Q4 2023 Broadcom Inc Earnings Call
Yeah.
Welcome to Broadcom, Inc, 's fourth quarter and fiscal year 2023 financial results conference call. At this time for opening remarks, and introductions I would like to turn the call over to <unk> head of Investor Relations of Broadcom, Inc. The floor is yours.
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 clause.
Evidence semiconductor solutions group.
Broadcom distributed a press release and financial tables after the market closed describing our financial performance for the fourth quarter and fiscal year 2023.
You did not receive a copy you may obtain the information from the investors section of <unk> Com's website at Broadcom dotcom.
This conference call is being webcast live and then the audio replay of the call can be accessed for one year did the investors section of Broadcom website.
During the prepared comments hock in person will be providing details of our fourth quarter and fiscal year 2023 results guidance for our fiscal year 'twenty 'twenty four as well as commentary regarding the business environment well.
We will take questions after the end of it.
Comment.
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.
Reconciliation between GAAP and non-GAAP measures is included in the tables attached to todays press release comp.
Comments made during today's call will primarily refer to are non-GAAP financial results.
I'll now turn the call over to <unk>.
Thank you gene and thank you everyone for joining us today.
In our fiscal Q4 'twenty three.
Consolidated net revenue was $9 $3 billion.
Up 4% year on year and very much as we had guided.
It became a big in the last conference call.
Semiconductor solutions revenue increase increased 3% year on year to $7 3 billion and infrastructure software revenue grew 7% year on year to 2 billion.
Overall, while infrastructure software and remains very stable.
Semiconductor is continuing the cyclical slowdown.
Enterprises, and Dell coals that we have been seeing over the past six months.
However, hyperscale has remained strong.
January.
Our revenue driven by Ethernet solutions and custom salary.
Celebrate this represented close to one 5 billion in Q4 or 20% of semiconductor revenue, while the rest of the semiconductor revenue.
Continue to be rather stable at around $6 billion.
Moving on to results for the year for fiscal 'twenty to 'twenty three consolidated revenue hit a record $35 8 billion growing 8% year on year and since 'twenty 'twenty, even though we have not made an acquisition.
We have shown a robust trajectory of growth driven by semiconductor growing it and.
And 18% over the past three years.
In fiscal 'twenty, two 'twenty three operating profit grew by 9% year on year, and our free cash flow grew 8% year on year to $17 $6 billion.
49% of revenue.
We returned $13 $5 billion in cash to our shareholders through dividends and stock buybacks.
Yeah.
As you well know we just closed the acquisition of Vmware on November 22nd just about four weeks into Broadcom as fiscal 2024.
We are now refocusing Vmware on its core business of creating private and hybrid cloud environments.
Large enterprises globally.
Divesting non core assets.
Reflecting the consolidation of our restructured Vmware into our 2024 outlook, we forecast our fiscal year 'twenty for consolidated revenue to be $50 billion, we expect the integration to take about a year.
And we're required close to $1 billion in transmission spending, which will largely be done as we exit fiscal 'twenty four regardless, we expect our fiscal year 2020, adjusted EBITDA to be approximately 60%.
Of revenue.
Kissling, well give you more details in her section.
Now, let me give you more color on our two reporting segments and I'll start with softwood.
In Q4, as you know there's no Vmware revenue.
And the infrastructure software business of CA, Symantec, and Brocade grew 7% year on year to $2 billion.
Got it.
Consolidator renewal rates every 219% over expiring contracts and strategic accounts, we actually averaged 130%.
Over 90% of the renewal value represented recurring subscription and maintenance.
For the year.
Newer rates averaged 116% over expiring contracts and in strategic accounts, we have reached 124%.
Revenue in fiscal 2023 was $7 6 billion up 3% year on year.
Expectation for fiscal 'twenty four.
For this revenue to be $8 billion, which is 4%.
Yes.
For the 2020 for outlook.
Excited to now include Vmware.
As we all know with Vmware has the leading technology to virtualize their entire data centers, not just compute and by doing so creates private clouds on prem.
Our strategy going forward is simply to enable global enterprises to run their applications across their data centers as well as on public clouds like consuming Vms higher value software stack.
And to try and keep this workloads across the environment.
We are investing in our reach catalog of micro services tools.
This will be our focus.
And the non core businesses of end user computing.
And carbon black will be divested.
So for 2024.
On 11 months of contribution from Vmware.
Specs.
<unk> to contribute $12 billion in revenue.
And on a consolidated basis, we expect our infrastructure software revenue in 2024 to <unk> $20 billion.
Yes.
Turning now to semiconductor segment, let me, let me give you more color by end markets.
Q4 networking revenue of $3 1 billion grew 23% year on year.
Representing 42% of our semiconductor revenue.
This was primarily driven by strong demand from Hyperscale is.
For our custom AI accelerators.
And as well for our networking switches routers.
Nick's network interface cards deadly dedicated towards scaling our AI data centers.
You know even this Ethernet as the standard probe.
Protocol in front and networks.
<unk> scale is also deploying Ethernet predominantly in the AI networks in.
In fiscal 'twenty, three networking revenue grew 21% year on year to $10 billion.
If we exclude the AI accelerators.
Net working connectivity represented about $8 billion.
And this is purely silicon.
Not systems not cables nor subsystems.
In fiscal 'twenty 'twenty, four we expect networking revenue to grow 30% year on year, driven by accelerating deployment of networking connectivity.
And expansion of AI accelerators in hyper scale us.
Moving to wireless.
Consistent with the seasonal launch by our North American customer Q4 wireless revenue of two 2 billion increased 23% sequentially.
And declined 3% year on year, representing 27% of semiconductor revenue in fiscal 'twenty three wireless revenue was relatively flat at $7 3 billion.
Just down 2% year on year.
The engagement with our North American customer continues to be deep strategic and multiyear and accordingly in fiscal 'twenty four.
Expect wireless revenue to gain remained stable year on year.
Next our Q4 server storage connectivity connectivity revenue was $1 billion or 14% of semiconductor revenue and down 17% year on year in fiscal 2003 server storage connectivity was $4 5 billion.
<unk>.
Up 11% year on year.
And you're going to fiscal 'twenty four we expect server storage revenue to decline mid to high teens percentage year on year, driven by the cyclical weakness that began late 'twenty three.
Yeah.
And moving onto broadband Q4 revenue declined 9% year on year to $950 million in line with expectations and represented 13% of semiconductor revenue.
And in fiscal 'twenty, three broadband revenue was $4 5 billion and up 8% year on year.
Moving onto fiscal 'twenty, four we expect broadband revenue to be down low to mid teens percentage year on year, and reflecting again, the further slowdown as the cyclical weakness at service providers.
That began in late 'twenty three continues into fiscal 'twenty four.
And finally Q4 industrial sales of $236 million was stable year on year in fiscal 'twenty three industrial resales.
$962 million.
Tim.
Fiscal 'twenty four we expect industrial sales to be down low single digits.
Yes.
So in summary.
Fiscal 'twenty three semiconductor solutions revenue was up 9% year on year to $28 2 billion revenue from generating for AI in fiscal 'twenty three.
15% of semiconductor revenue and revenue in line with our expectation.
And moving onto fiscal 'twenty, four we forecast semiconductor solutions revenue to be up.
Mid to high single digit percent year on year, we expect revenue from generative AI to represent to represent more than 25% of the semiconductor revenue.
<unk>.
Prior guidance.
Which more than offset the lack of growth from non AI semiconductor revenue.
Sure.
With the consolidation of Vmware, bringing our infrastructure software segment revenue to $20 billion and semiconductor segment holding at mid high single digit growth year on year, we had therefore guiding our fiscal 2000 and for revenue to be $50 billion.
Which represents 40% year on year growth from fiscal 'twenty three.
With that let me turn the call over to Kirsten.
<unk>.
Thank you Hock, let me now provide additional detail on our Q4 financial performance.
Consolidated revenue was $9 3 billion for the quarter up 4% from a year ago gross margins were 74, 3% of revenue in the quarter in line with our expectations.
Operating expenses were $1 2 billion flat year on year R&D of $940 million was also stable year on year.
Operating income for the quarter was $5 7 billion and was up 4% from a year ago.
With operating margin at 62% of revenue.
Adjusted EBITDA was 6 billion or 65% of revenue in line with expectations.
This figure excludes 124 million of depreciation.
Now a review of the P&L for our two segments.
Starting with our semiconductor segment.
Revenue for our semiconductor solutions segment was $7 3 billion and represented 79% of total revenue in the quarter. This was up 3% year on year.
Gross margins for our semiconductor solutions segment for approximately 70% down 110 basis points year on year, driven primarily by product mix within our semiconductor end markets.
Operating expenses were stable year on year, 800, $822 million, resulting in operating profit growth of 2% year on year and semiconductor operating margins of 58%.
Now moving onto our infrastructure software segment.
Revenue for infrastructure software with $2 billion up 7% year on year and represented 21% of revenue gross margins for infrastructure software, where 92% in the quarter and operating expenses were $339 million in the quarter Q4 operating profit grew 12% year on year with.
Infrastructure software operating margin at 75%.
Now moving on to cash flow free cash flow in the quarter was $4 7 billion and represented 51% of revenues in Q4.
We spent $105 million on capital expenditures.
Days sales outstanding were 31 days in the fourth quarter compared to 30 days in the third we ended the fourth quarter with inventory of $1 9 billion up 3% sequentially. We continue to remain disciplined on how we manage inventory across the ecosystem, we exited the quarter with 76 days of inventory on hand down.
80 days.
In Q3.
We ended the fourth quarter with $14 2 billion of cash and $39 2 billion of gross debt of which $1 6 billion in short term.
Now, let me recap our financial performance for fiscal 2023, our revenue hit a record $35 8 billion growing 8% year on year semiconductor revenue was $28 2 billion up 9% year over year infrastructure software revenue was $7 6 billion up 3% year on.
<unk> gross margin for the year was 74, 7% down 90 basis points from a year ago operating expenses were $4 6 billion down 4% year on year.
Fiscal 2023 operating income was $22 1 billion up 9% year over year and represented 62% of net revenue adjusted EBITDA was $23 2 billion up 10% year over year and represented 65% of net revenue.
This figure excludes $502 million of depreciation we.
We spent $452 million capital expenditures and free cash flow grew 8% year on year to $17 6 billion or 49% at fiscal 2023 revenue.
Now turning to capital allocation for fiscal 2023, we spent $15 3 billion consisting of seven 6 billion in the form of cash dividends and $7 7 billion in share repurchases and eliminations. We ended the year with $7 2 billion of authorized share repurchase programs remain.
<unk> with the Vmware deal closed we have resumed repurchasing shares under our existing program.
In fiscal year 2024, including the incremental shares from the acquisition of Vmware and excluding the potential impact of any share repurchases, we expect our non-GAAP diluted share count to be approximately $494 million.
Aligned with our ability to generate increased cash flows in the preceding year and now off of a larger share count base from the acquisition of Vmware, We are announcing an increase in our quarterly common stock cash dividend in Q1 fiscal 2024 to $5 25 per share an increase of 14%.
From the prior quarter, we intend to maintain this target quarterly dividend throughout fiscal 'twenty four subject to quarterly board approval.
This implies our fiscal 2024 annual common stock dividend to be a record $21 per share I would like to highlight that this represents the 13th consecutive increase and annual dividend since we initiated dividends in fiscal 2011 now.
Now onto guidance.
As hock discussed with the recent closing of our Vmware acquisition and the integration process, which will take at least one year for fiscal 2024, we will provide our outlook for the full year instead of quarterly guidance.
Based on current business trends and conditions, our guidance for fiscal 'twenty year 2024 is for consolidated revenues of $50 billion within this.
Our fiscal year 2020 for semiconductor revenue is expected to grow mid to high single digit percent year on year, our fiscal year 2020 for infrastructure software segment revenue from continuing operations is expected to be 20 billion, including 8 billion from CA Symantec enterprise and brocade.
<unk> 12 billion from Vmware.
With regard to Vmware, our forecast for fiscal 'twenty four revenue up 12 billion reflects 11 months of contribution from Vmware. This does not include revenue from EU C and carbon black of approximately $2 billion, which we plan to divest we are also converting.
And installed base of licenses that is over 60% perpetual today to one that will be mostly subscription by the end of fiscal 2024.
Setting these are new strategy for Vmware will accelerate revenue growth over the next three years.
During fiscal 'twenty, four we expect to incur about $1 billion of spend related to transitioning vmware into the new Broadcom model.
This transition spending will be largely completed by the end of the fiscal year as our Vmware spending run rate exiting fiscal 'twenty four at approximately one 4 billion per quarter down 40%.
From a year ago.
So in fiscal year 2024, including Vmware, we expect consolidated adjusted EBITDA of approximately 60% of projected revenue.
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. Please 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.
Our first question will come from the line of Vivek Arya with Bank of America. Your line is open.
Thanks for taking my question.
Yesterday, one of your peers suggested that the market for AI accelerators could be as large as that $400 billion. So kind of three related questions. What do you think about that number and then number two how does broadcom participate on that just beyond your large kind of ASIC.
Project and the compute offload side and then what does this larger AI accelerator market imply for your Ethernet networking business.
Assume that they are correlated but what is the right way to think about what is presumably a much larger market for accelerators and how it impacts broadcom <unk> growth prospects.
Thank you for those very interesting questions starting with the first fund.
I mean, it's.
What we're seeing is a market that continues to grow to accelerate.
What is also very obvious is is very very dynamic as architectures.
Of.
Large language models software models continues to change.
Literally change on the fly we are also seeing the requirements for compute silicon.
<unk>.
Uh huh.
And.
It's very interesting and very fascinating for us, but it also presents quite a interesting opportunity, which is to say that if a customer has a business model that is substantial and have resources, which obviously supports that.
It's getting to a stage that it might make a lot of sense.
Design.
Compute engines, which comprises memory as well.
The compute engine itself, then that can be paid.
<unk>.
Alberta, what customized for their particular requirements on applications on the particular LLM model and we're seeing this as we all are seeing L. M models continue to change and face the shape of a January deep AI.
Dynamically change more and more we're training and inference are now starting to.
In a way converge and the chip designs are changing and we're seeing that in the way we design specific custom chips for Hyperscale.
That's interesting so that's that's a very interesting opportunity for us and as.
I indicated in my remarks.
We see that revenue as part of named looking revenue $4 billion.
And Theyre looking for.
AI networks and growing doubling almost.
In 2024, nothing new we've said that before and if anything else we arrange.
Reinforcing that particular guidance now networking is particularly interesting as you heard in my opening remarks it is accelerating.
As our.
The AI accelerators, the compute engines.
Growing.
And we see that growing hanging in.
Particularly so as training continuous training of very large language models with very different and very large per parameters.
Going on and things keeps changing so we've seen no slowdown in fact in.
And the uptake on building out.
This AI in networks is anything else on average we are seeing a doubling on size of those networks across the board so thats done.
To answer your question, yes, I fully concur with.
We've AMD when they indicate that it looks like demand.
Appears to be accelerating rather than staying stable or decelerating.
Thank you.
Thank you one moment our next question.
And that will come from the line of Ross Seymore with Deutsche Bank. Your line is open.
Hi, Thanks for letting me ask a question just a quick clarification in the question. The clarification is the fiscal year guidance is going to be the new protocol or is that just for this quarter and then the real question Hawkins on the Vmware side of things <unk> talked about it potentially accelerating off of that $12 billion base can you just talk about the linearity of it maybe.
Throughout the year or more importantly, how is it going to be accelerating as people start to look at what the Vmware Street estimates, where before we know we have to take out the two divested operations, but what are the drivers of acceleration and how should we consider the magnitude of that as we look forward.
Yes.
We're in a very interesting by very slight things sit.
Asian here as we move into the next chapter for Vmware as I say, we focus the business.
On.
Vmware Cloud Foundation, which is the does the full software stack that could that.
That virtualized data data centers on Prem.
So not totally virtualized cloud environment.
And we are converting more and more customers.
Step by step as they come up for renewals into this higher value stack.
And we're doing it on a subscription basis. So it becomes very focused so we will kick it off.
Of.
So much lower rate.
Subscription generally brings down revenues as you know and software based on revenue recognition, but we see a trajectory of accelerated growth.
Even in 2024 through 2024, and it just doesn't stop there because as the man.
And the trajectory.
To answer your question, Yes, we are.
Everything from $12 billion, and we probably seeing double digit growth for the next three years.
Just by sheer math of.
Selling that higher value.
Virtualization stack versus the <unk>.
Gary.
Luiz component sales in the past, particularly on compute only.
And on the fiscal year side is this a one quarter thing or is this the new way you guys are gonna be doing it.
Oh, that's a good question well you all we will just give you indications 'twenty 'twenty four because this accelerating trend.
Our view is that it is more appropriate and more relevant to getting you guys. A sense of where we are here to get to turn it to our annual guidance for 2004, and we will report results every quarter and update our annual guidance 24, each time, we report quarterly.
Actuals.
Thank you.
Thank you one moment our next question.
And that will come from the line of Harlan sur with Jpmorgan. Your line is open.
Good afternoon, and thanks for taking my question one quick housekeeping item question, so even off the lower revenue base starting in fiscal 'twenty four from Vmware.
The team is still targeting $8 5 billion plus of EBITDA in three years.
Therefore, my main question Hock as you mentioned right one of the fastest growing workloads and accelerated compute is accelerated continued in January.
And all of these workloads are increasing at an exponential rate, where you talked about the benefits to your silicon franchise.
Given the significant performance requirements of these workloads right training inference. It appears that more of the near term adoption of running these workloads is on bare metal GPU GPU accelerated servers. So how is the team exploiting a software defined data center solutions either cloud Foundation.
<unk> or <unk> to try to help customers focused on AI sort of drive better utilization better economics faster deployments on this very fast growing part of the market.
Well.
Yes.
Su.
Be aware in the industry.
<unk> VM exploring in Las Vegas.
Vmware, Inc came out and announced in partnership with Nvidia.
Hum.
The <unk>.
Private AI Cloud Foundation.
Another way of describing it is.
Vmware does.
Vmware Cloud Foundation software stack the old Vcs.
Runs.
Nvidia Cuda runs the Nvidia GPU that is the partnership so again enterprise, it's a very easy step to op to to get into AI analytics, because the data center that you use in enterprise on Prem that runs.
Vcs.
<unk>.
By default run.
The Nvidia GPU.
The software stack as well.
Another way to put it virtual alliances the Nvidia GPU, that's the Vmware software stack as well so it's a very strong attraction.
From our perspective to in fact accelerate thinking of a lot of enterprise to adopting the whole wins yet.
It simply because not only does it virtualized data centers and make your own data on Prem data center much more resilient easier to manage lower cost manage it has the added benefit that a big attraction this days of being able to baidu.
Baidu right away start running.
AI workloads.
And then just.
My first question are you guys still targeting $8 5 billion of EBITDA in three years.
On Vms.
As Kirsten indicated.
As we exit fiscal 'twenty fall.
We are practically at a run rate of $8 5 billion EBITDA.
Perfect that's awesome. Thank you.
Thank you one moment 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.
A question along that line I was wondering if you can do 60% EBIT margin for the company's full year how are you.
Should we think about the beginning and exit rates.
On EBITDA margin relative to that full year total and I guess aligned with that I think I heard you say you Vmware opex would be down 40% exiting the year versus.
The entrance rate I'm actually kind of surprised just knocked down more and maybe thats the reinvestment but.
Is that $1 4 billion per quarter for Vmware, that's the right.
Exit rate for.
<unk> Vmware Opex and should we have to grow off of that or one that vmware spending so that that's total spending yes, it will be.
Safety Youre missing the biggest point, we own as I indicate that led to an earlier question by.
Uh huh.
Our revenue during this process, even 12 months four quarters.
On the growth trajectories, just because of the way the math works.
As we sell more and is on revenue and we recognize revenue on a ratable basis.
Our revenue on a quarterly basis is on a growth trajectory that will keep running and we will keep running beyond 2024 by 2024 by itself won't be on a revenue trajectory that goes up very rapidly.
So what do you have thinking about picture. It is a revenue trajectory through 2004 that is grow expanding or growing while the expense operating expense.
Total spend because of reduction of transition expenses is declining.
And Thats why we are telling you that by the end of an.
So as we exit fiscal 'twenty four we pretty much get to the guide business. We gave you at the beginning of when we announced this deal.
So what's the total company EBIT margin, let's say exiting the year than just up just a level set.
Well, that's a total to only be it was pretty good pretty close to where we are supposed to before we started this whole exercise.
What was that 65 I can't remember.
But somewhere between 60 and 65, how does that sound Stacey.
I mean, it's been 65 on it so I think I recall, you, saying youre going to run Vmware at 65. So I guess 65 is the right run rate exit rate.
Steady state.
We use that youre right its steady state, we will get to pretty close to 60 <unk>.
Got it okay helpful. Thank you guys.
Thank you one moment our next question.
Yes.
And that will come from the line of Timothy Arcuri with UBS. Your line is open.
Hi, Hakan.
Language for the.
Approvals from China. They noted some restrictive conditions and there were some protections around some sensitive information from your competitors can you detail. What these are and does this change your view on the synergies you can drive either cost or more importantly revenue. Thanks.
Hi.
I think those conditions are pretty well laid out in the website of <unk>.
The relevant authorities.
Frankly, the only thing that is very.
Appropriate for me to sit here and repeat all of those conditions again is right on the website and Thats what it is.
Okay and it doesn't make you think any differently about the.
The synergies that you can drive from the business.
No.
Okay. Thanks, a lot.
Thank you one moment our next question.
Okay.
That will come from the line of Christopher Rolland with Susquehanna. Your line is open.
Thanks for the question congrats on the quarter.
And closing with Vmware deal I.
I guess.
Cost of capital has increased since Vmware since the announcement of the deal and now that this is closed.
I guess does this affect how you look at your capital allocation strategy going forward it.
It sounds like you bounce you bumped the dividend here and you restarted your share repurchase now that it's closed are you going to focus more on repurchases or is it still same old broad broadcom with.
With acquisitions in mind as you Delever.
Louise with acquisitions in mind, we're continuing our share repurchase program that we promise. So that's where we are definitely buying back shares.
Yes.
Being broadcom will delever.
Quickly so everyone keep everything in line essentially.
And Craig can expand a bit on that.
We acquired <unk>.
Part of cash.
Was it took longer so we've got ourselves a pot of cash and with that.
The flexibility.
Not only are we able to give dividends to the new shareholders from the EMS side.
We are continuing continuing to complete the commitment we make to you the shareholders to for the rest of fiscal for the rest of calendar 'twenty three to buyback that $7 billion of shares out there.
Great. Thanks, and maybe a quick follow up.
Thoughts on just why you didn't offer next quarter in favor of the full year and if you had any thoughts on the shape of revenue for next year, whether it's back half loaded significantly or pretty linear.
<unk> bought a company that's pretty sizable we're restructuring the business model and were changing among other things the business model to a subscription business model.
And we see therefore that trajectory of the revenue.
Our sub trajectory of growth for the revenue just by sheer conversion to subscription and the fact that we are also upselling of higher value products, the combination of debt and the new <unk> a new company.
It makes it more much more.
Sensible, let's put this way for us to be able to give you a full year number than three months.
Guidance, thus spending transition spending might slip my accelerate revenue might accelerate my sleep and given ourselves three months are telling what it is.
Especially on a new environment to us is not very very.
I call it we.
We have not been good to you guys the shareholders.
For the full year, I think with a hell of a lot more confidence we will attain those endpoints at exit.
Very sensible, thanks, and congrats again.
Thank you.
One moment for our next question.
Yeah.
And that will come from the line of Toshi Hari with Goldman Sachs. Your line is open.
Hi, good afternoon. Thank you so much for taking the question.
I had a question on the semiconductor business and specifically on the non AI side of things for.
For both networking and server storage connectivity.
You noted, you're obviously going through a cyclical correction.
Historically, you've had a pretty good.
Understanding of where customer inventory as well.
When we simply look at their balance sheets for the public companies' inventory is pretty elevated particularly on the networking side.
What is your interpretation of where inventory is for your products and.
How should we think about the timing and pace of recovery as you look into 2024. Thank you.
On a book to can see inventory fall product is pretty darn good right.
Especially compared to our peers and that's because we keep it tight out in customers and we don't sell to China, We don't sell much more channels, we usually do a lot of it directly to our logic customers. We feel they are in good shape.
Uh huh.
Relatively speaking we are still in good shape now.
Asked me, maybe server storage that could be a little excessive but non broadband and certainly not in networking.
So overall on <unk>.
Our products we have.
Phil Phil Phil rather good about it and the best indication is the level of our own inventory on our own books.
But what we do see is customers are perhaps much more cautious.
About buying more stuff.
So just because they have too much of my inventory because they have too much of everybody else inventory out there.
We tend to see some caution in the way they chose to buy.
Having said that we're still keeping to our lead times.
And any comment on sort of the timing or the shape of the recovery in 'twenty four.
If only I know.
Yes.
I mean, I'd be speculating to say second half of 2004.
<unk> will start looking better.
Compared to the first half of 'twenty four.
Fair enough. Thank you.
And one moment our next question.
Yeah.
And that will come from the line of Karl Ackerman with BNP Paribas. Your line is open.
Yes. Thank you.
Hock I was hoping you may discuss the reason for divesting <unk> and carbon black and maybe more importantly, as you think about the growth rate off this $12 billion.
Kirsten could you discuss the opportunity you see in front of you as DRAM memory pooling brought in from the adoption of <unk> within data centers that would seem to be.
A very big opportunity for Vmware.
Yes.
What was the first question again sorry.
Yes.
Okay.
<unk> chose to sell end user computing and carbon black those on.
Good assets, let's make no mistake, they're very sustaining theyre very stable good assets.
And why we chose to sell them is typically our playbook.
We focus.
Very much so on in.
Any acquisition, where we see the vet.
The biggest value for our business model.
And basically we then do not want to be distracted by non call.
Focus and Vmware for US is about call is about data centers is about call networks.
<unk> call compute.
And so we're now going to invest and focus our sales R&D on those core areas of Vmware Cloud Foundation and to US end user computing carbon black good access as they as they may be.
We prefer not to divest them.
We will find good homes for them because there are a lot of very interested parties or are more than happy to take those assets and.
And then it will be very very thoughtful about where we positioned.
When we put those assets eventually simply because they are customers of many of these two assets. Many of the customers are also the same customers too with the Vmware.
Cloud Foundation.
Okay.
Thank you.
Thank you and one moment for our next question.
And that will come from the line of Matt Ramsay with TD Cowen Your line is open.
Yes. Thank you very much good afternoon.
Hock I guess I'll caveat my question, saying that I am a semiconductor guide rather than a software expert, but I wanted to.
Ask about the plan to come.
Convert the Vmware customer base to subscription models and <unk>.
Contrast that with what.
What you guys did with CA and Symantec so are there.
You feel like the process is going to be pretty similar in duration and success are there or are there differences in.
Maybe the customer base.
The length of the long tail outside the sort of fortune 1000 type of technologies. There are there any.
Similarities or differences in the plan there that we should sort of think about in and what that might mean for how quickly you can convert that business. Thanks.
No. These are very different assets not seeing anyone that's necessary.
Much better than the other just different.
In CA, particularly where we're mainframe, but also some distributor we focus.
Very much.
Especially on our core customer base, which represents at that time, we bought it 70% of the overall revenue of those all CA. We focus on these customers, we focus on supporting them and continuing to basically give them really good.
Port feature requests growth India area.
That's how we then four and cement that we focus on cement type two which is a smaller core group of customers.
And a big part of it is the technology LCA, especially a mainframe is honestly is running legacy a lot of legacy applications that are still very very much alive today, but customers, preferring to run it on those our mainframe tools simply because it makes.
No sense to modernize a change for whatever is for their own good reasons.
<unk>, however, we're selling a product of the present and the future.
Is a growth product to be able to create a virtual lies.
Cloud environment in your own data center on Prem for any global company.
The good thing about going to public cloud is it's also totally virtualized, but very resilient when you run a very.
And when you run a software defined environment.
We are creating with Vmware the same experience of virtualization of the data center on Prem.
For those companies, which has workloads by the way that already running.
<unk>.
Products.
Application that really drove our recent on Vmware Cloud Foundation is has been giving this enterprises the opportunity to have a hyper scaler on premise.
That's the plan we're doing.
Plain and simple.
Thank you for that and I really appreciate it.
And thank you one moment our next question.
And that will come from the line of William Stein with <unk>. Your line is open.
Great. Thanks for taking my question.
In the past I think we've all been aware that there is one major customer the.
Accelerated compute side I suspect that has broadened and deepened perhaps.
Hoping you can give us.
Some characterization of that maybe the number of customers or projects how diversified it is at this point.
That would really help thank you.
Okay.
Yes it has.
It has which reflects somewhat my.
The opening remarks that say that I used to tell you guys in general.
Merchant silicon or <unk>.
But I think that with the evolution of fairly rapid evolution I've been seeing on the AI and large language model generative.
Language models, and the fact that in hot way one size doesn't fit all.
There is variation depending on the models you run I would say that if.
Although some of those Hyperscale us with the resources with the scale.
Our requirements to be able to create.
Customized versions of hardware to match with.
Customization of their foundation models and even the application models.
It became that we begin to see the effect of that.
Other than that I'd, rather not disclose anymore to you at this one because we're kind of under NDA.
NDA or Ralph.
Okay.
Thank you one moment our next question.
Yes.
And that will come from the line of harsh Kumar with Piper Sandler Your line is open.
Yes.
First of all congratulations on closing the <unk> deal I know you've been trying to close that for a while I wanted to you had a lot of time management and a lot of time to look at this deal to the process of closing I was curious what you have seen so far that pleases me the most and what do you think will be the most challenging.
Aspect of the integration over the next 12 months that you highlighted.
Well.
Over the past 18 months, almost we had on the journey of closing this deal from the date of announcement Youre right, we have to hit the <unk>.
Great opportunity and thanks to our very supportive.
The management team from Vmware.
That engages with us very very well again is planning.
We cannot we can see we can touch but it goes to a lot of.
Time to plan and think through it also gives me a lot of opportunity to go out there and over the past 12 16 months I must have talk one on one or in small groups to at least 150 <unk> globally of the largest customers of Vmware.
And one thing is very clear.
The Vmware core product the Vmware Cloud Foundation software stack that enables virtualization of not just computing.
Others, compute but storage networking as well as orchestration and management layer over it that holds tank.
Is something.
Then.
Cio's head of infrastructure of large many large companies out there.
Daily.
One they want to be able to deploy they want to make their data centers, which is very high.
Zero genus now between both.
Utilization in Q2.
Bare metal.
And the mix environment.
Vendors, while each is trying to.
Optimize best of breed to one that is under managing under a single abstraction layer of across a diversity of hardwood <unk>.
That saves a lot of hardware purchases that that creates a lot of cost reduction in a way that mentioned that is the value of the technology <unk> brings to bear.
Products, our debt for us is focusing and execution, which is what you hear us say that today and which is what you hear and lay out in the numbers. We're looking at just in the first year of completion of this acquisition.
Sure.
Okay.
Thanks Hock.
Sure.
And that concludes today's question and answer session I would now like to turn the call back over to MS. Zhu for any closing remarks.
Thank you operator in closing Broadcom currently plans to reported earnings for the first quarter of fiscal 'twenty four after close of market on Thursday March seven 2024.
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 operator, you may end the call.
Thank you all for participating. This concludes today's program you may now disconnect.
Okay.
Okay.
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Yes.
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Okay.
<unk>.
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