
Finally.
Q3, industrial resales of $236 million declined 3% year on year, reflecting weak demand in China and in Q4, the one we expect an improvement.
With industrial resales up low single digit percentage year on year, reflecting largely seasonality.
So in summary, Q3 semiconductor solutions revenue was up 5% year on year and in Q4, we expect semiconductor revenue growth of low to mid single digit percentage year on year sequentially.
Infrastructure software revenue of $1 $9 billion grew 5% year on year and represented 22% of total revenue.
For core software consolidated renewal rates average, 117% over expiring contracts and in our strategic accounts, we average 127%.
But it is strategic accounts.
Annual annualized bookings of $408 million included 120, and 929 million or 32% of cross selling of other portfolio of products to these same call customers and over 90% of the renewal value represented recurring.
Subscription and maintenance.
Over the last 12 months I should add consolidated renewal rates average of 115% over expiring contract and in our strategic accounts, we average 125%.
Cause of these I want a R R.
Indicator of forward revenue at the end of Q3 was $5 $3 billion.
Yeah.
In Q4, we expect infrastructure software segment revenue to be up.
Mid single digit year on year.
And on a consolidated basis for the company, we're guiding Q4 revenue of $9 two 7 billion.
4% year on year.
Before kissing tells you more about our financial performance for the quarter, Let me provide a brief update on our pending acquisition of Vmware.
We have received the legal merger clearance in Australia, Brazil, Canada, the European the European Union, Israel, South Africa, Taiwan, and United Kingdom.
Foreign investment control clearance in all necessary jurisdictions.
In the U S.
The Hart, Scott Rodino pre merger waiting periods.
Have expired.
We continue to work constructively with regulators in a few other jurisdiction are and are in the advanced stages of the process towards obtaining the remaining required regulatory approvals, which we believe will be received before.
For October this week.
Continue to expect to close on October 30th two.
2023.
Broadcom is constant confident that the combination with Vmware.
Enhanced competition in the cloud and benefit enterprise customers by giving them more choice.
In control, where they locate their workflows.
Present.
Let me turn the call over to Kiss.
Hock, let me now provide additional detail on our financial performance.
Consolidated revenue was 8.9 billion for the quarter up 5% from a year ago.
Gross margins were $75 one.
The quarter in line with our expectations.
Operating expenses were $1 1 billion down 8% to one here R&D of $913 million was also down 8% year on year on lower variable.
Operating income for the.
$5 5 billion and was up 6% from a year ago.
Operating margin was 62% of revenue up 100 basis points year on year.
Adjusted EBITDA was $5 8 billion or 65% of revenue.
Your excludes 122 million.
Depreciation.
Now a review of the P&L for our segments.
Revenue for our semiconductor solutions segment was $6 9 billion and represented 78% of total revenue in the quarter.
This was up 5% year on year.
Gross margins for our semiconductor solutions segment, where approximately 70% down 160 basis points year on year, driven primarily by product mix with in our semiconductor end markets.
Operating expenses were $792 million in Q3 down 7% year on year.
R&D was $707 million in the quarter down 8% year on year.
Segment was $1 9 billion up 5% year on year and represented 22% of revenue.
Gross margins for infrastructure software or 92% in the quarter and operating expenses were 337 million in the quarter down 10% year over ear.
Infrastructure software operating margin was 75% in Q3 and operating profit grew 13% year on year.
Moving on to cash flow free cash flow in the quarter with $4 6 billion and represented 52% of revenues in Q3, we spent 122 million on capital expenditures.
Days sales outstanding were 30 days in the third quarter compared to 32 days in the second quarter. We ended the third quarter with inventory of $1 8 billion down 2% sequentially.
We continue to remain very disciplined on how we manage inventory across the ecosystem, we exited the quarter with 80 days of inventory on hand down 86 days in Q2.
Down from excuse me 86 days in Q2.
We ended the third quarter with $12 1 billion of cash and $39 3 billion of gross debt of which of which $1 1 billion is short term.
The weighted average coupon rate in years to maturity of our fixed rate debt is 361% and $9 seven years, respectively.
Turning to capital allocation.
In the quarter, we paid stockholders $1 9 billion of cash dividend.
Consistent with our commitment to return excess cash to shareholders.
We repurchased $1 7 billion of our common stock and eliminated $460 million of our common stock for taxes due on vesting of employee equity, resulting in the repurchase and elimination of approximately $2 9 million a V. G O shares.
The non-GAAP diluted share count in Q3 with $436 million.
As of the end of Q3, seven 3 billion was remaining under the share repurchase authorization, we suspended our repurchase program in early August in accordance with SEC rules, which do not allow stock buybacks.
During the period in which Vmware shareholders are electing between cash and stock consideration in our pending transaction to acquire Vmware.
We expect the election period and shortly before the anticipated closing of the transaction on October 30th 2023.
Excluding the impact of any share repurchases executed prior to the suspension in Q4, we expect the non-GAAP diluted share count to be $435 million.
Based on current business trends and conditions, our guidance for the fourth quarter of fiscal 2023 is for consolidated revenues of 9.27 billion and adjusted EBITDA of approximately 65% of projected revenue.
In Q4, we expect gross margins to be down 80 basis points sequentially on product mix.
We note that our guidance for Q4 does not include any contribution from Vmware.
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 one one on your telephone to withdraw your question Press Star one again due to time restraints. We ask that you. Please limit yourself to one question. Please standby, while we compile the Q&A roster.
Yeah.
And our first question will come from the line of Vivek Arya with Bank of America. Your line is open.
Thanks for taking my question.
My question has to do with your large AI ASIC compute offload contract is this something you feel you have the visibility to hold on to for the next several years or does this take some kind of annual competitive situation because you have a range of.
Both domestic and Taiwan based is the competitors Idaho thing they can do it for cheaper. So I'm just curious what is your visibility into.
Turning this competitive win and then hopefully growing content in this over the next several years.
No to answer your question, but I.
I will not not directly anyway, because we do not discuss our dealings, especially as specific dealings over the nature youre asking with respect to any particular customer.
So that's not appropriate.
This in broad generality.
In many ways you look over in our.
Long term arrangements long term agreements with our large north American OEM customer in wireless very similar we have multiyear.
Very strategic strategic engagement.
And usually more than one.
Leading edge technologies, which is what do you need to create those kind of products whether it is in wireless or in this case in generative AI multiple multiple technologies that goes into creating the.
The products they want and it's multiple it's very strategic and it's multiyear.
And their engagement is very broad and deep.
Thank you.
Thank you one moment for our next question.
And that will come from the line of Harlan sur with Jpmorgan. Your line is open.
Good afternoon. Thanks for taking my question I'm, great to see the market diversification market leadership and supply discipline really sort of allowing the team to drive this sort of stable.
$6 billion per quarter run rate and a relatively weak macro environment.
Looking at you're looking at your customers demand profiles your strong visibility given your lead times.
And the team continued to sustain a stable ish sort of 6 billion dollar.
Revenue profile.
Over the next few quarters before macro trends potentially start to improve or do you anticipate enterprise and service provider trends to continue to soften beyond this quarter.
You're asking me to guide beyond a quarter I mean, hey, that's beyond my pay grade.
[laughter].
I know, but I just want to point out to you.
Promise you a soft landing late joining physical literally do that lightly 23 would be a soft landing.
And.
As you pointed out and one until my remarks.
Exactly what we are seeing.
Okay perfect. Thank you.
Thank you one moment for our next question.
Yeah.
And that will come from the line of Ross Seymore with Deutsche Bank. Your line is open.
Hi, guys. Thanks for letting me ask a question Hock I wanted to stick with the networking segment and just get a little more color on the AI demand that you talked about growing so significantly sequentially in the fourth quarter is that mainly on the compute offload side or the networking side are contributing as well any color on that would be helpful.
Well they go hand Ross.
These things go very hand in hand.
No you don't deploy those AI engines.
In these days for generating particularly in Onesies or twosies anymore. They come in large clusters all parts.
While our Hyperscale is we'll call it some hyperscale, let's call it and with that it's.
If you did a fabric net.
Networking connectivity.
Mom.
Thousands tens of thousands per day of those AI engines, whether its gpus or some other customize AI silicon a compute engine.
And whole fabric well, if it's our AI engine represent literally the computer.
They are they are infrastructure. So its hand in hand that our numbers are driven very very.
Co related to not just AI engines, whether we do their engines or somebody else merchant Silicon does those GPU engines.
We supply a lot.
After net Ethernet networking solutions.
Thank you.
Thank you one moment for our next question.
And that will come from the line of Stacy <unk> with Bernstein. Your line is open.
Hi, guys. Thanks for taking my question.
If I take that sort of $6 million on a run rate like calculate what the idea is I'm actually getting that 15% of semiconductor revenue that you mentioned last quarter.
Do you still think it's going to be 25% of revenue next year and just how do we think about how you get to that number. If you noticed I guess two questions. One is does that number still twenty-five or is it higher or lower and then how do I get it with the two moving pieces the AI and the non AI in order to get there.
Because that percentage goes up the non if not AI goes down.
Well.
There are a couple of assumptions, one assuming none of which I'm gonna help you wave as you know because I'm don't guide next year, except to tell you our AI revenue as we indicated it's.
That's been an accelerating on an accelerating trajectory.
No surprise you guys here that because deployment.
It's been extremely on an urgent basis and the demand we're seeing it's been fairly strong very strong and so we see it accelerating through.
End of 'twenty, two now accelerated and it continues to accelerate through.
End of 'twenty three that we just indicated to you and for fiscal 'twenty four we expect.
Somewhat similar accelerating trend.
Uh huh.
And so to answer your question, we have always indicated.
Previously.
For fiscal 'twenty fall, which is Joseph which is.
Forecasts.
We believe it will be over 25% of our revenue semiconductor revenue over 25% of our semiconductor revenue.
Got it thank you very much.
Thank you one moment for our next question.
And that will come from the line of Toshi Hari with Goldman Sachs. Your line is open.
Hi, Thank you so much for taking the question I had one quick clarification. Then a question on the clarification. How can you talk about the supply environment. If that's a constraining factor for your AI business and if so what kind of growth from a from a capacity perspective.
Do you expect to enter into fiscal 'twenty four.
And then my question is more on the non AI side as you guys talked about you've done really well and managing your own inventory, but when you look across inventory levels for your customers or at your customers.
It seems as though they're sitting on quite a bit of inventory.
What's your confidence level as it pertains to.
Potential inventory correction in your non AI business networking business going forward. Thank you.
Okay, well on the first question, you're talking about supply chain.
Well.
You know this.
Four generate deep AI, whether they are networking.
<unk> and custom engines.
Long lead times these are very very leading edge.
Silicon products both.
Oh, Oh, Oh, Paul in terms of across the entire thing from.
The chip itself to the packaging to even memory.
The kind of HBM memory that is something that is used in those ships is all very long lead time and vary.
Very cutting edge product, so we're trying to supply.
Everybody else wants to wants to have a within lead times.
So by definition, you have constraints and so do we have constraints.
We're trying to work through the constraints, but it's a lot of constraints and you'll never change as long as demand.
Odors flowing.
It was shorter than the lead time needed for production.
Because the production of this Ponce.
A very long extended.
And that's the constraint we see.
As they come in faster than lead times alone as orders come in the answer on your second part.
Well.
As far as size, we do see.
You know, we all kind of as I indicated I call. It soft lending another way of looking at it is that $6 billion approximately of non AI related revenue per quarter is kind of bumping up and down on a on a plateau thinking of it that way we growth is kind of down.
Two very little.
But it's still pretty stable up there.
And so we have a range as I indicated to with we don't have any one product in any one end market, where multiple products and you know our portfolio is fairly broad.
Diversified.
We categorize into each end market with multiple different products and each product runs on its own cadence sometimes on it's on the timing on when customer wants it and so youll see bumping up and down different levels, but again it <unk>.
Just the out over each quarter as we pointed out.
Around $6 billion and for now we're seeing that happen.
Great. Thank you.
Thank you one moment for our next question.
Okay.
And that will come from the line of Karl Ackerman with BNP Paribas. Your line is open.
Yes. Thank you.
Just on gross margins.
<unk> had a tough compare year over year for your semiconductor gross margins, which of course remain some of the best in semis, but is there a way to think or quantify about the headwind.
Gross margin.
This year from still elevated logistic costs and separate cost.
As we think about the supply chain, perhaps freeing up next year that perhaps could be a tailwind. Thank you.
Okay.
Hum.
Let me take let me take a step of this question. This question because it's really a more holistic against and Linda Here's one I mean.
The impact to us on gross margin more than anything else, it's not related to.
Transactional supply chain issues.
Im sure they have in any particular point in time, but not.
And not as material.
No sustained in terms of impacting trends what drives gross margin largely for us as a company.
<unk> frankly.
The prolonged maintenance.
It's product mix and as I mentioned earlier.
We have a broad range of products, even as we try to make order out of it from a viewpoint of communication and and segment them all.
Plus you find them into multiple end markets within the niche end market their products and they all have different gross margin depending on the consol way that use the <unk>.
<unk> and <unk> and various other aspects there are different so we have a real mixed bag.
And what drives the trend in gross margin more than anything else.
Is the pace of adoption of next generation.
Products in each product category.
That way and your mountain you measure it across multiple products and each time, a new generation of product all of a particular product gets adopted we get the opportunity to lift uplift gross margin.
And therefore the rate of adoption methods for instance, because for some products that changes gross margin every few years, because there's one that's more extended one.
You have different gross margin growth profile and this is what it's all tied to the most important variable.
The more interesting thing come down to Earth on a specifically your question is.
During 'twenty.
'twenty one 'twenty two in particular.
<unk>.
An up cycle in our in the semiconductor industry.
We had.
A lot of Lockdowns changing behavior, and a high level of demand for semiconductors.
Put it this way a shortage of supply to demand.
That was a sale there was accelerated adoption.
A lot of products.
Accelerated the adoption so we benefit that among other things don't just revenue as I indicated we benefitted from gross margin expansion across the board as a higher percentage of our products All day gets.
Adopted.
Into the next generation faster.
We pass these days.
There is probably some slowdown.
In the adoption rate.
And so gross margin expansion might actually not expanding as fast but.
It will work itself out over time and I've always told you guys. The model. This company has seen and it's.
<unk>.
It's empirical but based on this underlying.
Basically economics is simply that when we have the broad range of products, we have and each of them have different product lifecycle of upgrading and next generation. We have seen over the years on a long term basis and expansion of gross margin on a consolidated basis for semiconductors.
That ranges from 50 to maybe 150 basis points on an annual basis and that's a long term basis in between of course, you've seen numbers that go over to 200 basis points and happened in 2022.
And sooner or later you have to offset that.
We have years, where gross margin expansion might be much less like 50.
And I think that's the process you will see us go through.
On an ongoing basis.
Thank you.
Thank you one moment for our next question.
Okay.
That will come from the line of harsh Kumar with Piper Sandler Your line is open.
Yeah, <unk> so congratulations on a textbook soft landing I mean, it's perfectly executed I had a question I guess more so on the takeoff timing you've got a lead time that is about one year for your most of your product lines. So I suppose you see visibility a year out.
<unk> really is are you starting to see growth in backlog about a year out.
So in other words, we can assume that we'll spend time at the bottom for about a year and then start to come back or is it happening before that timeframe or maybe not even a year out just any color would be helpful. And then as a clarification Hawk is China approval needed for remember are not needed.
Let's let's start with lead times and are asking me to predict when the up cycle would happen.
Still too early for me the one to predict that the honest review because even though we have 50 weeks lead time.
I have overlaid on it today.
Nice lot of bookings all related to generative AI.
Decent amount bookings related to wireless too so that kind of light.
You know our buyers when I'm looking at so the answer to your very unsatisfactory I know answer to your question is.
For me to tell but we do have a decent amount of orders.
And then on Vmware.
I, Let me, let me say, let me say this.
You know I made those specific.
Notes all remarks on regulatory approval.
And I ask that you thinking it through read through.
And let's stop right there.
Okay Fair enough. Thank you hock. Thank you.
Thank you and one moment our next question.
And that will come from the line of Aaron Rakers with Wells Fargo. Your line is open.
Yes, thanks for taking the question and congrats also on the execution.
I'm just curious as I think about the Ethernet opportunity in AI fabric build outs, just hawk any kind of updated thoughts now with the Ethernet consortium that you're part of thoughts as far as Ethernet relative to Infiniband, particularly at the east West layer of these AI fabric build outs with Tom.
Mohawk five <unk> III sounding like it's going to start shipping in volume.
Maybe in the next six months or so is that an inflection where you actually see Ethernet really start to take hold in the east west traffic layer of these these AI networks. Thank you.
And that's a very interesting question and frankly my personal view is.
Infiniband.
Well what has been the choice in over four.
For years and years generations of high what we call what we have called before high performance computing and high performance computing was the old term for AI and.
By the way.
So that was it because it was very dedicated application workloads and not not at scale out as lost language models drive today.
We've relaunched language models driving and most of them not all of these lots language models are now being driven a lot by the hyperscale.
Frankly, you see Ethernet getting huge amount of traction.
And Ethernet is shipping.
It's not just getting traction to the future it is shipping in.
Many hyperscale.
And it would go in it.
Coexists best way to describe it we've been fitting there Ben.
And it all depends on the workloads it depends on the particular application that's driving it.
And at the end of the day and it also depends on.
Frankly, how large you want to scale your AI clusters, the heart the larger you scale it.
The more tendency you have to basically opening it up to Ethernet.
Yep. Thank you.
Thank you one moment for our next question.
And that will come from the line of Matt Ramsay with TD Cowen Your line is open.
Oh, yes. Thank you very much good afternoon.
Hock I wanted to ask a question I guess, maybe a two part question on your customers.
Our custom silicon business.
Obviously, the large customer is ramping really really nicely as you described.
But there are many other sort of large hyperscale customers that are considering custom silicon.
Maybe catalyzed by Jan AI, maybe some not but I wonder if the recent surge in <unk> spending and enthusiasm has maybe widened the aperture of your appetite to take on big projects for other large customers in that arena and secondly.
Any appetite at all to consider custom switching routing products for customers or really a keen focus on merchant in those areas. Thank you.
Well. Thank you very <unk>, that's a very insightful question.
You know, we only have one large customer in AI engines.
Not a GPU company.
And we're not we don't do much compute as you know other than offload computing is having say that but theres very customized.
And.
I mean, what I'm trying to say is yes.
I don't want to mislead you guys. The fact that I may have engagement.
And I'm, not saying I do.
On the custom program.
Should not.
At all.
B translated into your minds as Oh, Yeah. This pipeline that will translate to revenue.
It is creating.
Hardware infrastructure to run this large language models of Hyperscale is is an extremely.
Difficult.
Complex.
The task at hand.
For anyone to do and the fact that even if there is any engagement it does not translate easily to revenues and so.
Suffice it to say I live in a fact and leave it at that I have one.
Hyperscale, whom we are shipping custom AI engine stood today and leave it at that if you don't mind.
Okay now as far as customized switching routing sure I mean.
That happens.
So many of them are those few OEM, some Oems who are supplying.
Systems.
Switch systems, which are which are switches or routers.
<unk> have their own custom solutions, but together with their own proprietary operate network operating system.
That's been the model for the last 2030 years and today.
70% of the market.
Is on merchant silicon.
Not yet I won't say for not the network operating system, but certainly for the silicon is merchant silicon. So the message here is.
There's some advantages to doing a merchant solution here then to trying to do a custom solution.
Yes.
Behavior, our performance over the last 20 years have shown.
Okay. Thanks I appreciate it.
Thank you one moment for our next question.
And that will come from the line of Christopher Rolland with Susquehanna. Your line is open.
Hey, Thanks for the question.
So I think theres been two really great parts of the Broadcom Com story that has surprised me and the first is the AI upside in the second is just the resilience of the core business.
And particularly storage and broadband in light of what have been kind of a horror shows for some of your competitors, who I think are in clear down cycles.
So I I have maybe been waiting for a reset in storage and broadband for a while and it looks like Q4 gets a little softer here for you.
You know, maybe you are calling that reset a soft landing hawk.
So I guess, maybe you can describe a little bit more for us what you mean by a soft landing does that mean that we have indeed landed here.
Would you expect those businesses to be bottoming here at least.
And I know you've talked about it before you guys have had tight inventory management.
But is there, perhaps even a little bit more inventory showing up more inventory burn showing up for these markets or are the dynamics here just all end demand that.
That has started to deteriorate here. Thanks.
First and foremost and you've heard me.
<unk> talked about in May.
Preceding quarter, earning calls and I continue to say and Kirsten reemphasize. It today, we ship very much to only end demand offer.
And customers.
And we're looking beyond in many in enterprise, even beyond and telcos, even beyond Orient, we look to the end user the enterprises all.
Those OEM customers, we try to do.
Doesn't mean, we're right all the time, but we pretty much are getting very good at it and we only shipped today and what Youre seeing is why I'm, saying.
This.
What you know Youre looking at for instance.
Some numbers in broadband some numbers in server storage that seems not quite as flat, which is why I made the point, a perpetually, saying, but look at it collectively taking out generating fee my whole portfolio of products out there, it's pretty broad and they gets SYGMA.
Entered into different end markets.
And.
When we reach it.
Call It a plateau as we are in.
All soft lending as you call it.
You know you never stay flat there'll be some products because of timing of shipments come in more and some ship out the wrong timing come in a bit lower and in each quarter. We may show you differences and we are showing some of it that differences in Q3 and some even in Q4.
And that's all largely related to logistics and timing of customer shipments particular customers and a whole range of products that go this way.
What I referred in my remarks, as revenues, which are puts and takes around the median and then median hours at pains to highlight to you guys had said sit around six belief and it's been sitting around 6 billion since the start of fiscal 'twenty three.
Hi.
And as we sit here in Q4 is still.
At $6 billion.
We're not quite there because there are some parts of it. They may go up some part of it would go down and Thats. The puts and takes we talk about it and I hope that it's pretty much addressed what you were trying to get at which is is this a trend.
The fact that it is it a trend or is it just a flatter.
Those use my expression I call those slot. This all puts and takes around immediate that we're seeing here and I wouldn't have said it if I have not seen it now for three quarters in a row around $6 billion.
Thanks Hock.
Thank you one moment for our next question.
And that will come from the line of Edward Snyder with charter equity research.
Thank you very much harder I'll shift gears, maybe a little bit here.
And talk about your expectations and actually indications from your customers about the integrated optics solutions that will start shipping next year. It seems to me by looking at what you're offering in the significant improvement with performance size. It should be something of great interest is it limited.
Bye.
MRSA or architectural nurture by the existing solutions or what kind of feedback you're getting and what should we expect.
Maybe it up because it is rather new market for you overall, you've not been in before so I'm just trying to get a feel for.
What your expectations are and why maybe we should start looking at this more closely.
Yeah sure Brian I didn't I made my investment unless you should look at it a bit.
I'm just kidding, but we have invested in silicon photonics, which is I mean literally integrate thing in.
In one single solution packaging.
And it's an example, I'll switch our next generation Tomahawk Faith Street, which will start shipping middle of next year, what we called a program we called the Bayley a fully integrated.
Switch silicon photonic switch and Youre right very low power.
And you know and it's you make it you know upticks, if always have optical and mechanical characteristics.
Hi.
Sucking them into an integrated silicon.
Photonics solution you take away those failures.
Failures on our yield our yield rates on mechanical optical and translate it to literally silicon yield rates and so much we'd like to believe very reliable than the conventional approach. So yeah. My question is why aren't more people jump at it.
Because nobody else has done it.
We are.
Pioneering this silicon photonic architecture.
And we're going to put we have appeal.
POC proof of concept in <unk>.
Tom I'll fall in a couple of Hyperscale banana production volume.
We've been I don't feel comfortable we have reliability data from those.
Right.
As people say the proof is in the eating and we won't get it in one or two hyperscale, who would demonstrate how efficient power wise.
Effective it can be and once we do that we hope it will start to proliferate do I put it.
Other hyperscale is because they cannot do it.
One of them does it end and reap the benefits of this silicon photonics solution and it's that you'll know it as I've indicated the power is simply enormous 30, 40% power reduction and bowl is a big thing now in data centers.
But particularly I would add.
In January Dave AI data centers.
That's a big use case that could come over the next couple of years.
Alright.
Thank you. Thank you all for participating in today's question and answer session I would now like to turn the call over to MS. Zhu for any closing remarks. Thank.
Thank you operator in closing we would like to highlight that Broadcom will be attending the Goldman Sachs came into Copia and technology conference on Thursday September seven.
<unk> Com currently plans to reported earnings for the fourth quarter of fiscal 2003 after close of market on Thursday December seven 2023, our public webcast at Broadcom earnings Conference call will follow at two P. M Pacific that will conclude our earnings call today. Thank you all for joining US operator, you may.
On the call.
Thank you all for participating. This concludes today's program you may now disconnect.
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