AVGO - Broadcom Inc.

Ji Yoo: Welcome to Broadcom Inc.'s Fourth Quarter and Fiscal Year 2025 Financial Results Conference Call. At this time, for opening remarks and introductions, I would like to turn the call over to Ji Yoo, Head of Investor Relations of Broadcom Inc. Thank you, Sherry, and good afternoon, everyone. Joining me on today's call are Hock Tan, President and CEO, Kirsten Spears, Chief Financial Officer, and Charlie Coaz, President, Semiconductor Solutions Group. Broadcom distributed a press release and financial tables after the market closed describing our financial performance for the fourth quarter and fiscal year 2025. If you did not receive a copy, you may obtain the information from the investor section of Broadcom's website at broadcom.com. This conference call is being webcast live, and an audio replay of the call can be accessed for one year through the Investors section of Broadcom's website. During the prepared remarks, Hock and Kirsten will be providing details of our fourth quarter and fiscal year 2025 results, guidance for 2026, 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 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 Hock. Hock Tan: And thank you everyone for joining us today. Well, we just ended our Q4 fiscal 2025. And before I get into details of that quarter, let me recap the year. In our fiscal 2025, consolidated revenue grew 24% year over year, to a record $64 billion, driven by AI semiconductors and VMware. AI revenue grew 65% year over year to $20 billion, driving the semiconductor revenue for this company to a record $37 billion for the year. In our infrastructure software business, strong adoption of VMware Cloud Foundation, or VCF as we call it, drove revenue growth of 26% year on year to $27 billion. In summary, 2025 was another strong year for Broadcom. And we see the spending momentum by our customers for AI continuing to accelerate in 2026. Now let's move on to the results of our fourth quarter 2025. Total revenue was a record $18 billion, up 28% year on year and above our guidance on better than expected growth in AI semiconductors as well as infrastructure software. Q4 consolidated adjusted EBITDA was a record $12.12 billion, up 34% year on year. So let me give you more color on our two segments. In semiconductors, revenue was $11.1 billion as year on year growth accelerated to 35%. This robust growth was driven by AI semiconductor revenue of $6.5 billion, which was up 74% year on year. This represents a growth trajectory exceeding 10 times over the eleven quarters we have reported this line of business. Our customer accelerated business more than doubled year over year as we see our customers increase adoption of XPUs, as we call those customer accelerators, in training their LLMs and monetizing their platforms through inferencing APIs and applications. These XPUs, I may add, are not only being used to train and inference internal workloads by our customers. The same experience in some situations has been extended externally to other LLM peers. Best exemplified at Google where the TPUs used in creating Gemini are also being used for AI cloud computing by Apple, Cohere, and SSI as a sample. The scale at which we see this happening could be significant. As you are aware, last quarter, Q3 2025, we received a $10 billion order to sell the latest TPU ironwood racks to Anthropic. This was our fourth custom. That we mentioned. In this quarter Q4, we received an additional $11 billion order from this same customer for delivery in late 2026. But that does not mean our other two customers are using TPUs. In fact, they prefer to control their own destiny by continuing to drive their multiyear journey to create their own custom AI accelerators or XPU RECs as we call them. I am pleased today to report that during this quarter, we acquired a fifth XPU customer through a $1 billion order placed for delivery in late 2026. Now moving on to AI networking. Demand here has even been stronger as we see customers build out their data center infrastructure ahead of deploying AI accelerators. Our current order backlog for AI switches exceeds $10 billion as our latest 102 terabyte terabit per second Tomahawk six switch, the first and only one of its capability out there, continues to book at record rates. This is just a subset of what we have. We have also secured record orders on DSPs, optical components like lasers, and PCI Express switches to be deployed in AI data centers. All these components combined with our XPUs bring our total order on hand in excess of $73 billion today, which is almost half Broadcom's consolidated backlog of $162 billion. We expect this $73 billion in AI backlog to be delivered over the next eighteen months. In Q1 fiscal 2026, we expect our AI revenue to double year on year to $8.2 billion. Turning to non-AI semiconductors, Q4 revenue of $4.6 billion was up 2% year on year and up 16% sequentially based on favorable wireless seasonality. Year on year, broadband showed solid recovery. Wireless was flat. All the other end markets were down as enterprise spending continued to show limited signs of recovery. Accordingly, in Q1, we forecast non-AI semiconductor revenue to be approximately $4.1 billion, flat from a year ago, down sequentially due to wireless seasonality. Let me now talk about our infrastructure software segment. Q4 Infrastructure Software revenue of $6.9 billion was up 19% year on year, both and above our outlook of 6.7. Bookings continued to be strong, as total contract value booked in Q4 exceeded $10.4 billion versus $8.2 billion a year ago. We ended the year with $73 billion of infrastructure software backlog, up from $49 billion a year ago. We expect renewals to be seasonal in Q1 and forecast infrastructure software revenue to be approximately $6.8 billion. We still expect, however, that for fiscal 2026, Infrastructure Software revenue to grow low double-digit percentage. So here's what we see in 2026. Directionally, we expect AI revenue to continue to accelerate and drive most of our growth. Non-AI semiconductor revenue to be stable. Infrastructure software revenue will continue to be driven by VMware growth at low double digits. For Q1 2026, we expect consolidated revenue of approximately $19.1 billion, up 28% year on year. We expect adjusted EBITDA to be approximately 67% of revenue. With that, let me turn the call over to Kirsten. Kirsten Spears: Thank you, Hock. Let me now provide additional detail on our Q4 financial performance. Consolidated revenue was a record $18 billion for the quarter, up 28% from a year ago. Gross margin was 77.9% of revenue in the quarter, better than we originally guided on higher software revenues and product mix within semiconductors. Consolidated operating expenses were $2.1 billion, of which $1.5 billion was research and development. Q4 operating income was a record $11.9 billion, up 35% from a year ago. Now on a sequential basis, even as gross margin was down 50 basis points on semiconductor product mix, operating margin increased 70 basis points sequentially to 66.2% on favorable operating leverage. Adjusted EBITDA of $12.12 billion or 68% of revenue was above our guidance of 67%. This figure excludes $148 million of depreciation. Now a review of the P&L for our two segments. Starting with semiconductors. Revenue for our Semiconductor Solutions segment was a record $11.1 billion with growth accelerating to 35% year on year driven by AI. Semiconductor revenue represented 61% of total revenue in the quarter. Gross margin for our Semiconductor Solutions segment was approximately 68%. Operating expenses increased 16% year on year, to $1.1 billion on increased investment in R&D for leading-edge AI semiconductors. Semiconductor operating margin of 59% was up 250 basis points year on year. Now moving to infrastructure software. Revenue for Infrastructure Software of $6.9 billion was up 19% year on year and represented 39% of total revenue. Gross margin for infrastructure software was 93% in the quarter compared to 91% a year ago. Operating expenses were $1.1 billion in the quarter, resulting in Infrastructure Software operating margin of 78%. This compares to operating margin of 72% a year ago reflecting the completion of the integration of VMware. Moving on to cash flow. Free cash flow in the quarter was $7.5 billion and represented 41% of revenue. We spent $237 million on capital expenditures. Day sales outstanding were thirty-six days in the fourth quarter, compared to twenty-nine days a year ago. We ended the fourth quarter with inventory of $2.3 billion, up 4% sequentially. Our days of inventory on hand were fifty-eight days in Q4, compared to sixty-six days in Q3 as we continue to remain disciplined on how we manage inventory across the ecosystem. We ended the fourth quarter with $16.2 billion of cash, up $5.5 billion sequentially on strong cash flow generation. The weighted average coupon rate in years to maturity of our gross principal fixed rate debt of $67.1 billion is 4% and 7.2 years, respectively. Turning to capital allocation. In Q4, we paid stockholders $2.8 billion of cash dividends based on a quarterly common stock cash dividend of $0.59 per share. In Q1, we expect the non-GAAP diluted share count to be 4.97 billion shares excluding the potential impact of any share repurchases. Now let me recap our financial performance for fiscal year 2025. Our revenue hit a record $63.9 billion with organic growth accelerating to 24% year on year. Semiconductor revenue was $36.9 billion, up 22% year over year. Infrastructure software revenue was $27 billion, up 26% year on year. Fiscal 2025 adjusted EBITDA was $43 billion and represented 67% of revenue. Free cash flow grew 39% year on year to $26.9 billion. For fiscal 2025, we returned $17.5 billion of cash to shareholders in the form of $11.1 billion of dividends and $6.4 billion in share repurchases and eliminations. Aligned with our ability to generate increased cash flows in the preceding year, we are announcing an increase in our quarterly common stock cash dividend in Q1 fiscal 2026 to 65¢ per share, an increase of 10% from the prior quarter. We intend to maintain this target quarterly dividend throughout fiscal 2026, subject to quarterly board approval. This implies our fiscal 2026 annual common stock dividend to be a record $2.60 per share, an increase of 10% year on year. I would like to highlight that this represents the fifteenth consecutive increase in annual dividends since we initiated dividends in fiscal 2011. The board also approved an extension of our share repurchase program of which $7.5 billion remains, through the end of calendar year 2026. Now moving to guidance. Our guidance for Q1 is for consolidated revenue of $19.1 billion, up 28% year on year. We forecast semiconductor revenue of approximately $12.3 billion, up 50% year on year. Within this, we expect Q1 AI semiconductor revenue of $8.2 billion, up approximately 100% year on year. We expect infrastructure software revenue of approximately $6.8 billion, up 2% year on year. For your modeling purposes, we expect Q1 consolidated gross margin to be down approximately 100 basis points sequentially, primarily reflecting a higher mix of AI revenue. As a reminder, consolidated gross margins through the year will be impacted by the revenue mix of infrastructure software and semiconductors and also product mix within semiconductor. Expect Q1 adjusted EBITDA to be approximately 67%. We expect the non-GAAP tax rate for Q1 and fiscal year 2026 to increase from 14% to approximately 6.5% due to the impact of the global minimum tax and shift in geographic mix of income compared to that of fiscal year 2025. That concludes my prepared remarks. Operator, please open up the call for questions. Operator: Thank you. Due to time restraints, we ask that you please limit yourself to one question. Please stand by while we come to our first question. Vivek Arya: Our first question will come from the line of Vivek Arya with Bank of America. Your line is open. Hock Tan: Thank you. Just wanted to clarify, Hock, you said $73 billion over eighteen months for AI. That's, you know, roughly $50 billion plus for fiscal 2026. For AI. I just wanted to make sure I got that right. And then the main question, Hock, is that there is sort of this emerging debate about customer-owned tooling. You know, your async customers potentially wanting to do more things on their own. How do you see your XPU content and share at your largest customer evolve over the next one or two years? Thank you. Hock Tan: Well, to answer your first question, what we said is correct that as of now, we have $73 billion of backlog in place, account of XPU switches, DSPs, lasers, for AI data centers that we anticipate shipping over the next eighteen months. And obviously, this is as of now. I mean, we fully expect more bookings to come in over that period of time. And so do not take that $73 billion as that's the revenue we ship over the next eighteen months. Just saying we have that now, and then the bookings have been accelerating. And frankly, we see that bookings not just in XPUs, but in switches, DSPs, all the other components that go into AI data centers. We have never seen bookings of the nature that what we have seen over the past three months. Particularly, with respect to Taiwan six switches. This is one of the fastest-growing products in terms of deployment that we have ever seen. Of any switch product that we put out there. It is pretty interesting. And partly because it's the only one of its kind out there at this point. At 102 terabit per second. And that's the exact product needed to expand the clusters of the latest GPU and XPUs out there. No. That's great. But as far as what is the future as XPU is your broader question. My answer to you is do not follow what you hear out there as gospel. It's a trajectory. It's a multiyear journey. And many of the players and not too many players doing LLMs want to do their own custom AI accelerator for very good reasons. You can put in hardware what if you use a general-purpose GPU you can only do in software and kernels in software. You can achieve performance-wise so much better in the custom-purpose design hardware-driven XPU. And we see that in the TPU and we see that in all the accelerators we are doing for other customers. Much much better in areas of sparse call, training, inference, reasoning, all that stuff. Now will that mean that over time, they all want to go do it themselves? Operator: Not necessarily. Hock Tan: And in fact, because the technology in silicon keeps updating, keeps evolving. And if you are an LLM player, where do you put your resources in order to compete in this space? Especially when you have to compete at the end of the day against merchant GPU. Who are not slowing down in their rate of evolution. So I see that as this concept of customer tooling is an overblown hypothesis which frankly I do not think will happen. Thank you. Operator: And that will come from the line of Ross Seymore with Deutsche Bank. Your line is open. Ross Seymore: Hi, thanks for letting me ask a question. Hock, I wanted to go to something you touched on earlier about the TPUs going a little bit more to like a merchant go-to-market to other customers. Do you believe that's the substitution effect for customers who otherwise would have done ASICs with you, or do you think it's actually broadening the market? And so what are kind of the financial implications of that from your perspective? Hock Tan: That's a very good question, Ross. And what we see right now is the most obvious move it does is it goes to the people who use TPUs. The alternative is GPUs, merchant basis. That's the most common thing that happens. Because to do that substitution for another custom, it's different. To make an investment in a custom accelerator is a multiyear journey. It's a strict directional thing. It's not necessarily a very transactional or short-term move. Moving from GPU to TPU is a transactional move. Going into an AI accelerator of your own is a long-term strategic move and nothing would deter you from there to continue to make that investment towards that end goal of successfully creating and deploying your own custom AI accelerator. So that's the motion we see. Ross Seymore: Thank you. Operator: And that will come from the line of Harlan Sur with JPMorgan. Harlan Sur: Yes, good afternoon. Thanks for taking my question and congratulations on the strong results, guidance, and execution. Hock, again, I just want to sort of verify this. Right? So you talked about total AI backlog of $73 billion over the next six quarters. Right? This is just a snap of your order book, like, right now. But given your lead times, I think customers can and still will place orders for AI in quarters four, five, and six. So as time moves forward, that backlog number for more shipments in '26 will probably still go up. Right? Is that the correct interpretation? And then given the strong and growing backlog, right, the question is does the team have three nanometer, two nanometer wafer supply, COA substrate, HBM supply commitments to support all of the demand in your order book and I know one of the areas where you are trying to mitigate this is in advanced packaging. Right? You're bringing up your Singapore facility. You guys just remind us what part of the advanced packaging process the team is focusing on with the Singapore facility? Thanks. Hock Tan: Thanks. Well, to answer your first simpler question, you're right. You can say that $73 billion is the backlog we have today. To ship over the next six quarters. You might also say that and given our lead time, we expect more orders to be able to be absorbed into our backlog for shipments over the next six quarters. So take it that we expect revenue a minimum revenue, one way to look at it, of $73 billion over the next six quarters. But we do expect much more as more orders come in. For shipments within the next six quarters. Yeah. Our lead time depending on the particular product it is, can be anywhere from six months to a year. On with respect to supply chain is what you're asking critical supply chain on silicon. Yeah. And packaging. Yeah. That's an interesting challenge that we have been addressing over for constantly and continue to. And with the strength of the demand and the need for more innovative packaging, advanced packaging, because you are talking about multi chips multi multi chips in creating every customer accelerator now. The packaging becomes a very interesting and technical challenge. And building our Singapore fab is to really talk about partially insourcing those advanced packaging. We believe that we have enough demand we can literally insource not from the viewpoint of not just cost, but in the viewpoint of supply chain security and delivery. And we're building up a fairly substantial facility for packaging advanced packaging, Singapore as indicated. Purely for that purpose to address the package advanced packaging site. Silicon wise, now we go back to the same pressure source in Taiwan, TSMC. And so we keep going for more and more capacity in two nanometers, three nanometers, and so far, we do not have that constraint. But again, time will tell as we progress and as our backlog builds up. Thank you. Operator: The next question will come from the line of Blayne Curtis with Jefferies. Your line is open. Blayne Curtis: Hey, good afternoon. Thanks for taking my question. I wanted to ask with the original $10 billion deal, you talked about a rack sale. I just wanted to with the follow-on order as well as the fifth customer, can you just maybe describe how you're gonna deliver those? Is it an XPU, or is it a rack? And then maybe you can kinda just walk us through the math and kinda what the deliverable is. Obviously, Google uses its own networking, so I'm kinda curious too. Would it be a copy exactly what Google does? That you could talk to it to name? Or would you have your own networking there as well? Hock Tan: Thanks. That's a very complicated question, Blayne. Let me tell you what it is. It's a system sale. How about that? It's a real system sale. We have so many components beyond XPUs, customer accelerators, in or any system, in AI system, any AI system, used by hyperscalers that, yeah, we believe it begins to make sense to do it as a system sales and be responsive but be fully responsible for the entire system or rack as you call it. I think people understand it as a system still better. And so on this customer number four, we are selling it as a system with our key components in it. And that's no different than selling a chip. We certify a final ability to run as part of the wholesale selling process. Operator: And that will come from the line of Stacy Rasgon with Bernstein. Your line is open. Stacy Rasgon: Wanted to touch on gross margins and maybe it feeds into a little bit of prior question. So I understand why the AI business is somewhat dilutive to gross margins. We have the HPM pass-through. And then presumably with the system sales, that will be more diluted. And you've hinted at this in the past, but I was wondering if you could be a little more explicit. As this AI revenue starts to ramp, as we start to get system sales, how should we be thinking about that gross margin number, say, if we're looking out, you know, four quarters or six quarters, is it low 70s? I mean, could it start with a six at the corporate level? And I guess I'm also wondering I understand how that comes down, but what about the operating margins? Do you think you get enough operating leverage on the OpEx side to keep operating margins flat, or do they need to come down as well? Hock Tan: I'll let Kirsten give you the details, enough for me to broadly high level explain to you stating good question. Phenomenal. You don't see that impacting us right now, and we have already started that process. Of some system sales. You don't see that in our numbers, but it worked. And we have said that openly. The AI revenue has a lower gross margin than our obviously, the rest of the business, including software, of course. But we expect the rate of growth to offer as we do more and more AI revenue to be so so much that we get the operating leverage on our operating spending that operating margin won't deliver dollars that are still a high level of growth from what it has been. So we expect operating leverage to benefit us at the operating margin level even as gross margin will start to deteriorate. High level. Kirsten Spears: No. I think Hock said that fairly. And the second half of the year when we do start shipping more systems, the situation is straightforward. We'll be passing through more components that are not ours. So think of it similar to the XPUs where we have memory on those XPUs, we're passing through those costs. We'll be passing through more costs within the rack. And so those gross margins will be lower. However, overall, the way Hock said it, gross margin dollars will go up. Margins will go down. Operating margins, because we have leverage, operating margin dollars will go up, but the margin itself, a percentage of revenues will come down a bit. But we're not I mean, we'll guide closer to you know, the end of the year for that. Stacy Rasgon: Got it. Thank you, guys. Operator: One moment for our next question. That will come from the line of Jim Schneider with Goldman Sachs. Your line is open. Jim Schneider: Good afternoon. Thanks for taking my question. Hock, I was wondering if you might care to calibrate your expectations for AI revenue in fiscal 2026 a little bit more closely. I believe you talked about acceleration in fiscal 2026 off of the 65% growth rate you did in fiscal 2025. And then you're guiding to 100% growth for Q1. So I'm just wondering if the Q1 is a good jumping-off point for the growth rate you expect for the full year something maybe a little bit less than that? And then maybe if you could separately clarify whether your $1 billion of orders for the fifth customer is indeed OpenAI, which you made a separate announcement about. Thank you. Hock Tan: Wow. There's a lot of question here. But let me start off with 2026. You know, our backlog is very dynamic these days. As I said. And it is continuing to ramp up. And you're right. We originally, six months ago said maybe year on year, AI revenues would grow in 2026 sixty, 70%. Q1, we doubled. And Q1 2026, today, we're saying it doubled. And when we're looking at it, because all the fresh orders keep coming in, and we give you a milestone of where we are today. Which is $73 billion of backlog to be shipped over the next eighteen months. And we do fully expect as I answered the earlier question, for that $73 billion over the eighteen months, to keep growing, Now it's a moving target. It's a moving number as we move in time. But it will grow. And it's hard for me to pinpoint what 2026 is going to look like precisely. I rather not give you guys any guidance, and that's why we don't give you guidance. But we do give it for Q1. Give it time or give it till Q2, and you're right. It's saying that to us, is it an accelerating trend? And my answer is it's likely to be an accelerating trend. As we progress through 2026. Hope that answers. Your question. Jim Schneider: Yes. Thank you. Operator: One moment for our next question. And that will come from the line of Ben Reitzes with Melius Research. Your line is open. Ben Reitzes: Yeah. Hey, guys. Thanks a lot. Hey, Hock. I wanted to ask I I'm not sure if the last caller said something on it, but I didn't hear it in the answer was wanted to ask about the OpenAI contract that it's supposed to start in the second half of the year and go through 2029 for 10 gigawatts. I'm gonna assume that that's the that's the fifth customer order there. And I was just wondering if you're still confident in that being a driver. Are there any obstacles to making that a major driver? And when you expect, you know, that to contribute? And your confidence in it. Thanks so much, Hock. Hock Tan: You didn't hear that answer from my last caller, Jim's question was because I did not answer it I'm not answering it either. The fifth customer. And he's a real customer and he will grow. They are on their multi-year journey to their own XPUs. And let's leave it at that. As far as the OpenAI view that you have, I we appreciate the fact that it is a multiyear journey. That will run through '29 as our press release with OpenAI showed. 10 gigawatts between '26 to more more like '27, 28. 29. Ben. Not 26. It's more like 27, 28, 29, 10 gigawatts. That was the OpenAI discussion. And that's I call it an agreement, an alignment where we're headed with respect to a various respected and valued customer OpenAI. Ben Reitzes: But that's real interesting. Hock Tan: We do not expect March in '26. Ah, okay. That's thanks for clarifying that. That's really interesting. Appreciate it. Operator: One moment for our next question. And that will come from the line of CJ Muse with Cantor Fitzgerald. Your line is open. CJ Muse: Yes. Good afternoon. Thank you for taking the question. I guess, Hock, I wanted to talk about custom silicon and maybe speak to how you expect content to grow for broad generation to generation. And as part of that, you know, your competitor announced CPX offering essentially accelerator for an accelerator for massive context windows. I'm curious if you see it a broadening opportunity you know, for your existing five customers to have multiple XPU offerings. Thanks so much. Hock Tan: Thank you. No. Yeah. It's you hit it right on. I mean, the nice thing about a custom accelerator is you try not to do one size fits all. And do and generationally. Each of these five customers now can create their version of chip of an XPU customer accelerator for training. And inference. And it basically is almost two parallel tracks going on almost simultaneously for each of them. So I would have plenty of versions to deal with. I do not need to create any more version. We got plenty of different content out there. Just on the basis of creating these customer accelerators. And by the way, when you do customer accelerators, you tend to put more hardware in that unique differentiated versus trying to make it work on software. And creating kernels into software. I know that's very tricky too. But think about the difference where you can create in hardware those sparse call data routers. Versus the dense matrix multipliers all in one same chip. And that's one of many one of just one example of what creating customer accelerators is letting us do. Over that matter, a variation in how much memory capacity or memory bandwidth from for the same customer from chip to chip just because even in inference, want to do more reasoning, first decoding, versus something else, like prefilled. So you literally start to create different hardware for different and run your workloads. aspect of how you want to train or inference It's a very fascinating area. And we are seeing a lot of variations and multiple chips. For each of our customers. Thank you. Operator: One moment for our next question. And that will come from the line of Harsh Kumar with Piper Sandler. Your line is open. Harsh Kumar: Yeah, Hock and team. First of all, congratulations on some pretty stunning numbers. I've got an easy one and a more strategic one. The easy one is, your guide in AI Hock and Kirsten is calling for almost $1.7 billion of sequential growth. I was curious, maybe you could talk about the diversity of the growth between the three existing customers. Is it pretty well spread out? All of them growing? Or is one sort of driving much of the growth? And then how strategically one of your competitors bought a photonic fabric company recently I was curious about your take on that technology and if you think it's disruptive or you think it's just gimmickry at this point in time. Hock Tan: I like the way you address this question because the way that you address the question to me is almost hesitant. Thank you. I appreciate that. But on your first part, yeah, we are driving growth and we it began to feel like this thing never ends. And it's a real mixed bag. Of existing customers and on existing XPUs And I'll be part of it as XPUs that we're seeing. And that's not to slow down the fact that as I indicated in my remarks and commented on the demand for switches. Not just among six, not among five. Switches. The demand for our latest 1.6 terabit per second DSPs. That enables optical interconnects for scale out. Particularly? It's just very, very strong. And by extension, demand for the optical components like lasers, pin diodes, just going nuts. All that come together. Now, all that is small dollar, relatively lesser dollars when it comes to XPUs, as you probably guessed. I mean, no. Of this to give you a sense, maybe let me look at it on a backlog side. Of the $73 billion or AI revenue backlog over the next eighteen months, I talked about maybe $20 billion of it is everything else. The rest, is XPUs. Hope that gives you a sense for what the mix is. That's not to say that the rest is still $20 billion. That's not small. By any means. So we value that. So when you talk about your next question of silicon photonics, and as a means to create basically much better, more efficient, lower power interconnects in not just scale out, but hopefully scale up Yeah. I could see a point in time in the future when silicon photonics methods as the only way to do it. We're not quite there yet. But we have the technology and we continue to develop the technology even as each time we develop it first for 400 gigabit then we going on to nine 800 gigabit bandwidth Not ready for it yet. So and even we have the product, and we're now doing it for 1.6 terabit bandwidth to create silicon photonics switches silicon photonics interconnects Not even sure it will get fully deployed because you know, engineers, our engineers, our peer, and the peers we have out there, was somehow trying to find a way to still do try to do scale up within a rack in copper as long as possible. And in scale up in no pluggable optics. The final final straw is when you can't do it well in pluggable optics. Of course, when you can't do it even in copper, then you're right. You go to silicon photonics. And it will happen. And we're ready for it. Just saying, not anytime soon. Harsh Kumar: Thank you, Hock. Operator: One moment for our next question. That will come from the line of Carl Ackerman with BNP Paribas. Your line is open. Carl Ackerman: Yes. Thank you. Could you speak to the supply chain resiliency and visibility you have with your key material suppliers, particularly co-ops as you not only support your existing customer programs, but the two new custom compute processors that you announced since your quarter. I guess what I can get at is you also happen to address the very large subset of networking and compute AI supply chains. You've talked about record backlog. If you were to pin some of the bottlenecks that you have, the areas that you're aiming to address and mitigate from supply chain bottlenecks, what would they be and how do you see that ameliorating into '26? Thank you. Hock Tan: It's across the board. Typically. I mean, it's we are very fortunate in some ways that we have the product technology and the operating business lines. To create multiple key leading-edge components that enable today's state-of-the-art AI data centers. I mean, our DSP as I said earlier, is now at 1.6 terabits per second. That's the leading edge. Connectivity for bandwidth for this for the top of the top of the heap, XPU, and even GPU. And we intend to be that way. And we have the lasers EMLs, VCSELs, CWL lasers that go with it. So it's fortunate that we have all this. And the key comp active components that go with it and we see it very quick early, and we expand the capacity as we do the design to match it. And along this is the long answer to what I'm trying to get at, which is I think we are of any of any of this data center suppliers of the system racks not counting the power the power shell and all that. Now that's hard to get beyond us. On the PowerShell and the transformers and the gas turbines. If you just look at the rack, the systems on AI, we probably have a good handle on where the bottlenecks are because sometimes we are part of the bottlenecks. Which we then want to get rid to resolve. So we feel pretty good about that. Through 2026. Carl Ackerman: Thank you. Hock Tan: One moment for our next question. Operator: That will come from the line of Christopher Rolland with Susquehanna. Your line is open. Christopher Rolland: Hi, thanks for the question. Just first a clarification and then my question. And sorry to come back to this issue, but if I understand you correctly, Hock, I think you were saying that OpenAI would be a general agreement so it's not binding maybe similar to the agreements with both NVIDIA and AMD. And then secondly, you talked about flat non-AI semiconductor revenue Maybe what's going on there? Is there still an inventory overhang in and what could what what do we need to get that going again? Do you see growth, eventually, eventually in that business? Thank you. Hock Tan: Well, on the non-AI semiconductor, we see broadband literally recovering very well. And we do not see the others No. We see stability. We do not see a sharp recovery that is sustainable yet. So I guess given a one a couple more quarters, but we do not see any further deterioration in demand. And it's more I think maybe the ops and AI is sucking the ops oxygen a lot out of enterprise spending elsewhere. And hyperscaler spending elsewhere. We do not see it getting any worse. We do not see it recovering very quickly. With the exception of broadband. That's a simple summary of non-AI. With respect to OpenAI now before diving into the I'm just telling you what that 10 gigawatt announcement is all about. Separately, the journey with them on the customer accelerated progresses at a very advanced stage and will happen very, very quickly. And it's and we will have a committed element to this whole thing. And I won't. But what we I was articulating earlier was the 10 gigawatt announcement. And that 10 gigawatt announcement is an agreement to be aligned on developing 10 gigawatts for OpenAI over 27 to 29 time frame. I said, that's different from the XPU program we're developing with them. Christopher Rolland: I see. Thank you very much. Operator: Thank you. And we do have time for one final question, and that will come from the line of Joe Moore with Morgan Stanley. Your line is open. Joe Moore: Great. Thank you very much. So if you have $21 billion of rack revenue in 2026, I guess, do we stay at that run rate beyond that? Are you gonna continue to sell racks, or does that sort of that type of business make shift over time? And I'm really just trying to figure out the percentage of your eighteen-month backlog that's actually full systems at this point. Hock Tan: Well, it's an interesting question. And while that question basically comes to how much compute capacity is needed by our customers over the next as I say, over the period beyond eighteen months. And your guess is probably as good as mine based on what we all know out there. Which is really what it relates to. But if they need more, then you see that continuing even larger. If they do not need it, then probably it won't. But so one is what we're trying to indicate is that the demand we are seeing over that period of time right now. Operator: Thank you. I would now like to turn the call back over to Ji Yoo for any closing remarks. Ji Yoo: Thank you, operator. This quarter, Broadcom will be presenting at the New Street Research Virtual AI Big Ideas Conference on Monday, 12/15/2025. Broadcom currently plans to report its earnings for the 2026 after close of market on Wednesday, 03/04/2026. A public webcast of Broadcom's earnings conference That will conclude our earnings call today. Thank you all for joining. Operator: This concludes today's program. Thank you all for participating. You may now disconnect.

Ji Yoo: Welcome to Broadcom Inc. Third Quarter fiscal year 2025 financial results conference call. At this time, for opening remarks and introductions, I would like to turn the call over to Ji Yoo, Head of Investor Relations of Broadcom Inc. Please go ahead. Thank you, Sherry, and good afternoon, everyone. Joining me on today's call are Hock Tan, President and CEO, Kirsten Spears, Chief Financial Officer, and Charlie Coaz, President, Semiconductor Solutions Group. Broadcom distributed a press release and financial tables after the market closed describing our financial performance for 2025. If you did not receive a copy, you may obtain the information from the investors section of Broadcom's website at broadcom.com. This conference call is being webcast live, and an audio replay of the call can be accessed for one year through the Investors section of Broadcom's website. During the prepared comments, Hock and Kirsten will be providing details of our third quarter fiscal year 2025 results, guidance for our 2025, 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 today's press release. Comments made during today's call will primarily refer to our non-GAAP financial results. I will now turn the call over to Hock. Hock Tan: Thank you, Ji. And thank you everyone for joining us today. In our fiscal Q3 2025, total revenue was a record $16 billion, up 22% year on year. Now revenue growth was driven by better than expected strength in AI semiconductors, and our continued growth in VMware. Q3 consolidated adjusted EBITDA was a record $10.7 billion, up 30% year on year. Now, looking beyond what we are just reporting this quarter, with robust demand from AI bookings, were extremely strong. And our current consolidated backlog for the company hit a record of $110 billion. Q3 semiconductor revenue was $9.2 billion as year on year growth accelerated to 26% year on year. And this accelerated growth was driven by AI Semiconductor revenue of $5.2 billion, which was up 63% year on year and extend the trajectory of robust growth to 10 consecutive quarters. Now let me give you more color on our XPU business, which accelerated to 65% of our AI revenue this quarter. Demand for custom AI accelerators from our three customers continued to grow as each of them journeys at their own pace towards compute self-sufficiency. And progressively, we continue to gain share with these customers. Now, further to these three customers, as we have previously mentioned, we have been working with other prospects on their own AI accelerators. Last quarter, one of these prospects released production orders to Broadcom. And we have accordingly characterized them as a qualified customer for XPUs. And in fact, has secured over $10 billion of orders of AI regs based on our XPUs. And reflecting this, we now expect the outlook for fiscal 2026 AI revenue to improve significantly from what we had indicated last quarter. Turning to AI networking. Demand continued to be strong. Because networking is becoming critical as LLMs continue to evolve in intelligence and compute classes have to grow bigger. The network is the computer. And our customers are facing challenges as they scale to clusters beyond 100,000 compute nodes. For instance, scale up which we all know about, is a difficult challenge. When you are trying to create substantial bandwidth to share memory across multiple GPUs or XPUs with the direct Today's AI rank scales up a mere 72 GPUs at 28.8 terabit per second bandwidth using a proprietary NVLink. On the other hand, earlier this year, we have launched Tomahawk five We've opened AI we've opened Ethernet. Sorry. Which can scale up 512 compute nodes for customers using XPUs. Moving on to scaling out across regs. Today, the current architecture using 51.2 terabit per second requires three tiers of networking switches. In June, we launched Tomahawk six and our Ethernet based 102 terabit per second switch which flattens the network. To two tiers. Resulting in lower latency much less power. And when you scale to clusters beyond single data center footprint, You now need to scale computing across data centers. And over the past two years, we have deployed our Jericho three Ethernet router with hyperscale customers to just do this. And today, we have launched our next generation Jericho four. Ethernet fabric router with 51.2 terabit per second deep buffering intelligence intelligent congestion control, to handle classes beyond 200,000 compute nodes crossing multiple data centers. We know the biggest challenge to deploying larger clusters of compute for generative AI will be in networking. And for the past twenty years, Broadcom has developed for Ethernet, networking is entirely applicable to the challenges of scale up, scale out, and scale across in generative AI. And turning to our forecast as I mentioned earlier, we continue to make steady progress in growing our AI revenue. For Q4, 2025, we forecast AI semiconductor revenue to be approximately $6.2 billion, up 66% year on year. Now, turning to non AI semiconductors. Demand continues to be slow to recover. In Q3 revenue of $4 billion was flat sequentially. While broadband showed strong sequential growth, Enterprise networking and service storage were down sequentially. Wireless and industrial were flat quarter on quarter as we expect. In contrast, in Q4, driven by seasonality, we forecast non AI semiconductor revenue to grow low double digits sequentially to approximately $4.6 billion. Broadband, server storage and wireless are expected to improve. While enterprise networking remains down quarter on quarter. Now let me talk about our infrastructure software segment. Q3 Infrastructure Software revenue of $6.8 billion was 17% year on year. Above our outlook of $6.7 billion as bookings continue to be strong during the quarter. We booked in fact total contract value over $8.4 billion during Q3. But here's one I'm most excited about. After two years of engineering development by over 5,000 developers. We deliver on a promise. When we acquired VMware. We release VMware Cloud Foundation version nine dot zero a fully integrated cloud platform which can be deployed by enterprise customers on prem or carry to the cloud. It enables enterprises to run any application workload including AI workloads, on virtual machines and on modern containers. These provides the real alternative to public club. In Q4, we expect Infrastructure and Software revenue to be approximately $6.7 billion, up 15% year on year. And in summary, continued strength in AI and VMware would drive our guidance for Q4 consolidated revenue to approximately $17.4 billion, up 24% year on year. And we expect Q4 adjusted EBITDA to be 67% of revenue. And with that, let me turn the call over to Kirsten. Kirsten Spears: Thank you, Hock. Let me now provide additional detail on our Q3 financial performance. Consolidated revenue was a record $16 billion for the quarter, up 22% from a year ago. Gross margin was 78.4% of revenue in the quarter, better than we originally guided on higher software revenues and product mix within semiconductors. Consolidated operating expenses were $2 billion of which $1.5 billion was research and development. Q3 operating income was a record $10.5 billion, up 32% from a year ago. On a sequential basis, even as gross margin was down 100 basis points on revenue mix, operating margin increased 20 basis points sequentially to 65.5% on operating leverage. Adjusted EBITDA of $10.7 billion or 67% of revenue was above our guidance of 66%. This figure excludes a $142 million of depreciation. Now a review of the P and L for our two segments. Starting with semiconductors. Revenue for our Semiconductor Solutions segment was $9.2 billion with growth accelerating to 26% year on year driven by AI. Semiconductor revenue represented 57% of total revenue in the quarter. Gross margin for our Semiconductor Solutions segment was approximately 67% down 30 basis points year on year on product mix. Operating expenses increased 9% year on year to $951 million on increased investment in R and D for leading edge AI semiconductors. Semiconductor operating margin of 57% was up 130 basis points year on year and flat sequentially. Now moving on to infrastructure software. Revenue for infrastructure software of $6.8 billion was up 17% year on year and represented 43% of revenue. Gross margin for infrastructure software 93% in the quarter compared to 90% a year ago. Operating expenses were $1.1 billion in the quarter, resulting in infrastructure software operating margin of approximately 77%. This compares to operating margin of 67% a year ago reflecting the completion of the integration of VMware. Moving on to cash flow. Free cash flow in the quarter was $7 billion and represented 44% of revenue. We spent $142 million on capital expenditures. Day sales outstanding were thirty seven days in the third quarter compared to thirty two days a year ago. We ended the third quarter with inventory of $2.2 billion up 8% sequentially in anticipation of revenue growth next quarter. Our days of inventory on hand were sixty six days in Q3, compared to sixty nine days in Q2 as we continue to remain disciplined on how we manage inventory across the ecosystem. We ended the third quarter with $10.7 billion of cash and $66.3 billion of gross principal debt. The weighted average coupon rate and years to maturity of our $65.8 billion in fixed rate debt is 3.9% and 6.9 years, respectively. The weighted average interest rate and years to maturity of our $500 million at floating rate debt is 4.7% and 0.2 years, respectively. Turning to capital allocation. Q3, we paid stockholders $2.8 billion of cash dividends, based on a quarterly common stock cash dividend of $0.59 per share. We expect the non GAAP diluted share count to be In Q4, approximately 4.97 billion shares, excluding the potential impact of any share repurchases. Now moving to guidance. Our guidance for Q4 is for consolidated revenue of $17.4 billion up 24% year on year. We forecast semiconductor revenue of approximately $10.7 billion up 30% year on year. Within this, we expect Q4 AI semiconductor revenue of $6.2 billion up 66% year on year. We expect infrastructure software revenue of approximately $6.7 billion up 15% year on year. For your modeling purposes, we expect Q4 consolidated gross margin to be down approximately 70 basis points sequentially primarily reflecting a higher mix of XPUs and also wireless revenue. As a reminder, consolidated gross margins through the year will be impacted by the revenue mix of infrastructure software and product mix within semiconductors. We expect Q4 adjusted EBITDA to be 67%. We expect the non GAAP tax rate for Q4 and fiscal year 2025 to remain at 14%. I will now pass the call back to Hock for some more exciting news. Hock Tan: I don't know about exciting, Kirsten, but I do. I thought before we move to questions, I should share an update. The board and I have agreed that I will continue as the CEO of Broadcom through 2030 at least. These are exciting times for Broadcom, and I'm very enthusiastic to continue to drive value for our shareholders. Operator, please open up the call for questions. Operator: Thank you. Star one one again. Due to time restraints, we ask that you please limit And our first question will come from the line of Ross Seymore with Deutsche Bank. Your line is open. Ross Seymore: Hi, guys. Thanks for asking question. Hock, thank you for sticking around for a few more years. So I just wanted to talk about the AI business and, specifically, the XPU. When you said you're gonna grow significantly faster than what you had thought, a quarter ago, what's changed? Is it just the impressive prospect moving to a customer definition, so that $10 billion backlog that you mentioned? Or is it, stronger demand across the existing three customers? Any detail on that will be helpful. Hock Tan: I think it's both, Ross. But to a large extent, it's the fourth quarter customer that we now add on to our roster. Which we will ship pretty strongly in 2026, I should say. So combination of increasing the volumes from existing three customers and we moved through that very progressively and steadily. And the addition of a fourth customer with immediate and fairly substantial demand. Really put our really, changes our thinking of what '26 would be starting to look like. Thank you. Operator: One moment for our next question. That will come from the line of Harlan Sur with JPMorgan. Your line is open. Harlan Sur: Hi. Good afternoon. Congratulations on a well executed quarter and strong free cash flow. Know everybody's gonna ask a lot of questions on AI, Hock. I'm gonna ask about the non AI simulators If I look at your guidance for Q4, it looks like the non AI streaming business is gonna be down about 78% year over year on fiscal twenty five if you hit the midpoint of the Q4 guidance. Good news, is that the negative year over year trends have been improving to the year, in fact, think you guys are gonna be positive year over year in the fourth quarter. You've characterized it as relatively close to the cyclical bottom, relatively slow to recover. However, we have seen some green shoots of positivity. Right? Broadband server storage, enterprise networking. You're still driving the DOCSIS four upgrade in broadband, cable, You've got next gen PON upgrades in China and The US in front of you. Enterprise spending on network upgrades is accelerating. So near term, from the cyclical bottom, how should we think about the magnitude of the cyclical upturn? And given your thirty to forty week lead times, are you seeing continued order improvements in the non AI segment, which would point you to continued cyclical recovery into next fiscal year? Hock Tan: Well, you know, then if you take a look at that non AI segment, I mean, you're right. From a year on year Q4 guidance, we are actually up, as you say, slightly. Couple one or 2% from a year ago. And it's not much really to shout about at this point. And the and the big issue is the puts and takes. And the puts and takes and the bottom line to all this is other than seasonality that we perceive if you look at it short term, we've all looking year on year, but looking sequentially. We see in things like wireless and we even start to see some seasonality in server storage these days. We don't kind of all washes out so far. The only consistent trend we've seen over the last three quarters that is moving up strongly is broadband. And nothing else if you look at it from a cyclical point of view, seems to be able to sustain an uptrend so far. I don't think it's getting but as a whole, they are not getting worse as you pointed out, Harlan. But they are not showing a v shaped recovery as a whole. That we would like to see to see and expect to see in in cyclical semiconductor cycles. The only thing that gives us some hope is broadband at this point. And it is recovering very strongly. But then it was the business that was most impacted in the in the sharp downturn of '24 and early twenty five. So again, one takes that with a grain of salt. But best answer to you for you is non non AI semiconductor is kind of slow to recover as I said. And Q4 year on year is up maybe low single digits. Is the best way to to describe it at this point. So I'm expecting to see more of a u shaped recovery in non AI. And perhaps by late twenties mid twenty six, late twenty six, we'll start to see some meaningful recovery. But as of right now, not clear. Harlan Sur: Mhmm. Are are you starting to see that in your order trend in your order book just because your lead times are, like, forty weeks. Right? Hock Tan: We are. But we've been tricked before. But we are. The bookings are up, and they are up year on year in excess of 20%. Nothing like what AI bookings look like. But 23% is still pretty good. Right? Operator: Thank you. One moment for our next question. That will come from the line of Vivek Arya with Bank of America. Your line is open. Vivek Arya: Thanks for taking my question and best wishes for the next part of your tenure. My question is on know, if you could help us quantify what is the new fiscal twenty six AI guidance. Because I think the last call you mentioned '26 could grow at the 60% growth rate. So what is the updated number? Is it, you know, 60% plus the the $10 billion that you mentioned? And sort of related to that, do you expect the custom versus networking mix to stay broadly what it has been this past year or or evolve more towards customs? So any quantification on this, you know, networking versus custom mix would be very helpful. Fiscal twenty six. Okay. Let's answer the first part first. If I could be so bold as to suggest to you when I last quarter when I said, hey, the trend of growth of '26 will mirror that of '25. Which is 50, 60%. Year on year. That's really all I say. I didn't quote a ban. Of course, it comes out 50, percent because that's what '25 is. All I'm saying you want to put another way of it, looking at what I'm saying, which is perhaps more accurate, we're seeing the growth rate accelerate. As opposed to just remain steady at that 50, 60% We are expecting and seeing 2026 to accelerate more than the growth rate we see in '25. And I know you love me to throw in a number at you, but you know what? We're not supposed to be giving you a forecast for '26, but best way to describe it, it will be fairly material improvement. And the networking versus custom? Ah, good point. Thanks for reminding me. As we see it and a big part of this driver of growth will be experience. And as a to and the reason of repeating what I said in my remarks, comes from the fact that we are continue to gain share at our three original customers They have to they're on their journey, and each passing generation they go more to XPUs. So we are gaining share from this three. We now have the benefit of an additional four four significant customer. I would just say fourth and very significant customer. And that combination will mean more XPUs. And as I said, as the ratio as the as we create more and more experience among four guys, the networking we get the networking with these four guys, but now the mix of networking from outside these four guys will now be a smaller be diluted, be a smaller share. So I expect actually networking percentage of the pool to be a declining percentage. Going into twenty six. Operator: Thank you, And one moment for our next question. And that will come from the line of Stacy Rasgon with Bernstein Research. Your line is open. Stacy Rasgon: Hi, guys. Thanks for taking my question. Was wondering if you could help me parse out this $110 billion backlog. Did I that number right? Could you give us some color on on on the makeup of it? Like, how far out does that go and, like, how much of that $110 billion is AI versus non AI versus software? Hock Tan: Well, I guess, Stacy, we generally don't break up backlog. I've just given a total number to give you a sense of how strong the business is as a whole for the company. And it's largely driven by AI, as a grow in terms of growth. Software continue to add on a steady basis and non AI as as I indicated, has grown double digits. Nothing compared to AI which has grown very strongly. Mhmm. Give you a sense, perhaps, fully 50% of it at least, is semiconductors. Stacy Rasgon: Okay. And it's fair to say that of that semiconductor piece, it's gonna be much more AI than non AI? Hock Tan: Right. Stacy Rasgon: Yeah. Got it. That's helpful. Thank you. Operator: One moment for our next question. And that will come from the line of Ben Reitzes with Melius. Your line is open. Ben Reitzes: Hey, guys. Thanks a lot. I appreciate it. Hock, congrats on able to guide to the AI revenue well above 60%. For next year. So I wanted to be a little greedy and ask you about maybe 27 and the other three customers or so. How is the dialogue going beyond these four customers? In the past, you've talked about having seven. Now we've added a fourth to production. And then there were three. Are are you hearing from others? And how's the trend going with maybe with the other three maybe beyond the 26 into 27 and beyond? How's that momentum you think going to shape up? Thanks so much. Hock Tan: Ben, you are definitely greedy and definitely overthinking this for me. Thank you. But yeah. You know, that's if asking for qualify, subjective qualification. And, frankly, I I don't wanna give that. I'm not comfortable giving that because sometimes we stumble into production in fairly in time frames that are fairly unexpected surprisingly. Equally, it could get delayed. So I rather not give you any more color on prospects than just tell you these prospects are real prospects and continue to be very closely engaged towards developing each of their own experience with every intent of going into substantial production. Like the four we have today who are custom. Ben Reitzes: Yeah. You still think that that that million units by, you know, goal for these seven though, is still intact. Hock Tan: For the oh, for the three, I said. Now they are four. That's silly. Only for the for the prospects, no comment. I'm not positioned to judge on that. But for our four three, four customers now, yes. Ben Reitzes: Alright. Thanks a lot. Congrats. Operator: One moment for our next question. And that will come from the line of Jim Schneider with Goldman Sachs. Your line is open. Jim Schneider: Good afternoon. Thanks for taking my question. Hock, I was wondering if you could give us a little bit more color not necessarily on the prospects, which you still have in the pipeline, but how you view the universe of additional prospects beyond the seven you know, customers and prospects you've already identified. Do you still see there being additional prospects that would be worthy of a of a custom chip. And I know you've been relatively know, circumspect in terms of the the number of customers that are out there and the volume that they can provide and and selective in terms of the opportunities you're interested in. So maybe frame for us the additional prospects as you see them beyond the v seven. Thank you. Hock Tan: That's a very good question. And let me let me answer it in a fairly broader basis. Well, as I said before and perhaps said repeat a bit more. We're very send in we look at this market into broad segments. You know, that's one is simply the guys, the parties, the customers, who develop their own LLM. And the rest of the other market I consider is collectively lump as enterprise. That is markers that run that will run AI workloads for enterprise. Whether it's on prem or GPU XPU or whatever as a service. The enterprise. We don't address that market, to be honest. We That's because that's that's a hard market for us to address. And we're not set up to address that. We instead address this LLM market and as I said many times before, it's a very few narrow markets. Few players driving frontier models on a consistent on a very accelerated trend towards super intelligence for one plagiarizing the term of someone else, but you know what I mean. And the other guys who would invest, who need to invest a lot initially, my view on training. Training of ever larger and larger clusters of ever more capable accelerators but also as for these guys, you know, they got to be accountable to shareholders or accountable to being able to create cash flows that can sustain their path they start to also invest in inference in a massive way to monetize their models. These are the players we work with. These are individually people or players who spend a lot of money on on a lot of compute capacity just that there are only so few of them. And right we have I have indicated, identified seven. Four of which now our customers Three continues to be prospects we engage with. And we're very picky and still careful. I should say, Shenandoah, picky. Careful. Who qualifies under that. And I indicated it. They have a they are building a platform or have a platform and I'm investing very much on leading LLMs models. And we're severed and I think that's about it. We may get see one more perhaps as a prospect But again, we are very thoughtful and careful about even making that qualification. But right now, for sure, we have seven. And that's for now, it's pretty much what we have. Operator: Thank you. One moment for our next question. And that will come from the line of Tom O'Malley with Barclays. Your line is open. Tom O'Malley: Congrats on the really good results. I wanted to ask on Jericho four commentary. NVIDIA talked about the XGET switch and now is talking about scale across. You're talking about Jericho four. It sounds like this market is really starting to develop. Maybe you could talk about when you see material uplift in revenue there and why it's important to start thinking about those type of switches as we move more towards inferencing. Thank you, Hock. Hock Tan: Great. Well, thank you for picking that up. Yes. Scale across is a new term now. Right? Drawn in. They scale up, which is within the rack you know, within the which computing within the rack. Scale out doing across racks but within the data center. But now when you get to clusters, that are I'm not 100% sure where the cutoff is, but say above a 100,000 GPU or XPUs. That's you're talking about probably many cases in because of limitation of PowerShell. That the data send that you don't do one single data center footprint site. To hand to sit with over a 100,000 of those XPUs in one site. Power may not be easily available. Land may not be. It's cumbersome. So many some outcome is most of all our customers now we see create multiple data center sites close at hand not far away, within range 100 kilometers. It's kind of the level. But be able to then put in homogenous XPUs or GPUs in this multiple location three or four, and network across them so that they behave like in fact, a single cluster. That's the coolest part. And that technology which requires because of distance, deep buffering, very intelligent congestion control. It's technology that exist for many many years in the likes of the telcos of AT and T and Verizon doing network routing. Except this is for even somewhat more trickier workloads, but the same. And we've been shipping that to a couple of hyperscalers over the last two years. As Jericho three. As the scale of these clusters and the bandwidth required for AI training expense, We now launched this Jericho four fifty one terabit per second to handle more bandwidth, but same technology we have tested, proven for the last ten, twenty years. Nothing new. Don't need to create something new for that. It's running in Ethernet. And very proven, very stable, and as I said, last two years under Jericho three, which runs 256 connections, and no compute nodes. We've been selling to a couple of our hyperscale customers. Operator: One moment for our next question. And that will come from the line of Carl Ackerman with BNP Paribas. Your line is open. Carl Ackerman: Hock, have you completely converted your top 10,000 accounts from vSphere to the entire vSphere Cloud Foundation virtualization stack. I asked because I think last quarter, 87% of accounts had adopted that. And that's certainly a marked increase versus less than 10%. For those customers who bought the entire suite before the deal, And I guess as you address that, what interest level are you seeing with the longer tail of enterprise customers adopting BCF? And are you seeing tangible cross selling benefits of your merchant semiconductor storage and networking business as those customers adopt VMware. Thank you. Hock Tan: Okay. To answer your first part of the question, yeah, pretty much virtually way over 90% is is bought VCF. Now like to I am careful about choice of what. Because we have sold them on it, and they bought licenses to deploy doesn't mean they are fully deployed. Here comes the other part of our work, which is to take this 10,000 customers or big chunk of them who have taken who have bought the vision of a private cloud on prem and working with them to enable them to deploy and operate it successfully on their infrastructure on prem. That's the net the hard work over the next two years that we see happening. And as we do it, we see expansion across their foot IT footprint on VCF private cloud. Running on the dataset in within their data center. That's the key part of it. And we see that continuing. And that's the second phase of my VMware story. First phase is convince these people to convert from perpetual subscription so doing purchase VCF. Second phase now, is make that purchase they made on VCF very create the value they look for in private cloud on their premise, on their IT data center. That's what's happening. And then and that will sustain for quite a while because on top of that, we will start selling advanced services, security, disaster recovery, even AI running AI workloads on it. All that is very exciting. Your second question is, is that able to let me enable me to sell more hardware No. Why it's quite independent? In fact, as they virtualize their data centers, we consciously accept the fact that we are commoditizing the underlying hardware in the data center. Commoditizing servers, commoditizing storage, commoditizing even networking. And that's fine. And by so commoditizing, we're actually reducing cost of investments in hardware in a in data centers for enterprises. Now beyond the largest largest 10,000 are we seeing a lot of success? We're seeing some. But again, two reasons why we do not expect it to be as necessary successful. One is the you know, the the value the TCO as they call it, that comes from it will be much less. But the more important thing is the skill sets that needs to not just deploy that you can get. Services and ourselves to help them, but to keep operating might not be something that they can take on. And we shall see. This is a area this is an area we're still learning. And be interesting to see. Well, VMware has 300,000 customers. We see the top 10,000 as making a for as being people it makes a lot of sense, derive a lot of value, in deploying private cloud using VCF. We now are looking at whether the next 20, 30,000 midsized companies see the same way. Stay tuned. I'll let you know. Carl Ackerman: Very clear. Thank you. Operator: One moment for our next question. And that will come from the line of CJ Muse with Cantor Fitzgerald. Your line is open. CJ Muse: Yes, good afternoon. Thanks for taking the question. I was hoping to focus on gross margins I understand that the guide down 70 bps, particularly with software lower sequentially. And greater contributions from wireless and XPU. But to to hit that 77 spot seven, I either have to model semiconductor margins flat, which I would think would be lower, or software gross margins to 95% you know, up 200 bps. So can you kinda help me under better understand kind of the moving parts there? To to allow only a 70 bit drop Kirsten Spears: Yeah. I mean, the TPUs will be going up along with wireless. As I said on the call. And our software revenue will be, coming up just a bit as well. CJ Muse: You mean XPUs? XPUs. Yes. Kirsten Spears: And one moment. I was is typically our our our heaviest quarter, right, of the year for wireless. So you have wireless in TPUs with generally lower margins. Right? And then our software revenue coming up. Operator: And one moment for our next question. And that will come from the line of Joe Moore with Morgan Stanley. Your line is open. Joe Moore: Great. Thank you. In terms of the fourth customer, I think you've talked in the past about potential customers four and five were more hyperscale. And six and seven were more like, you know, the LLM makers themselves. Can you give us a sense for if you could help us categorize that? If not, that's fine. And then the $10 billion of orders, can you give us a time frame on that? Thank you. Hock Tan: Okay. Yeah. No. It's towards the end of the day, all seven do LLMs Not all of them have a current have a has a huge platform we're talking about. But one could imagine eventually, all of them will have or create a platform. So it's hard to differentiate the two. But coming back coming on the second and third and the delivery of the $10 billion, I'll probably be in around, I would say, the second half of our fiscal quarter year 2026. I would say, to be more even more precise, likely to be Q3 of our fiscal twenty six. Joe Moore: Okay. Okay. Q3, it starts or Q3 like, how what time frame does it take to deploy $10 billion? Starts and ends in Q3. Hock Tan: Alright. Thank you. Operator: One moment for our next question. And that will come from the line of Joshua Buchhalter with TD Cowen. Your line is open. Joshua Buchhalter: Hey, guys. Thank you for taking my question and congrats on the results. I was hoping you could provide some comments on momentum for your first scale up Ethernet and how it compares with, you know, UA link and PCIe solutions out there. You know, how big of a how meaningful is it to have the Tomahawk Altros product out there with a lower latency? And, know, how meaningful do you think scale up Ethernet opportunity could be over the next year as we think about your AI networking business? Thank you. Hock Tan: Well, that's a good question. And we we ourselves are thinking about that too because to begin with, Ethernet our Ethernet solutions are very disaggregated from the AI's accelerators Anybody does. It's separate. We treat them as separate. Even though you're right, the network is a computer. We have always believed that Ethernet is open source. Anybody should be able to have choices we keep it separate from my XPU. And but the truth of the matter is for our customers, who use the XPU, we develop and we optimize our networking switches and other components that relate to being able to network signals in the in any classes hand in hand with it. In fact, all these XPUs have developed with interface that handles Ethernet. Very, very much so. So that's in a way, we've XPUs with our customers, we are openly enabling. Ethernet as a as a networking protocol of choice. Very, very openly. And it need not be our Ethernet switches. It could be any other, but somebody else Ethernet switches that does it. It just happens to be when the lead in this business so we get that. But beyond it, especially when it comes to a closed system of GPUs, we see less of it. Except in the hyperscalers. Where the hyperscalers are able to architect the GPUs clusters very separate from the networking side, especially in scale scale out. In which case, on those hyperscalers, we sell a lot a lot of these Ethernet switches that does scaling out. And we suspect when it goes to scaling across now, even more Ethernet that are desegregated from the GPUs that are in the in the place. As far as the XPUs are concerned, for sure, it's all Ethernet. Joshua Buchhalter: Thank you. Operator: One moment for our next question. That will come from the line of Christopher Rolland with Susquehanna. Your line is open. Christopher Rolland: Thank you for the question and congrats on the contract extension, Hock. So, yeah, my my my questions are about competition. Both on the networking side and the ASIC side. You kinda answered some of that, I think, in the last question. But do you view any competition on the ASIC side, particularly from US or Asian vendors, or do you think the is decreasing? And on the networking side, do you think UA link or PCIe even has a chance of displacing Sue in 2027 when it's expected to ramp. Thanks. Hock Tan: Thank you for embracing Sue. Thank you. I didn't expect that to come out. And I appreciate that. Well, you know I'm biased, to be honest. But it's so obvious I can't help but being biased. Because Ethernet is well proven. Ethernet is so known to the engineers, the architects that sits in all these hyperscalers. Developing, designing AI data center, data AI infrastructure. It's the logical thing for them to use. And they are using it. And they are focusing on it. And the development of separate individualized protocol, frankly, You know, it's beyond my imagination why they bother. Ethernet is there. It's been well used. It's proven. It can keep going up. The only thing people talk about is perhaps latency. Especially in scaling up. Hence, the the the emergence of NVLink. And even then, as I indicated, it's not hard for us, and we are not the only one who can who can do that. Quite a few others in Ethernet can do it in the switches. You can just tweak the switches to make the latency super good. Better than NVLink, better than InfiniBand. Less than 250, you know, nanoseconds. Easily. And that's what we did. So it's not that hard. And perhaps this is why I say that because we we have been doing it as the in as the Ethernet has been around the last twenty five years at length. So it's there that they know there's no need to go and create some cook up protocols that now you have to bring people around. Ethernet is the way to go and we and there's plenty of competition too because it's an open source system. So I think Ethernet is way to go and for sure in developing x XPUs for our customers, all these experience with the agreement of customers are made compatible interface with Ethernet. And not some fancy other interface that one has to keep going as bandwidth increase. And we and and I assure you, we have competition, which is one of the why the hyper scalars like the net. It's not just us. They can find somebody else if for whatever reason they don't like us, and we're open to that. It's always good to do that. It's an open source system and lock and there are players in that market. Not any core system. Switching on to XPU competition, Yeah. You you hear about we hear about competition and all that. It's just that it's it's a competition that's it's an area that we always see competition and our only way to secure a position is we try to out invest and now innovate anybody else in this game. We have been fortunate to be the first one creating this XPU model of a six. On silicon. And we also have been fortunate to be probably one of the largest IP developers of semiconductor out there. Things like serializer, deserializer, SerDes been able to develop the best packaging been able to do redesign things that are very low power. So just have to keep investing in it, which we do. To outrun the the competition in this space. And I believe we're doing a fairly decent job of doing it at this point. Christopher Rolland: Very clear. Thanks, Hock. Sure. Operator: Thank you. And we do have time for one last question. And that will come from the line of Harsh Kumar with Piper Sandler. Your line is open. Harsh Kumar: Hey, guys. Thanks for squeezing me in. Hock, congratulations on all the exciting AI metrics, and thanks for everything you do for Broadcom and sticking around. Mark, my question is, you've got three to four existing customers that are ramping. As the data centers for AI clusters get bigger and bigger, it makes sense to have differentiation, efficiency, etcetera. Therefore, the case for XPUs why should I not think that your XPU share at these three or four customers that that are existing will be bigger than the GPU share in the longer term. It will be. It's a logical conclusion. Yeah. As you're correct. And we are seeing that step by step. As I say, it's a journey It's a multiyear journey because it's multigenerational. Because this experience don't stay still either. I'm doing multiple versions least two versions, two generation version for each of these customers we have. And with each newer generation, they increase the consumption, the usage of the XPU as they gain confidence, as the model improves, they deploy it even more. So that's the logical trend that XPUs will keep in this few customers of ours, whereas they are successfully deployed and their software stabilizes the software stack, the libraries that sits on these chips stabilizes and proves itself out. They'll get they'll have the confidence to keep using a higher and higher percentage of their compute footprint in their own XPUs. For sure. And we see that And that's why I say we progressively gain share. Harsh Kumar: Thank you, Hock. Operator: Thank you. I would now like to turn the call back over to Ji Yoo, Head of Investor Relations for any closing remarks. Ji Yoo: Thank you, Sherry. This quarter, Broadcom will be presenting at the Goldman Sachs Communicopia and Technology Conference on Tuesday, September 9 in San Francisco. And at the JPMorgan US All Stars Conference on Tuesday, September 16 in London. Broadcom currently plans to report its earnings for the fourth quarter and fiscal year 2025 after close of market on Thursday, December 11, 2025. A public webcast of Broadcom's earnings conference call will follow at 2PM Pacific. That will conclude our earnings call today. Thank you all for joining. Sherry, you may end the call. Operator: This concludes today's program. Thank you all for participating. You may now disconnect.

Operator: Welcome to Broadcom Inc.'s Second Quarter Fiscal Year 2025 Financial Results Conference Call. At this time, for opening remarks and introductions, I would like to turn the call over to Ji Yoo, Head of Investor Relations of Broadcom Inc. Ji Yoo: 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 Kawwas, President, Semiconductor Solutions Group. Broadcom distributed a press release and financial tables after the market closed, describing our financial performance for the second quarter of fiscal year 2025. If you did not receive a copy, you may obtain the information from the Investors section of the Broadcom's website at broadcom.com. This conference call is being webcast live, and an audio replay of the call can be accessed for 1 year through the Investors section of Broadcom's website. During the prepared comments, Hock and Kirsten will be providing details of our second quarter fiscal year 2025 results, guidance for our third quarter of fiscal year 2025 as well as commentary regarding the business environment. We'll take questions after the end of our prepared comments. Please refer to our press release today and our recent filings with the SEC for information on the specific risk factors that could cause our actual results to differ materially from the forward-looking statements made on this call. In addition to U.S. GAAP reporting, Broadcom reports certain financial measures on a non-GAAP basis. A reconciliation between GAAP and non-GAAP measures is included in the tables attached to today's press release. Comments made during today's call will primarily refer to our non-GAAP financial results. I will now turn the call over to Hock. Hock E. Tan: Thank you, Ji, and thank you, everyone, for joining us today. In our fiscal Q2 2025, total revenue was a record $15 billion, up 20% year-on-year. This 20% year-on-year growth was all organic as Q2 last year was the first full quarter with VMware. Now revenue was driven by continued strength in AI semiconductors and the momentum we have achieved in VMware. Now reflecting excellent operating leverage, Q2 consolidated adjusted EBITDA was $10 billion, up 35% year-on-year. Now let me provide more color. Q2 semiconductor revenue was $8.4 billion, with growth accelerating to 17% year-on-year, up from 11% in Q1. And of course, driving this growth was AI semiconductor revenue of over $4.4 billion, which is up 46% year-on-year and continues the trajectory of 9 consecutive quarters of strong growth. Within this, custom AI accelerators grew double digits year-on-year, while AI networking grew over 170% year-on-year. AI networking, which is based on Ethernet was robust and represented 40% of our AI revenue. As a standard-based open protocol, Ethernet enables one single fabric for both scale out and scale up and remains the preferred choice by our hyperscale customers. Our networking portfolio of Tomahawk switches, Jericho routers and NICs is what's driving our success within AI clusters in hyperscalers. And the momentum continues with our breakthrough Tomahawk 6 switch just announced this week. This represents the next- generation 102.4 terabits per second switch capacity. Tomahawk 6 enables clusters of more than 100,000 AI accelerators to be deployed in just 2 tiers instead of 3. This flattening of the AI cluster is huge because it enables much better performance in training next-generation frontier models through a lower latency, higher bandwidth and lower power. Turning to XPUs or custom accelerators. We continue to make excellent progress on the multiyear journey of enabling our 3 customers and 4 prospects to deploy custom AI accelerators. As we had articulated over 6 months ago, we eventually expect at least 3 customers to each deploy 1 million AI accelerated clusters in 2027, largely for training their frontier models. And we forecast and continue to do so a significant percentage of these deployments to be custom XPUs. These partners are still unwavering in their plan to invest despite the certain economic environment. In fact, what we've seen recently is that they are doubling down on inference in order to monetize their platforms. And reflecting this, we may actually see an acceleration of XPU demand into the back half of 2026 to meet urgent demand for inference on top of the demand we have indicated from training. And accordingly, we do anticipate now our fiscal 2025 growth rate of AI semiconductor revenue to sustain into fiscal 2026. Turning to our Q3 outlook. As we continue our current trajectory of growth, we forecast AI semiconductor revenue to be $5.1 billion, up 60% year-on-year, which would be the 10th consecutive quarter of growth. Now turning to non-AI semiconductors in Q2. Revenue of $4 billion was down 5% year-on-year. Non-AI semiconductor revenue is close to the bottom, has been relatively slow to recover, but they had bright spots. In Q2, broadband, enterprise networking and server storage revenues were up sequentially. However, industrial was down and as expected, wireless was also down due to seasonality. In Q3, we expect enterprise networking and broadband to continue to grow sequentially, but server storage, wireless and industrial are expected to be largely flat. And overall, we forecast non-AI semiconductor revenue to stay around $4 billion. Now let me talk about our infrastructure software segment. Q2 infrastructure software revenue of $6.6 billion was up 25% year-on-year, above our outlook of $6.5 billion. As we have said before, this growth reflects our success in converting our enterprise customers from perpetual vSphere to the full VCF software stack subscription. Customers are increasingly turning to VCF to create a modernized private cloud on-prem, which will enable them to repatriate workloads from public clouds while being able to run modern container-based applications and AI applications. Of our 10,000 largest customers, over 87% have now adopted VCF. The momentum from strong VCF sales over the past 18 months since the acquisition of VMware has created annual recurring revenue or otherwise known as ARR growth of double digits in our core infrastructure software. In Q3, we expect infrastructure software revenue to be approximately $6.7 billion, up 16% year-on-year. So in total, we are guiding Q3 consolidated revenue to be approximately $15.8 billion, up 21% year-on-year. We expect Q3 adjusted EBITDA to be at least 66%. With that, let me turn the call over to Kirsten. Kirsten M. Spears: Thank you, Hock. Let me now provide additional detail on our Q2 financial performance. Consolidated revenue was a record $15 billion for the quarter, up 20% from a year ago. Gross margin was 79.4% of revenue in the quarter, better than we originally guided on product mix. Consolidated operating expenses were $2.1 billion, of which $1.5 billion was related to R&D. Q2 operating income of $9.8 billion was up 37% from a year ago, with operating margin at 65% of revenue. Adjusted EBITDA was $10 billion or 67% of revenue, above our guidance of 66%. This figure excludes $142 million of depreciation. Now a review of the P&L for our 2 segments. Starting with semiconductors. Revenue for our semiconductor solutions segment was $8.4 billion, with growth accelerating to 17% year-on-year, driven by AI. Semiconductor revenue represented 56% of total revenue in the quarter. Gross margin for our semiconductor solutions segment was approximately 69%, up 140 basis points year-on-year driven by product mix. Operating expenses increased 12% year-on-year to $971 million on increased investment in R&D for leading edge AI semiconductors. Semiconductor operating margin of 57% was up 200 basis points year-on-year. Now moving on to infrastructure software. Revenue for infrastructure software of $6.6 billion was up 25% year-on-year and represented 44% of total revenue. Gross margin for infrastructure software was 93% in the quarter compared to 88% a year ago. Operating expenses were $1.1 billion in the quarter, resulting in infrastructure software operating margin of approximately 76%. This compares to operating margin of 60% a year ago. This year-on-year improvement reflects our disciplined integration of VMware. Moving on to cash flow. Free cash flow in the quarter was $6.4 billion and represented 43% of revenue. Free cash flow as a percentage of revenue continues to be impacted by increased interest expense from debt related to the VMware acquisition and increased cash taxes. We spent $144 million on capital expenditures. Day sales outstanding were 34 days in the second quarter compared to 40 days a year ago. We ended the second quarter with inventory of $2 billion, up 6% sequentially in anticipation of revenue growth in future quarters. Our days of inventory on hand were 69 days in Q2 as we continue to remain disciplined on how we manage inventory across the ecosystem. We ended the second quarter with $9.5 billion of cash and $69.4 billion of gross principal debt. Subsequent to quarter end, we repaid $1.6 billion of debt, resulting in gross principal debt of $67.8 billion. The weighted average coupon rate and years to maturity of our $59.8 billion in fixed rate debt is 3.8% and 7 years, respectively. The weighted average interest rate and years to maturity of our $8 billion in floating rate debt is 5.3% and 2.6 years, respectively. Turning to capital allocation. In Q2, we paid stockholders $2.8 billion of cash dividends based on a quarterly common stock cash dividend of $0.59 per share. In Q2, we repurchased $4.2 billion or approximately 25 million shares of common stock. In Q3, we expect the non-GAAP diluted share count to be approximately 4.97 billion shares, excluding the potential impact of any share repurchases. Now moving on to guidance. Our guidance for Q3 is for consolidated revenue of $15.8 billion, up 21% year-on-year. We forecast semiconductor revenue of approximately $9.1 billion, up 25% year-on-year. Within this, we expect Q3 AI semiconductor revenue of $5.1 billion, up 60% year-on-year. We expect infrastructure software revenue of approximately $6.7 billion, up 16% year-on-year. For modeling purposes, we expect Q3 consolidated gross margin to be down approximately 130 basis points sequentially, primarily reflecting a higher mix of XPUs within AI revenue. As a reminder, consolidated gross margins through the year will be impacted by the revenue mix of infrastructure software and semiconductors. We expect Q3 adjusted EBITDA to be at least 66%. We expect the non-GAAP tax rate for Q3 and fiscal year 2025 to remain at 14%. And with this, that concludes my prepared remarks. Operator, please open up the call for questions. Operator: [Operator Instructions] And our first question will come from the line of Ross Seymore with Deutsche Bank. Ross Clark Seymore: Hock, I wanted to jump on to the AI side and specifically some of the commentary you had about next year. Can you just give a little bit more color on the inference commentary you gave? And is it more the XPU side, the connectivity side or both that's given you the confidence to talk about the growth rate that you have this year being matched next fiscal year? Hock E. Tan: Thank you, Ross. Good question. I think we're indicating that what we are seeing and what we have quite a bit of visibility increasingly is increased deployment of XPUs next year, much more than we originally thought and hand-in-hand with it, of course, more and more networking. So it's a combination of both. Ross Clark Seymore: And the inference side of things? Hock E. Tan: Yes, we're seeing much more inference now. Operator: One moment for our next question. And that will come from the line of Harlan Sur with JPMorgan. Harlan L. Sur: Great job on the quarterly execution. Hock, good to see the positive growth inflection quarter-over-quarter, year-over-year growth rates in your AI business. As the team has mentioned, right, the quarters can be a bit lumpy. So if I smooth out kind of first 3 quarters of this fiscal year, your AI business is up 60% year-over-year. It's kind of right in line with your 3-year kind of SAM growth CAGR, right? Given your prepared remarks and knowing that your lead times remain at 35 weeks or better, do you see the Broadcom team sustaining the 60% year-over-year growth rate exiting this year. And I assume that, that potentially implies that you see your AI business sustaining the 60% year-over-year growth rate into fiscal '26, again, based on your prepared commentary, which again is in line with your SAM growth figure. Is that kind of a fair way to think about the trajectory this year and next year? Hock E. Tan: Harlan, that's a very insightful set of analysis here, and that's exactly what we're trying to do here because over 6 months ago, we gave you guys a point, a year, 2027. As we come into the second half of 2025 and with improved visibility and updates we are seeing in the way our hyperscale partners are deploying data centers, AI clusters, we are providing you some level of guidance visibility what we are seeing, how the trajectory of '26 might look like. I'm not giving you any update on '27. We're just still establishing the update we have in '27 6 months ago. But what we're doing now is giving you more visibility into where we're seeing '26 headed. Harlan L. Sur: But is the framework that you laid out for us like second half of last year, which implies 60% kind of growth CAGR in your SAM opportunity, is that kind of the right way to think about it as it relates to the profile of growth in your business this year and next year? Hock E. Tan: Yes. Operator: One moment for our next question. And that will come from the line of Ben Reitzes with Melius Research. Benjamin Alexander Reitzes: Hock, networking -- AI networking was really strong in the quarter, and it seemed like it must have beat expectations. I was wondering if you could just talk about the networking in particular, what caused that? And how much of that is your acceleration into next year? And when do you think you see Tomahawk kicking in as part of that acceleration? Hock E. Tan: Well, I think the AI networking, as you probably would know, goes pretty hand-in-hand with deployment of AI accelerator clusters. It isn't -- It doesn't deploy on a timetable that's very different from the way the accelerators get deployed, whether they are XPUs or GPUs. It does happen. And they deployed a lot in scale-out where Ethernet, of course, is the choice of protocol, but it's also increasingly moving into the space of what we all call scale up within those data centers, where you have much higher, more than we originally thought consumption or density of switches than you have in the scale-out scenario. In fact, the increased density in scale up is 5 to 10x more than in scale out. And that's the part that kind of pleasantly surprised us and which is why this past quarter, Q2, the AI networking portion continues at about 40% from what we reported a quarter ago for Q1. And at that time, I said I expect it to drop. It hasn't. Benjamin Alexander Reitzes: And your thoughts on Tomahawk driving acceleration for next year and when it kicks in? Hock E. Tan: Tomahawk 6, yes, that's extremely strong interest. Now we're not shipping big orders or any orders other than basic proof of concepts out to customers, but there is tremendous demand for this new 102 terabits per second Tomahawk switches. Operator: One moment for our next question. And that will come from the line of Blayne Curtis with Jefferies. Blayne Peter Curtis: Great results. I just wanted to ask maybe following up on the scale-out opportunity. So today, I guess your main customer is not really using kind of an NVLink switch style scale-up. I'm just kind of curious your visibility or the timing in terms of when you might be shipping a switched Ethernet scale-up network to your customers? Hock E. Tan: You're talking scale up? Blayne Peter Curtis: Scale up. Hock E. Tan: Yes. Well, scale up is very rapidly converting to Ethernet now, very much so. For our fairly narrow band of hyperscale customers, scale up is very much Ethernet. Operator: One moment for our next question. And that will come from the line of Stacy Rasgon with Bernstein. Stacy Aaron Rasgon: Hock, I still wanted to follow up on that AI 2026 question. I want to just put some numbers on it, just to make sure I got it right. So if you did 60% in the first 3 quarters of this year, if you grow 60% year-over-year in Q4, it put you at like, I don't know, $5.8 billion, something like $19 billion or $20 billion for the year. And then are you saying you're going to grow 60% in 2026 would put you $30 billion plus in AI revenues for 2026? I'm just wondering, is that the math that you're trying to communicate to us directly? Hock E. Tan: I think you're doing the math. I'm giving you the trend. But I did answer that question, I think Harlan asked earlier. The rate we are seeing now so far in fiscal '25 and will presumably continue, we don't see any reason why it doesn't given lead time visibility in '25. What we are seeing today based on what we have visibility on '26 is to be able to ramp up this AI revenue in the same trajectory. Yes. Stacy Aaron Rasgon: So is the SAM going up as well because now you have inference on top of training. So is the SAM still 60 to 90? Or is the SAM higher now as you see it? Hock E. Tan: I'm not playing a SAM game here. I'm just giving a trajectory towards where we drew the line on '27 before. So I have no response to if the SAM going up or not. Stop talking about SAM now. Operator: One moment for our next question. And that will come from the line of Vivek Arya with Bank of America. Vivek Arya: I had a near and then a longer-term question on the XPU business. So Hock, for near term, if your networking upsided in Q2 and overall AI was in line, it means XPU was perhaps not as strong. So I realize it's lumpy, but anything more to read into that, any product transition or anything else? So just a clarification there. And then longer term, you have outlined a number of additional customers that you're working with. What milestones should we look forward to? And what milestones are you watching to give you the confidence that you can now start adding their addressable opportunity into your '27 or '28 or other numbers? Like how do we get the confidence that these projects are going to turn into revenue in some reasonable time frame from now? Hock E. Tan: Okay. On the first part that you're asking, it's like you're trying to be -- you're trying to count how many angels on a head of a pin here. I mean, whether it's XPU or networking. Networking is hot, but that doesn't mean XPU is any soften. It's very much along the trajectory we expect it to be. And there's no lumpiness. There's no softening. It's pretty much what we expect the trajectory to go so far and into next quarter as well and probably beyond. So we have a -- it's a fairly, I guess, in our view, a fairly clear visibility on the short-term trajectory. In terms of going on to '27, no, we are not updating any numbers here. We -- 6 months ago, we drew a sense for the size of the SAM based on million GPU XPU clusters for 3 customers, and that's still very valid at that point, that will be there. And we have not provided any further updates here nor are we intending to at this point. When we get a better visibility, clearer sense of where we are, and that probably won't happen until '26, we'll be happy to give an update to the audience. But right now, though, in today's prepared remarks and answering a couple of questions, we have -- we are -- as we are doing -- as we have done yet, we are intending to give you guys more visibility what we are seeing the growth trajectory in '26. Operator: One moment for our next question. And that will come from the line of C.J. Muse with Cantor Fitzgerald. Christopher James Muse: I was hoping to follow up on Ross's question regarding inference opportunity. Can you discuss workloads that are optimal that you're seeing for custom silicon? And that over time, what percentage of your XPU business could be inference versus training? Hock E. Tan: I think there's no differentiation between training and inference in using merchant accelerators versus custom accelerators. I think the whole premise behind going towards custom accelerators continues, which is it's not a matter of cost alone. It is that as custom accelerators get used and get developed on a road map with any particular hyperscaler, there's a learning curve, a learning curve on how they could optimize the way the algorithms on their large language models gets written and tied to silicon. And that ability to do so is a huge value added in creating algorithms that can drive their LLMs to higher and higher performance, much more than basically a segregation approach between hardware and the software. It's that you literally combine end-to-end hardware and software as they take that journey. And it's a journey. They don't learn that in 1 year. Do it a few cycles, get better and better at it. And there lies the value -- the fundamental value in creating your own hardware versus using a third-party merchant silicon that you are able to optimize your software to the hardware and eventually achieve way high performance than you otherwise could. And we see that happening. Operator: One moment for our next question. And that will come from the line of Karl Ackerman with BNP Paribas. Karl Ackerman: Hock, you spoke about the much higher content opportunity in scale-up networking. I was hoping you could discuss how important is demand adoption for co-packaged optics in achieving this 5 to 10x higher content for scale-up networks? Or should we anticipate much of the scale-up opportunity will be driven by Tomahawk and Thor NICs? Hock E. Tan: I'm trying to decipher this question of yours. So let me try to answer it perhaps in the way I think you want me to clarify. First and foremost, I think most of what's scaling up, a lot of the scaling up that's going, as I call it, which means a lot of XPU or GPU to GPU interconnects is done on copper interconnects. And because the size of this scale-up cluster is still not that huge yet that you can get away with copper -- using copper interconnects. And they're still doing it. Mostly, they're doing it today. At some point soon, I believe, when you start trying to go beyond maybe 72 GPU to GPU interconnects, you may have to push towards a different protocol by protocol mode at a different medium from copper to optical. And when we do that, yes, perhaps then things like exotic stuff like co-packaging might be of silicon with optical might become relevant. But truly, what we really are talking about is that at some stage, as the clusters get larger and which means scale up becomes much bigger and you need to interconnect GPU or XPU to each other in scale up many more than just 72 or 100, maybe even 128, you start going more and more. You want to use optical interconnects simply because of distance. And that's when optical will start replacing copper. And when that happens, the question is what's the best way to deliver on optical. And one way is co-packaged optics, but it's not the only way. You can just simply use -- continue to use perhaps pluggable at low-cost optics. In which case, then you can interconnect the bandwidth, the radix of a switch and our switch is now 512 connections. So you can now connect all these XPUs, GPUs, 512 for scale-up phenomenon. And that was huge, but that's when you go to optical. That's going to happen within my view, a year or 2, and we'll be right at the forefront of it. And it may be co-packaged optics, which we are very much in development, but it's a lock-in co-package or it could just be as a first step, pluggable optics. Whatever it is, I think the bigger question is when does it go for optical from copper connecting GPU to GPU to optical connecting it. And the step in that move will be huge. And it's not necessarily co-packaged optics. So that's definitely one path we are pursuing. Operator: And one moment for our next question. And that will come from the line of Joshua Buchalter with TD Cowen. Joshua Louis Buchalter: I realize it's a bit nitpicky, but I wanted to ask about gross margins in the guide. So your revenue implies sort of $800 million incremental increase with gross profit up, I think, $400 million to $450 million, which is kind of pretty well below corporate average fall-through. I appreciate that semis is dilutive and custom is probably dilutive within semis. But anything else going on with margins that we should be aware of? And how should we think about the margin profile of custom longer term as that business continues to scale and diversify? Kirsten M. Spears: Yes. We've historically said that the XPU margins are slightly lower than the rest of the business other than wireless. And so there's really nothing else going on other than that. It's just exactly what I said, that the majority of it quarter-over-quarter, the 130 basis point decline is being driven by more XPUs. Hock E. Tan: There are more moving parts here than your simple analysis proves here. And I think your simple analysis is totally wrong in that regard. Operator: And one moment for our next question. And that will come from the line of Timothy Arcuri with UBS. Timothy Michael Arcuri: I also wanted to ask about scale up, Hock. So there's a lot of competing ecosystems. There's UALink, which, of course, you left. And now there's the big GPU company opening up NVLink, and they're both trying to build ecosystems, and there's an argument that you're an ecosystem of one. What would you say to that debate? Does opening up NVLink change the landscape? And sort of how do you view of your AI networking growth next year? Do you think it's going to be primarily driven by scale up? Or will it still be pretty scale-out heavy? Hock E. Tan: It's -- people do like to create platforms and new protocols and systems. The fact of the matter is scale up can just be done easily, and it's currently available. It's open standards, open source, Ethernet. Just as well, you don't need to create new systems for the sake of doing something that you could easily be doing in networking in Ethernet. And so yes, I hear a lot of this interesting new protocols, standards that are trying to be created. And most of them, by the way, are proprietary, much as they like to call it otherwise. What is really open source and open standards is Ethernet. And we believe Ethernet will prevail as it does before -- for the last 20 years in traditional networking. There is no reason to create a new standard for something that could be easily done in transferring bits and bytes of data. Operator: And one moment for our next question. And that will come from the line of Christopher Rolland with Susquehanna. Christopher Adam Jackson Rolland: Yes. My question is for you, Hock. It's kind of a bigger picture one here. And this kind of acceleration that we're seeing in AI demand, do you think that this acceleration is because of a marked improvement in ASICs or XPUs closing the gap on the software side at your customers? Do you think it's these require tokenomics around inference, test time compute driving that, for example. What do you think is actually driving the upside here? And do you think it leads to a market share shift faster than we were expecting towards XPU from GPU? Hock E. Tan: Yes. Interesting question, but none of the foregoing that you outlined. It's very simple, why inference has come out very, very hot lately is -- remember, we're only selling to a few customers, hyperscalers with platforms and LLMs. That's it. There are not that many. And we have told you how many we have, and we haven't increased any. But what is happening is these hyperscalers and those with LLMs need to justify all the spending they're doing. Doing training makes your frontier models smarter. There's no question. It's almost like science, research and science. Make your frontier models by creating very clever algorithms that consumes a lot of compute for training smarter. Training makes it smarter. You want to monetize inference. And that's what's driving it. Monetize, I indicated in my prepared remarks, to drive to justify a return on investment and a lot of that investment is training and that return on investment is by creating use cases, a lot of AI use cases, AI consumption out there through availability of a lot of inference. And that's what we are now starting to see among our small group of customers. Operator: And one moment for our next question. And that will come from the line of Vijay Rakesh with Mizuho. Vijay Raghavan Rakesh: Hock, just going back on the AI server revenue side. I know you said fiscal '25 kind of tracking to that up 60%-ish growth. If you look at fiscal '26, you have many new customers ramping [ Meta ] and probably you have the 4 of the 6 hyperscalers that you have talked in the past. Would you expect that growth to accelerate into fiscal '26 about that kind of the 60% you talked about? Hock E. Tan: My prepared remarks and which I clarified that the rate of growth we are seeing in '25 will sustain into '26 based on improved visibility and the fact that we're seeing inference coming in on top of the demand for training as the clusters get built up bigger and bigger, still stands. I don't think we are getting very far by trying to pass through my words or data here. It's just a -- it is and we see that going from '25 into '26 as the best forecast we have at this point. Vijay Raghavan Rakesh: Got it. And on the NVLink Fusion versus the scale up, do you expect that market to go the route of top of the rack where you've seen some move to the Ethernet side in kind of the scale-out. Do you expect scale up to kind of go the same route? Hock E. Tan: Broadcom do not participate in NVLink. So I'm really not qualified to answer that question, I think. Operator: One moment for our next question. And that will come from the line of Aaron Rakers with Wells Fargo. Aaron Christopher Rakers: I think all my questions on scale-up have been asked. But I guess, Hock, given the execution that you guys have been able to do with the VMware integration, looking at the balance sheet, looking at the debt structure, I'm curious if you could give us your thoughts on how the company thinks about capital return versus the thoughts on M&A and the strategy going forward. Hock E. Tan: Okay. That's an interesting question. And I agree, not too untimely, I would say, because, yes, we have done a lot of the integration of VMware now, and you can see that in the level of free cash flow we're generating from operations. And as we said, the use of capital has always been -- we're very, I guess, measured and upfront with a return through dividends, which is half our free cash flow of the preceding year. And frankly, as Kirsten has mentioned 3 months ago and 6 months ago during the last 2 earnings call, the first choice typically of the other part of the free cash flow is to bring down our debt to a more -- to a level that we feel closer to no more than 2 ratio of debt to EBITDA. And that doesn't mean that opportunistically, we may go out there and buy back our shares as we did last quarter, and indicated by Kirsten, when we did $4.2 billion of stock buyback. Now part of it is used to basically when employee RSUs vest basically use -- we basically buy back part of the shares used to be paying taxes on the vested RSU. But the other part of it, I do admit we used it opportunistically last quarter when we see an situation when basically, we think that it's a good time to buy some shares back, and we do. But having said all that, our use of cash outside of dividends would be, at this stage, used towards reducing our debt. And I know you're going to ask what about M&A? Well, the kind of M&A we will do in our view would be significant, would be substantial enough that we need debt in any case. And it's a good use of our free cash flow to bring down debt to, in a way, expand, if not preserve our borrowing capacity if we have to do another M&A deal. Operator: One moment for our next question. And that will come from the line of Srini Pajjuri with Raymond James. Srinivas Reddy Pajjuri: Hock, a couple of clarifications. First, on your 2026 expectation, are you assuming any meaningful contribution from the 4 prospects that you talked about? Hock E. Tan: No comment. We don't talk about prospects. We only talk about customers. Srinivas Reddy Pajjuri: Okay. Fair enough. And then my other clarification is that I think you talked about networking being about 40% of the mix within AI. Is that the right kind of mix that you expect going forward? Or is that going to materially change as we, I guess, see XPUs ramping going forward? Hock E. Tan: No. I've always said and I expect that to be the case going forward in '26 as we grow that networking should be a ratio to XPU should be closer in the range of less than 30%, not the 40%. Operator: One moment for our next question. And that will come from the line of Joe Moore with Morgan Stanley. Joseph Lawrence Moore: You said you're not going to be impacted by export controls on AI. I know there's been a number of changes since -- in the industry since the last time you made the call. Is that still the case? And just can you give people comfort that there's no impact from that down the road? Hock E. Tan: Nobody can give anybody comfort in this environment, Joe. But rules are changing quite dramatically as trade -- bilateral trade agreements continue to be negotiated in a very, very dynamic environment. So I'll be honest, I don't know -- I know as little as probably -- you probably know more than I do maybe, in which case then I know very little about this whole thing about whether there's any export control, how the export control will take place. We're guessing. So I'd rather not answer that because no, I don't know whether it won't be. Operator: And we do have time for one final question. And that will come from the line of William Stein with Truist Securities. William Stein: I wanted to ask about VMware. Can you comment as to how far along you are in the process of converting customers to the subscription model? Is that close to complete? Or is there still a number of quarters that we should expect that, that conversion continues? Hock E. Tan: That's a good question. And so let me start off by saying a good way to measure it is most of our VMware contracts are about typically 3 years. And that was what VMware did before we acquired them, and that's pretty much what we continue to do, 3 is very traditional. So based on that, the renewals, we are like 2/3 of the way, almost to the halfway -- more than halfway through the renewals. So we probably have at least another year plus, maybe 1.5 years to go. Operator: And with that, I'd like to turn the call over to Ji Yoo for closing remarks. Ji Yoo: Thank you, operator. Broadcom currently plans to report its earnings for the third quarter of fiscal year 2025 after close of market on Thursday, September 4, 2025. A public webcast of Broadcom's earnings conference call will follow at 2:00 p.m. Pacific. That will conclude our earnings call today. Thank you all for joining. Operator, you may end the call.

Operator: Welcome to the Broadcom Inc. First Quarter Fiscal Year 2025 Financial Results Conference Call. At this time, for opening remarks and introductions, I would like to turn the call over to Gu, Head of Investor Relations of Broadcom Inc. Gu: Thank you, Sherry, and good afternoon, everyone. Joining me on today's call are Hock Tan, President and CEO, Kirsten Spears, Chief Financial Officer, and Charlie Kawwas, President, Semiconductor Solutions Group. Broadcom distributed a press release and financial tables after the market closed describing our financial performance for the first quarter of fiscal year 2025. If you did not receive a copy, you may obtain the information from the investors section of Broadcom's website at broadcom.com. This conference call is being webcast live, and an audio replay of the call can be accessed for one year through the investors section of Broadcom's website. During the prepared comments, Hock and Kirsten will be providing details of our first quarter fiscal year 2025 results, guidance for our second quarter of fiscal year 2025, 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 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 Hock. Hock Tan: Thank you, Gu. And thank you everyone for joining today. In our fiscal Q1 2025, total revenue was a record $14.9 billion, up 25% year on year. And consolidated adjusted EBITDA was a record again, $10.1 billion, up 41% year on year. So let me first provide color on our semiconductor business. Q1 semiconductor revenue was $8.2 billion, 11% year on year. Growth was driven by AI, as AI revenue of $4.1 billion was up 77% year on year. We repeat our guidance for AI revenue of $3.8 billion due to stronger shipments of networking solutions to hyperscalers on AI. Our hyperscale partners continue to invest aggressively in the next generation Frontier models, which do require high-performance accelerators as well as AI data centers with larger clusters. Consistent with this, we are stepping up our R&D investment on two fronts. One, we're pushing the envelope of technology in creating the next generation of accelerators. We're taping out the industry's first two-nanometer AI XPU packaging 3.5D, as we drive towards a 10,000 teraflops XPU. Secondly, we have a view towards scaling clusters of 500,000 accelerators for hyperscale customers. We have doubled the radix capacity of this of the existing Tomahawk 5. And beyond this, to enable AI clusters to scale up on Ethernet towards one million XPUs. We have taped out our next-generation 100 terabit Tomahawk 6 switch running 200G SerDes and 1.6 terabit bandwidth. We will be delivering samples to customers within the next few months. These R&D investments are very aligned with the roadmap of our three hyperscale customers as they each race towards one million XPU clusters by the end of 2027. And, accordingly, we do reaffirm what we said last quarter, that we expect these three hyperscale customers will generate a serviceable addressable market or SAM in the range of $60 to $90 billion in fiscal 2027. Beyond these three customers, we had also mentioned previously that we are deeply engaged with two other hyperscalers in enabling them to create their own customized AI accelerator. We are on track to tape out their XPUs this year. In the process of working with the hyperscalers, it has become very clear that while they are excellent in software, Broadcom is the best in hardware. Working together is what optimizes large language models. It is therefore no surprise to us since our last earnings call, the two additional hyperscalers have selected Broadcom to develop custom accelerators to train their next-generation Frontier models. So even as we have three hyperscale customers, we are shipping XPUs in volume today. There are now four more who are deeply engaged with us to create their own accelerators. And to be clear, of course, these four are not included in our estimated SAM of $60 billion to $90 billion in 2027. So we do see an exciting trend here. New Frontier models and techniques put unexpected pressures on AI systems. It's difficult to serve all classes of models with a single system design point. And therefore, it is hard to imagine that a general-purpose accelerator can be configured and optimized across multiple Frontier models. And as I mentioned before, the trend towards XPUs is a multiyear journey. So coming back to 2025, we see a steady ramp in deployment of all our XPUs and networking products. So Q1 AI revenue was $4.1 billion, and we expect Q2 AI revenue to grow to $4.4 billion, which is up 44% year on year. Turning to non-AI semiconductors, revenue of $4.1 billion was down 9% sequentially on a seasonal decline in wireless. In aggregate, during Q1, the recovery in non-AI semiconductors continues to be slow. Broadband, which bottomed in Q4 2024, showed a double-digit sequential recovery in Q1 and is expected to be up similarly in Q2 as service providers and telcos step up spending. Server storage was down single digits sequentially in Q1 but is expected to be up high single digits sequentially in Q2. Meanwhile, enterprise networking continues to remain flattish in the first half of fiscal 2025 as customers continue to work through channel inventory. Wireless was down sequentially due to a seasonal decline. It remained flat year on year. In Q2, wireless is expected to be the same, flat again year on year. Resales in industrial were down double digits in Q1 and are expected to be down in Q2. So reflecting the foregoing puts and takes, we expect non-AI semiconductor revenue in Q2 to be flattish sequentially even though we are seeing bookings continue to grow year on year. In summary, for Q2, we expect total semiconductor revenue to grow 2% sequentially and up 17% year on year to $8.4 billion. Turning now to infrastructure software. Q1 infrastructure software revenue of $6.7 billion was up 47% year on year and up 15% sequentially, exaggerated though by deals which slipped from Q4 to Q1. Now this is the first quarter Q1 2025 where the year on year comparables include VMware in both quarters. We're seeing significant growth in the software segment for two reasons. One, we're converting from a footprint of largely perpetual licenses to one of full subscription. And as of today, we are over 60% done. Two, these perpetual licenses were only largely for virtualization, otherwise called vSphere. We are upselling customers to a full stack VCF, which enables the entire data center to be virtualized and enables customers to create their own private cloud environment on-prem. And as of the end of Q1, approximately 70% of our largest 10,000 customers have adopted VCF. As these customers consume VCF, we do see a further opportunity for future growth. As large enterprises adopt AI, they have to run their AI workloads on their on-prem data centers, which will include both GPU servers as well as traditional CPUs. And just as VCF virtualizes these traditional data centers using CPUs, VCM will also virtualize GPUs on a common platform and then enable enterprises to import AI models to run their own data on-prem. This platform, which virtualizes the GPU, is called the VMware Private AI Foundation. And as of today, in collaboration with NVIDIA, we have 39 enterprise customers for the VMware Private AI Foundation. Customer demand has been driven by our open ecosystem, superior load balancing, and automation capabilities, which allow them to intelligently pool and run workloads across both GPU and CPU infrastructure, leading to very reduced costs. Moving on to Q2 outlook for software, we expect revenue of $6.5 billion, up 23% year on year. So in total, we're guiding Q2 consolidated revenue to be approximately $14.9 billion, up 19% year on year. And we expect this will drive Q2 adjusted EBITDA to approximately 66% of revenue. With that, let me turn the call over to Kirsten. Kirsten Spears: Thank you, Hock. Let me now provide additional detail on our Q1 financial performance. From a year on year comparable basis, keep in mind that Q1 of fiscal 2024 was a 14-week quarter and Q1 of fiscal 2025 is a 13-week quarter. Consolidated revenue was $14.9 billion for the quarter, up 25% from a year ago. Gross margin was 79.1% of revenue in the quarter, better than we originally guided on higher infrastructure software revenue and more favorable semiconductor revenue mix. Consolidated operating expenses were $2 billion, of which $1.4 billion was for R&D. Q1 operating income of $9.8 billion was up 44% from a year ago with operating margin at 66% of revenue. Adjusted EBITDA was a record $10.1 billion or 68% of revenue, above our guidance of 66%. This figure excludes $142 million of depreciation. Now a review of the P&L for our two segments. Starting with semiconductors. Revenue for our semiconductor solutions segment was $8.2 billion and represented 55% of total revenue in the quarter. This was up 11% year on year. Gross margin for our semiconductor solutions segment was approximately 68%, up 70 basis points year on year driven by revenue mix. Operating expenses increased 3% year on year to $890 million on increased investment in R&D for leading-edge AI semiconductors, resulting in semiconductor operating margin of 57%. Now moving on to infrastructure software. Revenue for infrastructure software of $6.7 billion was 45% and up 47% year on year based primarily on increased revenue from VMware. Gross margin for infrastructure software was 92.5% in the quarter compared to 88% a year ago. Operating expenses were approximately $1.1 billion in the quarter, resulting in infrastructure software operating margin of 76%. This compares to operating margin of 59% a year ago. This year on year improvement reflects our disciplined integration of VMware and sharp focus on deploying our VCF strategy. Moving on to cash flow. Free cash flow in the quarter was $6 billion and represented 40% of revenue. Free cash flow as a percentage of revenue continues to be impacted by cash interest expense from debt related to the VMware acquisition and cash taxes due to the mix of US taxable income, the continued delay in the reenactment of section 174, and the impact of Corporate AMT. We spent $100 million on capital expenditures. Day sales outstanding were 30 days in the first quarter compared to 41 days a year ago. We ended the first quarter with inventory of $1.9 billion, up 8% sequentially, to support revenue in future quarters. Our days of inventory on hand were 65 days in Q1 as we continue to remain disciplined on how we manage inventory across the ecosystem. We ended the first quarter with $9.3 billion of cash and $68.8 billion of gross principal debt. During the quarter, we repaid $495 million of fixed-rate debt and $7.6 billion of floating-rate debt with new senior notes, commercial paper, and cash on hand, reducing debt by a net $1.1 billion. Following these actions, the weighted average coupon rate and years to maturity of our $58.8 billion in fixed-rate debt is 3.8% and 7.3 years respectively. The weighted average coupon rate and years to maturity of our $6 billion in floating-rate debt is 5.4% and 3.8 years respectively. And our $4 billion in commercial paper is at an average rate of 4.6%. Turning to capital allocation. In Q1, we paid stockholders $2.8 billion of cash dividends based on a quarterly common stock cash dividend of $59 per share. We spent $2 billion to repurchase 8.7 million AVGO shares from employees as those shares vested or withholding taxes. In Q2, we expect the non-GAAP diluted share count to be approximately 4.95 billion shares. Now moving on to guidance. Our guidance for Q2 is for consolidated revenue of $14.9 billion with semiconductor revenue of approximately $8.4 billion, up 17% year on year. We expect Q2 AI revenue of $4.4 billion, up 44% year on year. For non-AI semiconductors, we expect Q2 revenue of $4 billion. We expect Q2 infrastructure software revenue of approximately $6.5 billion, up 23% year on year. We expect Q2 adjusted EBITDA to be about 66%. For modeling purposes, we expect Q2 consolidated gross margin to be down approximately 20 basis points sequentially on the revenue mix of infrastructure software. As Hock discussed earlier, we are increasing our R&D investment in leading-edge AI in Q2 and accordingly, we expect adjusted EBITDA to be approximately 66%. We expect the non-GAAP tax rate for Q2 and fiscal year 2025 to be approximately 14%. That concludes my prepared remarks. Operator, we will now open for questions. Operator: 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 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. And our first question will come from the line of Ben Reitzes with Melius. Your line is open. Ben Reitzes: Hey, guys. Thanks a lot and congrats on the results. Hock, you talked about four more customers coming online. Can you just talk a little bit more about the trend you're seeing, can any of these customers be as big as the current three? And what does this say about the custom silicon trend overall and your optimism and upside to the business long term? Thanks. Hock Tan: Well, very interesting question, Ben. And thanks for your kind wishes. But what we're seeing is and by the way, these four are not customers as we define it. As I've always said, you know, in developing and creating XPUs, you know, we are not really the creator of those XPUs, to be honest. We enable each of those hyperscalers partners we engage with to create that chip and to basically, to create that compute system. Call it that way. And it comprises the model, the software model, working closely with the compute engine, the XPU, and the networking that ties together the clusters of those multiple XPUs as a whole to train those large Frontier models. And so you know, and the fact that we create the hardware it still has to work with the software models and the algorithms of those partners of ours before it becomes fully deployable and scale, which is why we define customers in this case as those where we know they have deployed at scale and we'll receive the production volume to enable it. Right. For that, we only have just the three. The four are, I call it partners, who are trying to create the same thing as the first three and to run their own Frontier models, each of it on there to train their own Frontier models. And as I also said, it doesn't happen overnight. To do the first chip, could take would take typically a year and a half. And that's very accelerated and which we could accelerate given that we essentially have a framework and a methodology that works right now. It works for the three customers. No reason for it to not work for the four. Still need those four partners to create and to develop a software which we don't do to make it work, and to answer your question, there's no reason why these four guys would not create a demand in the range of what we're seeing with the first three guys. But probably later. It's a journey. They started it later. And so they will probably get there later. Ben Reitzes: Thank you very much. Operator: Thank you. One moment for our next question. And that will come from the line of Harlan Sur with JPMorgan. Your line is open. Harlan Sur: Good afternoon, and great job on the strong quarterly results, Hock and team. Great to see the continual momentum in the AI business here in the first half of your fiscal year, and the continued broadening out of your AI ASIC customers. I know, Hock, last earnings, you did call out a strong ramp in the second half of the fiscal year, driven by new three-nanometer AI accelerated programs kinda ramping. You just help us either qualitatively, quantitatively, profile the second half step up relative to what the team just delivered here in the first half? Has the profile changed? Either favorably less favorably versus what you thought, maybe ninety days ago because quite frankly, I mean, a lot has happened since last earnings. Right? You've had the dynamics like deep seek and focus on AI model efficiency. But on the flip side, you've had strong CapEx outlooks by your cloud and hyperscale customers. So any color on the second half AI profile would be helpful. Hock Tan: You're asking me to look into the minds of my customers. And I hate to tell you they don't tell me, they don't show me the entire mindset here. But one why are we beating the numbers so far in Q1? Seems to be encouraging in Q2. Pardon me? From improved networking shipments, as I indicate that's to foster those XPUs and AI accelerators even in some cases GPUs together, for the hyperscalers. And that's good. And partly, also, we think there is some pull-ins of shipments and acceleration, call it that way, of shipments yes, in fiscal 2025. Harlan Sur: And on the second half, that you talked about ninety days ago, the second half three-nanometer ramp, is that still very much on track? Hock Tan: Alan, thank you. I only got you two. Sorry. Let me let's not speculate on the second half. Harlan Sur: Okay. Thank you, Hock. Operator: Thank you. One moment for our next question. And that will come from the line of William Stein with Truist Securities. Your line is open. William Stein: Great. Thank you for taking my question. Congrats on these pretty great results. It you know, it seems from the news headlines about tariffs and about Deepseek that there may be some disruption. Some customers and some other complementary suppliers seem to feel a bit paralyzed perhaps. Have difficulty making tough decisions. Those tend to be you know, really useful times for great companies to sort of emerge as something bigger and better than they were in the past. You've, you know, grown this company in a tremendous way over the last, you know, decade plus. And you're doing great now, especially in this AI area. But I wonder if you're seeing that sort of disruption from these dynamics that we suspect are happening based on, you know, headlines of what we see from other companies. And how aside from adding these customers in AI, sure there's other great stuff going on, but should we expect some bigger changes to come from Broadcom as a result of this? Hock Tan: You post a very interesting set of issues and questions. And those are very relevant interesting issues. And don't need issue the only problem we have at this point is I would say it's really toward to no way we're all linked. I mean, there's the threat, the noise of tariffs, especially on chips, that has a material lines in it. Nor do we know how it will be structured. So we don't know. But we do experience and we are leaving it now. Is the disruption on that is paused in a positive way. I should add a very positive disruption in semiconductors, on a generative AI. Generative AI for sure. And we I said that before, so at the risk of repeating, you know, but it's we feel it more than ever. Is really accelerating the development of semiconductor technology. Both process and packaging as well as design. Towards higher and higher performance accelerators and networking functionality. We've seen that innovation that those upgrades occur on a every month. As we face new interesting challenges. And when particularly with XPUs. We're trying within as to optimize to Frontier models of our partners, our customers, as well as our hyperscale partners. And we it's a lot of I mean, it's a it's a privilege almost for us to be to participate in it and try to optimize. And by optimize, I mean, you look at an accelerator. You can look at it for simple terms, high level, to to perform, to want to maybe mention not just on one single mentoring, which is compute capacity, how many teraflops? It's more than that. It's also tied to the fact that this is a distributed computing problem. It's not just the sing the compute capacity of a single XPU or GPU. It's also the network bandwidth. It ties itself to the next adjacent XPU or GPU. So that has an impact. So you're doing that. You'll have the balance with that. Then you decide, are you doing training or you're doing prefilling? Post training. Fine tuning. And again then comes how much memory do you balance against that? And with it, how much latency you can afford, which is memory bandwidth. So you will look at the at least four variables, maybe even five. If you're in clone in memory bandwidth. Not just memory capacity, when you go straight to inference. So we we have all these variables to play with and we try to optimize it. So all this is very, very I mean, it's a great experience for our engineers to push their envelope on how to create all those chips and so that's the biggest disruption we see right now. From sheer trying to create and push the envelope on generative AI. Trying to create the best hardware infrastructure to run it. Beyond that, yeah, there are there are other things too that come into play because with AI, as I indicated, just not just drive hardware for enterprises, it drives the way the architect their data centers. You know, data requirement they keep keeping data private on on under control becomes important. So suddenly, the push of what loads towards public cloud. May take a little pause as large enterprises particularly, have to they have to take direct device that you want to run AI workloads. You're probably thinking very hard about running them on-prem. And suddenly, push yourself to a saying, got to upgrade your own data centers. To do you know, and manage the your own data to run it on-prem. And that's also pushing a trend that with we have been seeing now over the past twelve months. Hence, my comments on VMware Private AI Foundation. This is to especially enterprises pushing direction at quickly recognizing that how where do they run their AI workloads. So those are trends we see today and a lot of it coming out of AI, a lot of it coming out of sensitive rules on sovereignty, in cloud and in data. On as far as you're mentioning tariffs is concerned, I think that's too early for us to figure out where to online. And probably maybe give it another three, six months we probably have a better idea where to go. William Stein: Thank you. Operator: Thank you. One moment for our next question. And that will come from the line of Ross Seymore with Deutsche Bank. Your line is open. Ross Seymore: May I speak to a ask a question. I want to go back to the XPU side of things. And going from the four new engagements, not yet named customers, two last quarter and two more today that you announced. I wanna talk about going from kind of design winded deployment. How do you judge that? Because there is some debate about, you know, tons of design wins, but the deployments actually don't happen either that they never occur or that the volume is never what is originally promised. How do you view that kind of conversion ratio with there a wide range around it? Or is there some way you could help us kind of understand how that works? Hock Tan: Well, it's and, Ross, the interesting question I'll take the opportunity to say the way we look at designing is probably very different from the way many of our peers look at it out there. Number one, to begin with, we believe design win when we know our product is at in produced in scale, at scale and is actually deployed. Literally deployed in production. So that takes a long lead time because from taping out getting in the product, it takes a year. Easily from the product in the hands. Of our partner to when it goes into scale production, it will take six months to a year. It's our experience that we've seen. Number one and number two. I mean, producing and deploying five thousand SKUs that's that's a joke. That's not real production in my in our view. And so we also limit ourselves in selecting partners to people who really need that large volume. You need that large volume from our viewpoint in scale right now. In mostly framing, training of large language models from tier models in a continuing trajectory. So we limit ourselves to how many customers or how many potential customers that exist out there, Ross. And we tend to be very selective who we pick. The beginning. So when we say design win, it really is at scale. It's not something that starts in six months and die or a year and die again. Basically, it's a selection of custom. It just the way we run our ASIC business in general for the last fifteen years. We pick and choose the customers because we know this guy and we do multi multi-year roadmaps with these customers because we know these customers are sustainable. I put it bluntly. We don't do it for start-ups. Ross Seymore: Thank you. Operator: And one moment for our next question. And that will come from the line of Stacy Rasgon with Bernstein Research. Your line is open. Stacy Rasgon: Hi, guys. Thanks for taking my question. I wanted to go to the three customers that you do have in volume today. And what I wanted to ask was is there any concern about some of the new regulations or the AI diffusion rules that are gonna get put in place supposedly in May impacting any of those design wins or shipments. It sounds like you think all three of those are still on at this point. But anything you could tell us about worries about new regulations or AI diffusions impacting any of those wins would be helpful. Hock Tan: Thank you. In this era or this current era of geopolitical tensions, and fairly dramatic actions all around by governments, yes, always some concern at the back of everybody's mind. But to answer your question directly, no. We don't have any concerns. Stacy Rasgon: Got it. So none of those are going into China? Or to Chinese customers then? Hock Tan: No comment. Are you trying to locate who they are? Stacy Rasgon: Okay. That's helpful. Thank you. Operator: 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. Vivek Arya: Thanks for taking my question. Hock, whenever you have described your AI opportunity, you've always emphasized the training workload. But the perception is that the AI market could be dominated by the inference workload, especially with these new reasoning models. So what happens to your opportunity and share if the mix moves more towards inference, does it, you know, does it create a bigger TAM you than the $60 to $90 billion? You know, does it keep it the same, but is there is a different mix of product? Or does a more inference-heavy market favor a GPU over an XPU? Thank you. Hock Tan: That's a good interesting question. By the way, I never I do talk a lot about training. We do out check our experience as also focus on inference as a separate product line. They do. And that's why I can say the architecture of those chips are very different from the architecture of the training chips. And so it's a combination of those two, I should add. That adds up to this $60 to $90 billion. So if I had not been clear I do apologize. It's a combination of both. But having said that, the larger part of the dollars come from training. Not inference. If within the server service, the same that we have talked about so far. Thank you. Operator: One moment for our next question. And that will come from the line of Harsh Kumar with Piper Sandler. Your line is open. Harsh Kumar: Thanks, Broadcom team. And again, great execution. Just talk had a quick question. We've been hearing that almost all of the large clusters that are 100k plus they're all going to Ethernet. I was wondering if you could help us understand the importance of when the customer's making a selection, you know, choosing between a guy that has the best switch ASICs such as you, versus a guy that might have to compute there. Can you talk about what the customer is thinking and what are the final points that they wanna hit upon when they make that selection for the mixed cards? Hock Tan: Okay. I see. No. It's a com yeah. It's down to in the in the case of the in the case of the hyperscalers, now very much so, it's very driven by performance. And it's performance what you're mentioning about on connecting scaling up, and scaling out those AI accelerators, be they XPU or GPU. Among extra scalers. And in main most cases, among those hyperscalers we engage with, when it comes to connecting those clusters. They're very driven. By performance. I mean, you if you are in the race to really get the best performance out of your hardware as you train and continue to train your Frontier models, that matters more than anything else. So the basic first thing they go for is proven. That's a proven piece of hardware is a proven net it's a proven system subsystem in our case that makes it work. And in that case, we tend to have a big advantage. Because, I mean, networking is ours. You know, switching and routing is ours for the last ten years at least. And the fact that it's AI just makes it more interesting for our engineers to work on. And but it's basically based on proven technology and experience in pushing that and pushing the envelope on going from 800 gigabit per second bandwidth to 1.6 and moving on to 3.2, which is exactly why we keep stepping up the rate of investment in coming up with our products where we take a ton of five. We doubled the radix to deal with just one hyperscaler because they want high radix to create larger clusters while running, bandwidth that are smaller but that doesn't stop us from moving ahead to the next generation of Tomahawk 6 and I dare say, we even planning to come out 7 and 8 right now. And we're speeding up the rate of development. And it's all actually for that few guys, by the way. So we're making a lot of investment for very few customers, hopefully, with very large serve available markets. That's if I'm nothing else, that's the big bets we are placing. Harsh Kumar: Thank you, Hock. Operator: Thank you. One moment for our next question. And that will come from the line of Timothy Arcuri with UBS. Your line is open. Timothy Arcuri: Thanks a lot. Hock, in the past, you have mentioned XPU units growing from about two million last year to about seven million, you said, in the 2027, 2028 time frame. My question is, do these four new customers, do they add to that seven million unit number? I know in the past, you sort of talked about an ASP. It was, you know, twenty grand by then. So those three the first three customers are clearly a subset of that seven million units. So do these new four engagements drive that seven higher, or do they just fill in to get to that seven million? Thanks. Hock Tan: Thanks, Tim, for asking that. To clarify, as I made I thought I made it clear in my comments. No. The market we're talking about include when you translate the unit it's only among the three customers we have today. The other four, we talk about engagement partners, we don't consider that as customers yet, and therefore, are not in our served available market. Timothy Arcuri: Okay. So they would add to that number. Okay. Thanks, Hock. Operator: Thanks. One moment for our next question. And that will come from the line of CJ Muse with Cantor Fitzgerald. Your line is open. CJ Muse: Yeah. Good afternoon. Thank you for taking the question. I guess, I'll have to follow-up on your prepared remarks and comments earlier around optimization with your best hardware and hyperscalers with their great software. I'm curious how you're expanding your portfolio now to six mega scale kind of frontier models. Will enable you to, you know, a more plush, you know, share tremendous information, but at the same time, a world where these six truly wanna differentiate. So, obviously, you know, the goal for all of these players is exaflops, per second per dollar of capex per watt. And I guess to what degree are you aiding them in these efforts? And where does maybe the Chinese wall kinda start where they wanna kinda differentiate and not share with you kind of some of the work that you're doing. Hock Tan: You. Oh, you know, we only provide very base basic fundamental technology in semiconductors to enable these guys to use what we have and optimize it to their own particular models. And algorithms that relate to those models. That's it. That's all we do. So that's the level of a lot of that optimization we do for each of them. And as I mentioned earlier, there are maybe five degrees of freedom. Yeah. We do. And we play with that. And so even if there are five degrees of freedom, there's only so much we can do at that point. But it is and how did you and then basically, how we optimize it is all tied to the partner telling us how they want to do to do it. So that's only so much we also have visibility on. But it's but it's what we do now is what the XPU model is. She optimization translating to performance but also power. That's very important how they play. It's not just cost. The power come translates into total cost of ownership. Eventually. It's it's how design it in power and how we balance it in terms of the size of the cluster and whether they use it for training. No. Pretraining? Post training? Inference you know, time test time scaling, all of them have their own characteristics. And that's the advantage of doing that XPU and working closely with them to create that stuff. Now as far as your question on China and all that, frankly, I don't have any opinion on that at all. To us, it's a technical game. CJ Muse: Thank you very much. Operator: One moment for our next question. And that will come from the line of Christopher Rolland with Susquehanna. Your line is open. Christopher Rolland: Hey. Thanks so much for the question. And this one's maybe for Hock and for Kirsten. I'd love to know just because you have kind of the complete connectivity portfolio, how you see new greenfield scale-up opportunities playing out here between you know, could be optical or copper or really anything and what additives this could be for your company. And then, Kirsten, I think, OpEx is up. Maybe just talk about where those OpEx dollars are going towards within the AI opportunity and whether they relate. Thanks so much. Hock Tan: Your question is very broad-reaching. In our portfolio. Yeah. We deploy we have the advantage as a and a lot of the customer hyperscalers they're talking about a lot of expansion. But it's all almost all greenfield. You know, bless soul brownfield. It's very greenfield. It's all expansion. And it all tends to be next generation. That we're doing. Which is very exciting. So the opportunity is very, very high. And we deploy I mean, we are both we can do it in copper, but what we see a lot of opportunity from is when you connect provide the networking connectivity through optical. But there are a lot of active elements including either, you know, multimode lasers which are called VCSELs or intervening lasers. For basically single mode. And we do both. So there's a lot of opportunity just as in scale scale-up versus scale-up. We used to do we still do a lot of other protocols beyond Ethernet to consider PCI Express where we on the leading edge of that PCI Express. And that architecture on networking, switching, so to speak, we offered both. One is a very intelligent switch which is, like, our Jericho family. We've a Dominic or a very smart NIC, we've got down switch, which is a Tomahawk. We offer both architectures as well. So, yeah, we have a lot of opportunities from it. All things said and done, all this nice white portfolio and all that, adds up to probably, as I said in prior quarters, about 20% of our total AI revenue maybe going to 30%. Though last quarter, we hit almost 40%, but that's not the norm. I would say typically, all those other portfolio products still end up to a nice decent amount of revenue for us, but within the sphere of AI, they add up to I would say on average, be close to 30%. And XPUs, the accelerators, is 70%. If that's what you're driving at, perhaps that give you some shed some light on towards where, how one matters over the other. But we have a wide range of products connectivity, networking side of it. They just add up though to that 30%. Christopher Rolland: Thanks so much, Hock. Kirsten Spears: And then on the R&D front, as I outlined at a consolidated basis, we spent $1.4 billion in R&D in Q1, and IT stated that it would be going up in Q2. Hock clearly outlined in his script the two areas where we're focusing on. Now I would tell you the company we focus on R&D across all of our product lines so that we can stay competitive with next-generation product offerings, but he did line out that we are focusing on taping out the industry's first two-nanometer AIXPU package in 3D. That was one in the script, and that's an area that we're focusing on. And then he mentioned that we've doubled the radix capacity of existing Tomahawk 5. To enable our AI customers to scale up on Ethernet. Towards the one million XPUs. I mean, that's a huge focus of the company. Christopher Rolland: Yep. Thank you very much, Kirsten. Operator: And one moment for our next question. And that will come from the line of Vijay Rakesh with Mizuho. Your line is open. Vijay Rakesh: Yeah. Hi. Thanks. Thanks. Just a question on the networking side. Just wondering how much does up sequentially on the AI side? And any thoughts around M&A going forward? Still a lot of headlines around the include products, Blue Care, so thanks. Hock Tan: On the networking side, as indicated, Q1 showed a bit of a surge. But I don't expect that to be that mix of sixty-forty-sixty is compute and forty percent networking to be something that is normal? I think the norm is closer to seventy, thirty, maybe. At best, thirty percent. And so who knows what Q2 is? We cannot see Q2 as continuing but that's just, at my mind, a temporary flip. The norm will be seventy thirty. If you take it across, a period of time, like six months, a year, that's your question. M&A, no. I'm too busy we're too busy doing AI and VMware at this point. We're not thinking of it. At this point. Vijay Rakesh: Thanks, Hock. Operator: Thank you. That is all the time we have for our question and answer session. I would now like to turn the call back over to Gu for any closing remarks. Gu: Thank you, Sherry. Broadcom currently plans to report its earnings for the second quarter of fiscal year 2025 after close of market on Thursday, June 5th, 2025. A public webcast of Broadcom's earnings conference call will follow at 2 PM Pacific. That will conclude our earnings call today. Thank you all for joining. Sherry, you may end the call. Operator: Thank you. Ladies and gentlemen, thank you for participating. This concludes today's program. You may now disconnect.

Operator: Welcome to the Broadcom Inc. Fourth Quarter and Fiscal Year 2024 Financial Results Conference call. At this time, for opening remarks and introductions, I would like to turn the call over to Ji Yoo, Head of Investor Relations of Broadcom, Inc. Ji Yoo : Thank you, Cherie, and good afternoon, everyone. Joining me on today's call are Hock Tan, President and CEO; Kirsten Spears, Chief Financial Officer; and Charlie Kawwas, President Semiconductor Solutions Group. Broadcom distributed a press release and financial tables after the market closed describing our financial performance for the fourth quarter and fiscal year 2024. If you did not receive a copy, you may obtain the information from the Investor section of Broadcom's website at broadcom.com. This conference call is being webcast live and then audio replay of the conference call can be accessed for one year through the investor section of Broadcom's website. During the prepared comments, Hock and Kirsten will be providing details of our fourth quarter and fiscal year 2024 results, guidance for our first quarter of fiscal year 2025, as well as commentary regarding the business environment. We'll take questions after the end of our prepared comments. Please refer to our press release today and our recent filings with the SEC for information on the specific risk factors that could cause our actual results to differ materially from the forward-looking statements made on this call. In addition to U.S. GAAP reporting, Broadcom reports certain financial measures on a non-GAAP basis. A reconciliation between GAAP and non-GAAP measures is included in the tables attached to today's press release. Comments made during today's call will primarily refer to our non-GAAP financial results. I will now turn the call over to Hock. Hock Tan : Thank you, Ji. And thank you everyone for joining us today. Well, this has been a transformative year for Broadcom. Our fiscal year 2024 consolidated revenue grew 44% year-over-year to a record $51.6 billion. Now, excluding VMware, our revenue grew over 9% organically. So fiscal 2024 operating profit, excluding transition costs grew 42% year-over-year. And we returned a record $22 billion in cash to our shareholders, up 45% year-on-year through dividends, buyback and eliminations. There were two significant drivers of this transformation this year. First, we closed the acquisition of VMware in the early weeks of fiscal 2024 and have focused VMware on its technology leadership in data center virtualization. The integration of VMware is largely complete. Revenue is on a growth trajectory and operating margin reached 70% exiting 2024. We are well on the path to delivering incremental adjusted EBITDA at a level that significantly exceeds the $8.5 billion we communicated when we announced the deal. We are planning to achieve this much earlier than our initial target of three years. The second driver in 2024 was AI. Our AI revenue, which came from strength in custom AI accelerators or XPUs and networking, grew 220% from $3.8 billion in fiscal 2023 to $12.2 billion in fiscal 2024 and represented 41% of our semiconductor revenue. This drove semiconductor revenue up to a record $30.1 billion during the year. Okay, now let's move on to the fourth quarter and give you more color. Consolidated net revenue of $14.1 billion was up 51% year-on-year, excluding VMware. Organic growth was 11%, and operating profit of $8.8 billion was up 53% year-on-year. For the details on infrastructure software in Q4, this infrastructure software segment revenue was $5.8 billion, up 196% year-on-year, flat sequentially, even as multiple deals slip over into Q1. In VMware, we booked $21 million total CPU costs in a quarter versus $19 million a quarter ago. Of these, about 70% represented VMware Cloud Foundation or VCF, the full software stack virtualizing the entire data center. And this translated into Annualized Booking Value, or ABV as we call it, of $2.7 billion for VMware in Q4 up from 2.5 billion in Q3. Since closing the acquisition just over a year ago, we've signed up over 4,500 of our largest 10,000 customers for VCF. VCF enabled customers to deploy private cloud environments on-prem, as an alternative to running their applications in the public cloud. And in doing all this, we continued to drive down spending in VMware. We brought spending down to $1.2 billion in Q4, down from $1.3 billion in Q3. By reference, VMware spending was averaging over $2.4 billion per quarter prior to the acquisition with operating margin less than 30%. Moving on to Q1 outlook for infrastructure software, we expect Q1 revenue to grow to $6.5 billion, up 11% sequentially and 41% up year-on-year. For VMware, ABV is expected to exceed $3 billion compared to $2.7 billion in the preceding quarter. Turning to semiconductors, let me give you more details by end markets. Networking Q4 revenue of $4.5 billion grew 45% year-on-year. AI networking revenue, which represented 76% of networking, grew 158% year-on-year. This was driven by a doubling of our AI XPU shipments to our three hyperscale customers and 4 times growth in AI connectivity revenue driven by our Tomahawk and Jericho shipments globally. In Q1, We expect the momentum in AI connectivity to be as strong as more hyperscalers deploy Jericho3-AI in their fabrics. Our next generation XPUs are in 3 nanometers and will be the first of its kind to market in that process node. We are on track for volume shipment at our hyperscale customers in the second half of fiscal 2025. Turning on to server storage. From its bottom six months ago, Q4 server storage connectivity revenue has recovered some 20% to $992 million. And in Q4, we expect server storage revenue to continue to grow. Turning to wireless, as we expected, seasonal launch by our North American customer drove Q4 wireless revenue to $2.2 billion, up 30% sequentially. This was up 7% year-on-year because of higher content. We continue to be very engaged with this customer in multi-year roadmaps across various technologies we have leadership in, including RF, WiFi, Bluetooth, sensing, and touch. In Q1, reflecting seasonality, we expect wireless to be down sequentially, but still be flat year-on-year. In Q4, Broadband reached bottom at $465 million, down 51% year-on-year. We have seen significant orders across multiple service providers during this quarter. And reflecting this trend, we now expect broadband to show recovery beginning in Q1. Finally, on to industrial, which only represents 1% of the total revenues. Measure on resales, Q4 industrial resales of $173 million declined 27% year-on-year. We only expect a recovery in the second half 2025. Before I sum up and provide you Q1 fiscal 2025 guidance. Let me outline a longer-term perspective on how we see our semiconductor business evolving over the next three years. On the broad portfolio of non-AI semiconductors with its multiple end-markets, we saw a cyclical bottom in fiscal 2024 at $17.8 billion. We expect a recovery from this level at the industry's historical growth rate of mid-single digits. In sharp contrast, we see our opportunity over the next three years in AI as massive. Specific hyperscalers have begun their respective journeys to develop their own custom AI accelerators or XPUs, as well as network these XPUs with open and scalable Ethernet connectivity. For each of them, this represents a multi-year, not a quarter-to-quarter journey. As you know, we currently have three hyper-scale customers who have developed their own multi-generational AI XPU roadmap to be deployed at varying rates over the next three years. In 2027, we believe each of them plans to deploy 1 million XPU clusters across a single fabric. We expect this to represent an AI revenue Serviceable Addressable Market, or SAM, for XPUs and network in the range of $60 billion to $90 billion in fiscal 2027 alone. We are very well positioned to achieve a leading market share in this opportunity and expect this will drive a strong ramp from our 2024 AI revenue base of $12.2 billion. Keep in mind though, this will not be a linear ramp. We'll show quarterly variability. To compound this, we have been selected by two additional hyperscalers and are in advanced development for their own next generation AI XPUs. We have line of sight to develop these prospects into revenue generating customers before 2027 and could therefore expand the SAM significantly. So the reality going forward for this company is that the AI semiconductor business will rapidly outgrow the non-AI semiconductor business. Recognizing this, we will now shift to guiding our semiconductor business by AI and non-AI revenue segments. So summarizing Q4. Semiconductor revenue of $8.2 billion grew 12% year-on-year and 13% sequentially. Q4 AI revenue grew a strong 150% year-on-year to $3.7 billion. Non-AI semiconductor revenue declined by 23% year-on-year to $4.5 billion, but still a 10% recovery from the bottom of six months ago. Now moving on to our outlook for Q1. We expect semiconductor revenue to grow approximately 10% year-on-year to $8.1 billion. AI demand remained strong and we expect AI revenue to grow 65% year-on-year to $3.8 billion. We expect non-AI semiconductor revenue to be down about mid-teens percent year-on-year. And so in total, summing this all up, we're guiding consolidated Q1 revenue to be approximately $14.6 billion, up 22% year-on-year, and we expect this will drive Q1 adjusted EBITDA to approximately 66% of revenue. With that, let me turn this call over to Kirsten. Kirsten Spears: Thank you, Hock. Let me now provide additional detail on our Q4 financial performance. Consolidated revenue was $14.1 billion for the quarter, up 51% from a year ago. Excluding the contribution from VMware and -- Q4 revenue increased 11% year-on-year. Gross margins were 76.9% of revenue in the quarter, up 260 basis points from the year ago quarter. R&D was $1.4 billion, and consolidated operating expenses were $2 billion, up year-on-year primarily due to the acquisition and consolidation of VMware. Q4 operating income was $8.8 billion and was up 53% from a year ago, with operating margin at 63% of revenue. Adjusted EBITDA was $9.1 billion or 65% of revenue. This figure excludes $156 million of depreciation. Now a review of the P&L for our two segments, starting with semiconductors. Revenue for our Semiconductor Solutions segment was $8.2 billion and represented 59% of total revenue in the quarter. This was up 12% year-on-year. Gross margins for our Semiconductor Solutions segment were approximately 67%, down 220 basis points year-on-year, driven primarily by a higher mix of AI XPUs. Operating expenses increased 11% year-on-year to $914 million on increased investment in R&D, resulting in semiconductor operating margins of 56%. The -- now moving on to infrastructure software. Revenue for infrastructure software was $5.8 billion, up 196% year-on-year primarily due to the contribution of VMware and represented 41% of revenue. Gross margins for infrastructure software were 91% in the quarter and operating expenses were $1.1 billion in the quarter, resulting in infrastructure software operating margin of 72%. Excluding transition costs, operating margin was 73%. Moving on to cash flow. Free cash flow in the quarter was $5.5 billion and represented 39% of revenues. Excluding cash used for restructuring and integration of $506 million, free cash flows of $6 billion were up 22% year-on-year and represented 43% of revenue. Free cash flow as a percentage of revenue has declined from the same quarter a year ago, due to higher cash interest expense from debt related to the VMware acquisition, higher cash taxes due to a higher mix of U.S. taxable income, the continued delay in the reenactment of Section 174 and -- and recent proposed regulations on corporate AMT. We spent $122 million on capital expenditures. Days sales outstanding were 29 days in the fourth quarter compared to 31 days a year ago. We ended the fourth quarter with inventory of $1.8 billion, down 7% sequentially. We continue to remain disciplined on how we manage inventory across the ecosystem. We ended the fourth quarter with $9.3 billion of cash and $69.8 billion of gross principal debt. During the quarter, we replaced $5 billion of floating rate debt with new senior notes. We use cash on hand to pay a mix of senior notes, which came due in Q4 and additional floating rate debt, reducing debt by $2.5 billion. Following these actions, the weighted average coupon rate and years to maturity of our $56 billion in fixed rate debt is 3.7% and 7.6 years, respectively. The weighted average coupon rate and years to maturity of our $14 billion in floating rate debt is 5.9% and 3.2 years, respectively. We expect to repay approximately $495 million of fixed rate senior notes coming due in Q1. Now let me recap our financial performance for fiscal year 2024. Our revenue hit a record $51.6 billion, growing 44% year-on-year, including VMware, and 9% organically, excluding VMware. Semiconductor revenue was $30.1 billion, up 7% year-over-year. Infrastructure software revenue was $21.5 billion up 181% year-on-year and up 90% year-on-year, excluding VMware. Fiscal 2024 adjusted EBITDA was $31.9 billion and represented 62% of revenue. Free cash flow grew 10% year-on-year to $19.4 billion and up 22% year-on-year to $21.9 billion, excluding restructuring and integration costs. Turning to capital allocation. For fiscal 2024, we spent $22.2 billion, consisting of $9.8 billion in the form of cash dividends and $12.4 billion in share repurchases and eliminations. Aligned with our ability to generate increased cash flows in the preceding year and 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 2025 to $0.59 per share on a split-adjusted basis, an increase of 11% from the prior quarter. We intend to maintain this target quarterly dividend throughout fiscal '25, subject to quarterly board approval. This implies that our fiscal 2025 annual common stock dividend to be a record $2.36 per share on a split-adjusted basis, an increase of 12% year-on-year. I would like to highlight that this represents the 14th consecutive increase in annual dividends, since we initiated dividends in fiscal 2011. Now moving on to guidance. From a year-on-year comparable basis, keep in mind that Q1 of fiscal '24 was a 14-week quarter and Q1 of fiscal '25 is a 13-week quarter. As we are now past one year following the close of the VMware acquisition starting in Q1 of fiscal 2025, we will no longer break out VMware revenue and costs on a stand-alone basis. We will continue to report infrastructure software segment revenue and profitability which includes Brocade Fibre Channel SAN, CA Mainframe Enterprise Security and VMware. Our guidance for Q1 is for consolidated revenue of $14.6 billion, with semiconductor revenue of $8.1 billion, up approximately 10% year-on-year and infrastructure software revenue of $6.5 billion, up 41% year-on-year. We expect Q1 adjusted EBITDA to be a record 66% and Q1 non-GAAP diluted share count to be approximately 4.9 billion shares. For modeling purposes, we expect Q1 consolidated gross margins to be up 100 basis points sequentially on the higher revenue mix of infrastructure software and product mix within semiconductors. Note that consolidated gross margins through the year will be impacted by the revenue mix of infrastructure software and semiconductors and product mix within semiconductors. We expect the non-GAAP tax rate in fiscal year 2025 to be approximately 14.5% as tax deductions related to interest expense are reduced, as we pay down and refinance debt under more favorable interest terms. GAAP net income and cash flows in Q1 will be impacted by higher taxes, restructuring and integration-related cash costs due to the VMware acquisition. That concludes my prepared remarks. Operator, please open up the call for questions. Operator: Thank you. [Operator Instructions]. And our first question will come from the line of Blayne Curtis with Jefferies. Your line is open. Blayne Curtis: Hi, thanks so much for taking my question. It's kind of a clarification question. I thought I heard you say that AI networking revenue was 76% of networking. I just couldn't get that math right, but maybe the broader question is you've seen growth off that low point in April in AI. Can you just talk about ASIC strength versus networking, the trends you're seeing in kind of October into January? Hock Tan: Well, that's a very interesting question. Both were growing, not at the same rate, but we've been shipping, I believe a lot more of network AI connectivity, networking components in the back half of this year, compared to the first half of this fiscal year. And we suspect a lot of that will continue in the first half of next fiscal year before more XPUs, as I indicated, more of the new generation of 3-nanometer XPUs will start ramping very much in the back half of '25. Blayne Curtis: Very clear. Thanks a lot. Operator: Thank you. One moment for our next question, and that will come from the line of CJ Muse with Cantor Fitzgerald. Your line is open. CJ Muse: Yeah, good afternoon. Thank you for taking my question. I guess, Hock I wanted to hit on the $60 billion to $90 billion revenue range for fiscal '27 for AI. I was hoping you could speak to the mix you see there between XPU and networking. And within that construct, are you including all kind of the customers that you see out there in hyperscale and vertically integrated consumers? Or any sort of help in terms of what you're including in that potential mix would be very helpful. Thank you. Hock Tan: Thank you. Well, thanks for the question. Give me an opportunity here to clarify and be very specific. First, on the total dollars, [Indiscernible] revenue, by the way, is the revenue opportunity for us is what I call Serviceable Addressable Market, as we all term SAM. Not TAM, SAM, and is Serviceable Addressable Market for three of our hyperscale customers. That's it. It's a very narrow Serviceable Addressable Market we're talking about. And we're talking about XPUs and AI connectivity at that scale, AI connectivity could probably – we estimate to run approximately close to 15% to 20% of the dollar content. Operator: Thank you. One moment for our next question. And that will come from the line of Joe Moore with Morgan Stanley. Your line is open. Joseph Moore: Great. Thank you. I wonder if you could talk to the XPU market. How are your customers sort of reacting to some of the rack scale products from your -- the merchant competitor from NVIDIA, how do they sort of get the connectivity to multiple XPUs inside the rack, just how does that present a competitive dynamic for you? Thanks. Hock Tan: Well, everybody is trying to figure out when you start -- when you connect a cluster on a single fabric of 10,000 XPUs or GPU, a GPU and scale it up to 100,000 and on to 500,000 and 1 million is a whole new game in terms of architecture. And so you guys hear the differences of when you do these racks, you have what you call scale up. And then you have joining rack to rack because you have no choice, you can’t get to 1 million or for that matter 100,000 otherwise, you call it scale out. And that's a continuing, evolving architecture. But I think each of these hyperscale customers of ours have, at this point kind of figured out how to get there. Hence, a road map that will keep growing from 100,000 to 1 million XPU cluster. On pretty much, similar architecture basis over the next three years, four years. Joseph Moore: Great. Thank you. Operator: Thank you. One moment for our next question. And that will come from the line of Harlan Sur with JPMorgan. Your line is open. Harlan Sur: Hi, good afternoon. Thanks for taking my question. Hock, I know the team has been putting out an AI guide for fiscal '25. And I appreciate the multi-year sort of SAM opportunity outlook. But for this year, can we look at what your customers on the networking and custom accelerators are thinking about from a data center CapEx spending perspective? So for example, our latest roll up is that the top four cloud and hyperscalers are going to grow their CapEx, 35%, 40% in fiscal '25. I would expect that your AI business would sort of closely mirror this trend, maybe even think about it as a base case when we think about Ethernet taking share from InfiniBand, ASICs growing faster than merchant GPUs, maybe the profile of your AI business can go even faster than the CapEx trend, either way, plus or minus, is that how we should think about the growth in the AI business roughly in-line with CapEx growth trends of your large cloud and hyperscale customers? Hock Tan: Harlan. No, it doesn't. I mean, I think the hyperscalers tend to give you an overall CapEx numbers. I'm not sure they really break out between what's AI and what's non-AI out there. And clearly, the spend in AI outstrips the spend in non-AI even on the CapEx. And so no, I won't necessarily stop at that. Harlan Sur: Okay. Thank you Hock. Operator: Thank you. One moment for our next question, and that will come from the line of Stacy Rasgon with Bernstein. Your line is open. Stacy Rasgon: Hi, guys. Thanks for taking my question. I have a more tactical question. So you have software pushouts into Q1, which is elevating it. Should we think about that -- those pushouts are rolling off as we get into Q2 and the back half of the year? And like what are the implications on the shape of software for the year as well as gross margins? Because I guess maybe in the back half, you'll have like software a little weaker versus Q2 as well as the XPU stronger. So should we be thinking about the gross margin trajectory of the current elevated base kind of like easing as we get in the back half. So just anything you can tell us around the shape of the software around the pushouts and implications for revenues and gross margins. Hock Tan: Well, number one, it's a slip. And I think you're overthinking this whole project. It's just a slip, pick it up, and you see the differences between Q4 growth and Q1 reacceleration. That's all it is. One --. Stacy Rasgon: Should Q2 be lower because you had push out into Q1 is what I'm asking. Hock Tan: No, it doesn't. Not Q2. No. I don't -- it won't have a material impact on the rest of the fiscal '25. Stacy Rasgon: Do you think software can kind of hold at these levels or even grow off of these like $6.5 billion levels as we go through the year? Hock Tan: I'm not giving guidance. I might remind you for the rest of the year. I'm just giving you a guidance for Q1. but I'm just telling you your analysis is kind of defective. Stacy Rasgon: I've been told that before. Okay, thank you Hock. Hock Tan: Thank you. Operator: Thank you. And one moment for our next question. and that will come from Benjamin Reitzes with Melius. Your line is open. Ben Reitzes: Hi, thanks a lot. And nice quarter there, Hock. I wanted to ask you about the $60 billion to $90 billion with a little more clarity. Previously, you've talked about a cumulative TAM from your customers. So -- and that -- is this a run rate TAM or a cumulative TAM? Kind of meaning do we take the $12.2 million, then add some growth for the next two years and then think of it that way? Or do we think of we take a share of like a $75 billion TAM and what your revenue yield is? And then I just also was hoping you could clarify, you're not including those two new customers. Do those two customers have the same $20 billion to $30 billion TAM each that the current three do? Or do you think they're smaller or bigger? Sorry about the multipart question there. Hock Tan: No. I think you asked -- the first part was very similar to an earlier question, but I'd be pleased to clarify. No, the $60 billion to $90 billion, it is not -- we are not talking cumulative SAM or TAM anymore. We are putting for you a destination, so to speak, a milestone which happens to be three years hence, 2027, possibly slip a bit part of '28, but 2027. We are seeing a destination 2027 or milestone, better one, where the deployment of those large-scale AI clusters each on single fabric pretty much to run those large LLM models, will come to $60 billion to $90 billion in that one-year period and collectively, all three of them. And to answer the second part too. Possibly, yes, at least one of them, we believe, yes. But you know what I don't want you adding one plus one equals two here. Those are not validated in our view and our model as customers. So, please don't do your addition to the $60 million to $90 million SAM that I have postulated in my remarks. Ben Reitzes: Thank you so much. Operator: One moment for our next question, and that will come from the line of Ross Seymore with Deutsche Bank. Your line is open. Ross Seymore: Hi, thanks for letting me ask a question. I want to talk about the cash return side of things, a great job on the dividend increase. The other 50%, is fiscal '25 a year where you're going to still be paying down debt? Share repurchases in the mix? Or Hock, you mentioned that VMware, the integration is largely now behind you? Usually that puts you on the prowl looking for deals. Is that something we should, in general, think about or the regulatory issues that are still a concern? Just trying to figure out what that other 50% is going to go towards this year. Hock Tan: Well -- to start with, yes, the other 50% of cash that is -- will be generated that will not use -- that is beyond dividends, we only one use or two uses for it, we’ve always say, one is [Indiscernible] balance sheet for the opportunity to buy someone else. But in reality, we're buying big enough companies you almost say that 50% cash is sitting there, it's not adequate. So the likely use of that 50% cash is, as Kirsten indicated in her prepared remarks, pay down debt. We do intend to use part of that 50% free cash flow that's not used for dividends to go delever ourselves, given the size of the debt we are taking on -- or we have taken on since we acquired VMware. Kirsten Spears: Yes, Ross, it's Kirsten. We want to focus on reducing interest expense. So we'll go after those term loans. So yes, the focus will be on paying down debt. Ross Seymore: Thank you. Operator: And one moment for our next question. That will come from the line of Vivek Arya with Bank of America. Your line is open. Vivek Arya: Thanks for taking my question. Hock back to AI. What do you think is the SAM in 2024, so we can get a baseline view of what your $12.2 billion in sales represent and is your assumption that you maintain the share, right? You grow it? Or what happens to that share over time? And then sort of related question to that is what happens to your semiconductor gross margins if AI grows, right to such an extent? Because you gave us a mid-single digit for non-AI and I'm wondering if AI gets to be such a big part of semis, what happens to gross margin. So both kind of the baseline of what SAM was this year and what happens to your share and margins over time? Hock Tan: Okay. That's a very insightful question on the first one, which -- on the first one, anyway, where we are saying what is the baseline on the $60 billion to $90 billion in three years' time, where we are specifying down to these three customers of ours. And I would estimate this 2024 for that to be about less than $20 billion -- $15 billion to $20 billion at this point, in 2024, $15 billion to $20 billion going to $60 billion to $90 billion right? And in terms of margins, well don't get too hung up about gross margin, please, Vivek, because you're not wrong -- gross margin in semiconductors will dilute you aren’t saying that. But see, the game here is the revenue will leverage so much on the spending we have to do to generate it that the operating margin will improve from where we are today. Vivek Arya: Thank you. Operator: Thank you. One moment for our next question. And that will come from the line of Harsh Kumar with Piper Sandler. Your line is open. Harsh Kumar: Yes. Hi. First of all, guys, huge congratulations on successfully integrating VMware so much ahead of your time frame. And Hock, I had a two part question. Is there a simple dollar metric that we can think of for network attached to XPUs, for example, is $1 of networking to $1 of XPUs. And then for my question, in one of your posts, you talked about sovereign data centers and VMware. I guess my question is, is there a play for Broadcom outside of the software piece? In other words, are you noticing that sovereign guys are wanting to use XPUs or are they strictly sticking to merchant silicon? Hock Tan: Let me answer your question backwards, the easiest one first. Sovereign guys are like most -- most of the -- it's pretty much like enterprise market. which is simply merchant. Sovereign guys do not have the capability necessarily to create first the hardware, but more importantly, the software stack to enable transistors in hardware to translate itself into high-level language which then the LLM, AP application -- large language models, and AI applications can operate on. So don't stick to what's available, which is merchant silicon and available ecosystem of software -- software layers that allow that translation. So it will be done very much that way on XPUs. And on your first question of what's the ratio between AI connectivity, networking that is you're saying to XPUs to compute. Well, it's a changing number as the cluster expense. Though there are some ratios to be looked at. And the simple ratio to look at is there is scale up and there is scale's out. And as we expand into a single fabric cluster of XPUs or GPU that grows bigger and bigger. Guess what is more important. Scale up becomes more and more important. And the ratio we are talking about as we move up increases almost exponentially, which is why I'm saying from probably networking, as a percent of AI content in silicon today of between 5% to 10%, you're going up to 15% to 20% by the time you hit 500,000 to 1 million XPU GPU clusters. Harsh Kumar: Thank you. Operator: One moment for our next question. And that will come from the line of Toshiya Hari with Goldman Sachs. Your line is open. Toshiya Hari: Hi, good afternoon. Thank you so much for taking the question. The $60 billion to $90 billion SAM forecast for fiscal '27, Hock, I'm curious if you guys have a view on the TAM. So just want to know how big the SAM is as a percentage of the total opportunity set? And then my main question is you talked about going for leading market share within your SAM, which makes sense. I assume you're not assuming 100% share. So, the value of that $60 billion to $90 billion that you won't be capturing, is that a function of some of your hyperscale customers wanting to capture value internally? Or is that always having a backup or a second source? Is there a low-margin business that you just simply won't pursue? How should we think about the part of the $60 billion to $90 billion that you won't be going after or won't be capturing? Thank you. Hock Tan: Okay. First, to answer the bigger overarching question. I don't know the TAM. I don't make any part -- I don't think too far and hard about them. We don't think in macro approaches, we're looking at line of sight here. So I got customers, I try to figure out how much volume the -- where the road map of the customer is, not just product, technology, but what they are building up, what is their consumption pattern like, that's how we create our SAM. Actually, in a way, bottoms up, then top down. So I have no idea what the TAM is beyond customers we are serving closely, collaborating closely. So let's make it clear. In terms of market share, I don't know. But as you all can see, it's a very large, substantial market opportunity. There's room for many players. All we are going to do is gain our fair share. We're just very well positioned today having the best technology, very relevant in this space. We have, by far, one of the best technology -- combination technology out there to do XPUs and to connect those XPUs. The silicon technology that enables it, we have it here in Broadcom by the boatloads, which is why we are very well positioned with these three customers of ours. So we -- based on that, we are -- and based on the depth of our engagement today, this didn't just start. This has been going on now for a while in terms of deep engagement with engineering teams from the other side -- each of the other side, we are very-well positioned, well underway to creating a multiyear road map for -- to enable these few customers of ours to get to when their ambition leads them to be in. And it's because of the great technology we have, where we are actually enabling in the areas we're very good at. We're talking about silicon design, packaging design and optical technology. Toshiya Hari: Thank you. Operator: One moment for our next question. And that will come from the line of William Stein with Truist Securities. Your line is open. William Stein: Great. Thanks for taking my question. I want to add my congrats to all the great results this year and for the quarter and outlook. But Hock, this is sort of a stunning turn of events in the last year with what we've been accustomed to thinking of as a sort of mature, slow growth business at its core with all the M&A tacked on to it. And I wonder with the sudden acceleration of the organic business, given your exposure to these capabilities in ASICs to bring AI technologies to customers, does that change your interest level in M&A? And does it change your focus area of potential M&A going forward? Thank you. Hock Tan: No, it doesn't. We are open -- still open, always open because that's been a core part of our strategy, business model of this company for the last 10 years, which is we're always interested in adding to our portfolio, very good franchise assets, be they in semiconductors or be they in infrastructure software. As long as they always say, they meet the criteria, the fairly demanding criteria we look for, we would always be open to acquiring these assets and adding into our portfolio. So no, it hasn't changed our thinking at all. William Stein: Great. Thank you. Operator: One moment for our next question. And that will come from the line of Vijay Rakesh with Mizuho. Your line is open. Vijay Rakesh: Hi, Hock. Great results here. Just a question back on the AI custom silicon side. I guess it looks like of the $17.5 billion TAM here -- SAM here, you have about 70% share. So assuming that 70% looking out to '27, your custom silicon AI revenue should be like $50 billion in fiscal '27. So -- do we have a good line of sight into fiscal '26, showing a pretty nice ramp to hit those numbers, maybe with our [Indiscernible] that to do the 1 million XPUs, how do you see that? Thank you. Hock Tan: I don't have -- we don't have really a good enough line of sign to want to share it with you, nor for that matter, do we have a policy of giving you guidance beyond what we're doing one quarter a year, but we do want to give you a sense of where this journey is headed. We want to give you a sense of where this could lead us this company in terms of its AI -- semiconductor AI revenue trajectory. Given that we now made it very open official almost that we're going forward only are guiding AI revenue versus non-AI revenue, we forget -- at least give you a sense of what the AI trajectory is. On a non-AI you have known it with us for a long time. It's mature, stable, evolving, growing mid-single-digit GDP plus. AI will never give you that. So that's why we take the step now unprecedented in some ways of laying that road map in terms of potential market for AI. Now only market we have is the customers we have and the end-markets we serve. So we create this SAM and the clarity we see is, to some extent in 2027. How that journey progresses with each of our [technical difficulty] customers is somewhat variable. It's the rate of the adoption and of their own XPUs and will be very much a part of that journey. But because of that, we expect to see a situation where there could be quarter-to-quarter variability, given the only three customers, and the fact that deployment comes in big chunks, typically. So my best answer to you is I can't give you any clarity beyond what I've given so far. Vijay Rakesh: Got it. And the other 2 CSPs, when do you see them ramping? Hock Tan: Well, first of all, I got to get into production, they got to get into production. So why do we cross that bridge when we get to it. We are working very hard with them to get it production stage. We're pretty deeply engaged with tape-out chips. And -- but they've got to get their software ready, they got to get it tested and they got to get going on it. So now I'm not sure – but definitely over the next three years. Operator: And thank you. That is all the time we have for our question-and-answer session. I would now like to turn the call back over to Ji Yoo, Head of Investor Relations for closing remarks. Ji Yoo: Thank you, Sheri. Broadcom currently plans to report its earnings for the first quarter of fiscal year 2025 after close of market on Thursday, March 6, 2024. A public webcast of Broadcom's earnings conference call will follow at 2:00 p.m. Pacific Time. That will conclude our earnings call today. Thank you all for joining. Operator, you may end the call. Operator: This concludes today's program. Thank you all for participating. You may now disconnect.

Operator: Welcome to Broadcom Inc.'s Third Quarter Fiscal Year 2024 Financial Results Conference Call. At this time, for opening remarks and introductions, I would like to turn the call over to Ji Yoo, Head of Investor Relations of Broadcom Inc. Ji Yoo: 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 Kawwas, President, Semiconductor Solutions Group. Broadcom distributed a press release and financial tables after the market closed describing our financial performance for the third quarter of fiscal year 2024. If you did not receive a copy, you may obtain the information from the Investors section of Broadcom's website at broadcom.com. This conference call is being webcast live and an audio replay of the call can be accessed for one year through the Investors section of Broadcom's website. During the prepared comments, Hock and Kirsten will be providing details of our third quarter fiscal year 2024 results, guidance for our fourth quarter fiscal year 2024, as well as commentary regarding the business environment. We'll take questions after the end of our prepared comments. Please refer to our press release today and our recent filings with the SEC for information on the specific risk factors that could cause our actual results to differ materially from the forward-looking statements made on this call. In addition to U.S. GAAP reporting, Broadcom reports certain financial measures on a non-GAAP basis. A reconciliation between GAAP and non-GAAP measures is included in the tables attached to today's press release. Comments made during today's call will primarily refer to our non-GAAP financial results. I will now turn the call over to Hock. Hock Tan: Thank you, Ji, and thank you, everyone for joining us today. In our fiscal Q3 2024, consolidated net revenue of $13.1 billion was up 47% year-on-year, and operating profit was up 44% year-on-year. These strong results reflected three key factors: one, AI revenue continues to grow and grow strongly; two, VMware bookings continue to accelerate; and three, non-AI semiconductor revenue has stabilized. Before I give you more color on our two reporting segments, let me give you a quick update on guidance. Now we started the year providing annual guidance with quarterly updates as we run the process of integrating VMware. Things are now much more stable and we are in the first -- sorry, and we're in the final quarter of 2024. So instead of giving you annual guidance, we now revert to providing the quarterly guidance for Q4. Starting with software. In Q3, infrastructure software segment revenue of $5.8 billion was up 200% year-on-year driven by $3.8 billion in revenue contribution from VMware. The transformation of the business model of VMware continues to progress very well. In fact, last week, we held a well-attended VMware Explore Conference in Las Vegas, our first as a combined company. This event was all about promoting VMware Cloud Foundation, or VCF, which is the full software stack that virtualizes an entire data center and creates a private cloud environment on-prem for enterprises. The success of this strategy is reflected in our performance in fiscal Q3. We booked more than 15 million CPU costs of VCF, representing over 80% of the total VMware products we booked during the quarter. And this translates into an annualized booking value, or ABV as I had described before, of $2.5 billion during Q3, up 32% from the preceding quarter. Meanwhile, we continue to drive down costs in VMware. We brought VMware spending down to $1.3 million in Q3 from $1.6 million in Q2. And when we acquired VMware, our target was to deliver adjusted EBITDA of $8.5 billion within three years of the acquisition. We are well on the path to achieving or even exceeding this EBITDA goal in the next fiscal '25. Now turning to semiconductors. In networking, Q3 revenue of $4 billion grew 43% year-on-year, representing 55% of semiconductor revenue. This was again driven by strong demand from hyperscalers for both AI networking and on custom AI accelerators. As you know, our hyperscale customers continue to scale up and scale out their AI clusters. Custom AI accelerators grew 3.5 times year-on-year. In the fabric, Ethernet switching, driven by Tomahawk 5 and Jericho3-AI grew over 4 times year-on-year, while our optical lasers and PIN diodes used in optical interconnects grew three-fold. Meanwhile, PCI Express switches more than doubled, and we're shipping in volume our industry-leading 5 nanometer, 400 gigabit per second NICs and 800 gigabit per second DSPs. So now let me give you more color on our networking products, which are not used in AI. As we had indicated last quarter, we believe we did bottom in Q2. And in Q3, non-AI networking was up actually 17% sequentially, even as it was down 41% year-on-year. We expect this level of revenue to sustain in Q4 and the year-on-year decline to moderate to 30%. So in adding the strength, we continue to see in AI, we expect total networking revenue to grow over 40% year-on-year in Q4. Across enterprise infrastructure, we see the same trend of recovery in server storage. Our Q3 server storage connectivity revenue was $861 million, up 5% sequentially and down 25% year-on-year. In Q4, we expect server storage revenue to grow mid to high-single digit percent sequentially, even as revenue is expected to be down high-single digit percent year-on-year. Moving on to wireless. Q3 wireless revenue of $1.7 billion grew 1% year-on-year, representing 23% of semiconductor revenue. And in Q4, reflecting the launch of next-generation devices and our North American customers, we expect wireless revenue to actually grow over 20% sequentially even as it will be relatively flat year-on-year. On to broadband, Q3 revenue declined 49% year-on-year to $557 million, represented 8% of semiconductor revenue. Broadband remains weak on a continued pause in telco and service provider spending. And in Q4, we expect broadband to continue to be down over 40% year-on-year, but we do expect that recovery to begin in '25. Finally, Q3 industrial resales of $164 million declined 31% year-on-year. We believe we are approaching bottom in Q3 as Q4 resales are expected to recover sequentially. Year-on-year, Q4 industrial resales will still be down approximately 20%. In summary, here are the trends we are seeing in semiconductors. In aggregate, we have reached bottom in our non-AI markets and we're expecting a recovery in Q4. AI demand remains strong and we expect, in Q4, AI revenue to grow sequentially 10% to over $3.5 billion. This will translate to AI revenue of $12 billion for fiscal '24, up from our prior guidance of over $11 billion. Putting it all together with software, here's our forecast for Q4. We expect Q4 semiconductor revenue of approximately $8 billion, up 9% year-on-year. For infrastructure software, we expect revenue to be about $6 billion. So we are guiding Q4 consolidated revenue to be approximately $14 billion, which is up 51% year-on-year. We also expect this will drive Q4 consolidated adjusted EBITDA to approximate -- to achieve approximately 64% of revenue. This Q4 guidance would imply we are raising the outlook for our fiscal 2024 revenue to $51.5 billion and adjusted EBITDA for the year to 61.5%. And with that, let me turn the call over to Kirsten. Kirsten Spears: Thank you, Hock. Let me now provide additional detail on our Q3 financial performance. Consolidated revenue was $13.1 billion for the quarter, up 47% from a year ago. Excluding the contribution from VMware, Q3 revenue increased 4% year-on-year. Gross margins were 77.4% of revenue in the quarter. R&D was $1.5 billion and consolidated operating expenses were $2.2 billion, up year-on-year primarily due to the consolidation of VMware. Q3 operating income was $7.9 billion and was up 44% from a year ago, with operating margin at 61% of revenue. Excluding transition costs, operating profit of $8 billion was up 45% from a year ago with operating margin of 62% of revenue. Adjusted EBITDA was $8.2 billion or 63% of revenue. This figure excludes $149 million of depreciation. Now a review of the P&L for our two segments, starting with semis. Revenue for our semiconductor solutions segment was $7.3 billion and represented 56% of total revenue in the quarter, this was up 5% year-on-year. Gross margins for our semiconductor solutions segment were approximately 68%, down 270 basis points year-on-year, driven primarily by a higher mix of custom AI accelerators. Operating expenses increased 11% year-on-year to $881 million on increased investment in R&D, resulting in semiconductor operating margins of 56%. Now moving on to infrastructure software. Revenue for infrastructure software was $5.8 billion, up 200% year-on-year primarily due to the contribution of VMware and represented 44% of revenue. Gross margins for infrastructure software were 90% in the quarter, and operating expenses were $1.3 billion in the quarter, resulting in infrastructure software operating margin of 67%. Excluding transition costs, operating margin was 69%. Moving on to cash flow. Free cash flow in the quarter was $4.8 billion and represented 37% of revenues. Excluding cash used for restructuring and integration of $529 million, free cash flows of $5.3 billion were up 14% year-on-year and represented 41% of revenue. Free cash flow as a percentage of revenue has declined from the same quarter a year ago due to higher cash interest expense from debt related to the VMware acquisition and higher cash taxes due to a higher mix of U.S. income and the continued delay in the reenactment of Section 174. We spent $172 million on capital expenditures. Days sales outstanding were 32 days in the quarter, in line with the year ago. We ended the third quarter with inventory of $1.9 billion, up 3% sequentially. Note that we continue to remain disciplined on how we manage inventory across the ecosystem. We ended the third quarter with $10 billion of cash and $72.3 billion of gross principal debt. During the quarter, we replaced $5 billion of floating rate notes with new fixed senior notes. We used the proceeds from the completed sale of VMware's End-User Computing business to KKR, and cash on hand to reduce floating rate debt by an additional $4.2 billion. Following these actions, the weighted average coupon rate and years to maturity of our $53 billion in fixed rate debt is 3.6% and 7.7 years, respectively. The weighted average coupon rate and years to maturity of our $19 billion in floating rate debt is 6.7% and 3.1 years, respectively. We expect to repay approximately $1.9 billion of fixed rate senior notes due in Q4. Turning to capital allocation. In Q3, we paid stockholders $2.5 billion of cash dividends, which based on a split adjusted quarterly common stock count, represented a cash dividend of $0.525 per share. For Q4, we are rounding up the quarterly cash dividend to $0.53 per share. In Q3, the split adjusted non-GAAP diluted share count was 4.92 billion, in line with expectations. We paid $1.4 billion of withholding taxes due on vesting of employee equity, resulting in the elimination of 8.4 million AVGO shares. In Q4, we expect the non-GAAP diluted share count to be approximately 4.91 billion shares. Now on to guidance. Our guidance for Q4 is for consolidated revenue of $14 billion and adjusted EBITDA of approximately 64%. For modeling purposes, we expect consolidated gross margins to be down approximately 100 basis points sequentially on the higher revenue mix of semiconductors and product mix within semiconductors. GAAP net income and cash flows in Q4 are impacted by higher taxes, restructuring, and integration related cash costs due to the VMware acquisition. As Hock just discussed, we are resuming quarterly revenue and adjusted EBITDA guidance for fiscal 2025 as fiscal year '24 has been a transition and integration year following the VMware deal close. That concludes my prepared remarks. Operator, please open up the call for questions. Operator: Thank you. [Operator Instructions] And our first question will come from the line of Vivek Arya with Bank of America. Your line is open. Vivek Arya: Thanks for taking my question. Just a clarification, Hock, and then the question. So I think AI revenue roughly $3.1-ish billion in Q3, flattish sequentially. What was the mix in terms of compute versus networking? And the $3.5 billion for Q4, what do you see of that mix? And then as we get into fiscal '25, I realize you're not guiding overall AI, but just how is your general kind of confidence and visibility? Do you think that Broadcom can kind of grow in line or better than the overall AI silicon industry in fiscal '25? Hock Tan: Yeah. Well, as we indicated in the last earnings call, for this past quarter, I think we're talking about two-thirds in compute and one-third in networking. And we kind of expect Q4 to run the similar trend. And as far to answer your second part, no, we don't guide – yet for fiscal ‘25, but we do expect fiscal ‘25 to continue to be strong, to show strong growth on our AI revenue. Vivek Arya: Thank you. Operator: Thank you. One moment for our next question. And that will come from the line of William Stein with Truist Securities. Your line is open. William Stein: Great. Thanks for taking my question. Hock, one of the things that we've picked up from both suppliers and the broader ecosystem in AI, I think we heard this from NVIDIA as well, that there was a shift in their revenue in the quarter, somewhat away from cloud service providers towards enterprise. And I wondered if that might potentially have a slowing effect on your revenue outlook in this end market because your participation is really pretty focused on the cloud customers. I wonder if you're seeing that, if you view it as a challenge or maybe you have a contrary view? Thank you. Hock Tan: Okay. Well, it's an interesting question in terms of the shift. But see, we do not focus very much on enterprise AI market as you know well. Our products in AI are largely, very much largely focused, especially on the AI accelerator or XPU side, but even -- also just as much on networking side, on hyperscalers, on cloud, those three large platform and some digital natives, what you call, big guys. We don’t deal very much on AI with enterprise. So we obviously don’t see that trend. Operator: Thank you. One moment for our next question. And that will come from the line of Ross Seymore with Deutsche Bank. Your line is open. Ross Seymore: Hi. Thanks for letting me ask a question. I wanted to pivot over to the software side of things. Hock, it seems like, obviously, the VMware business had a great fiscal third quarter. It seems like the classic Broadcom software fell off. So I guess the two-part question is, what happened in the classic Broadcom side of things to create that volatility? And are we now kind of reaching that $4 billion base in the fourth quarter that you talked about with VMware? And kind of, if so, what are the puts and takes in the growth rate as we look into the future on that business? Hock Tan: Well, as far as we indicated, the VMware business continues to book very well, as we convert our customers very much in two ways, one, from perpetual to a subscription license, but also those subscription license for the full stack of VCF. And that has been very successful, as I indicated, given the high ratio of VCF subscribers, new subscribers that we have achieved. And we see this trend continuing in Q4 very much so and also very likely through into '25. So in terms of directional trend, other than the indication I’m giving you – than the guidance I’m giving you in Q4 ‘24, directionally, we continue to see accelerated bookings and by extension, accelerated growth. Operator: Thank you. One moment for our next question. And that will come from the line of Stacy Rasgon with Bernstein Research. Your line is open. Stacy Rasgon: Hi, guys. Thanks for taking my questions. I have two short ones, one on each segments. On semis, the non-AI networking is like more than 50% below where it was running before it rolled off. And clearly, the other businesses are also way below their peaks. Is there any reason why those shouldn't -- is this just cyclical or is something else going on? Is there any reason why those shouldn't get back to prior levels once recovery happens? And then on the software side. So the non-VMware pieces looks like it's back to that $2 billion-ish a quarter level or so that it was at before. Is that just Brocade falling off? And is this sort of $2 billion-ish a quarter, is that bottomed as well? Is that the right level we ought to be thinking about the growth for the non-VMware software business as we go forward from here? Hock Tan: Yeah. On the semi side, the answer is very simple. We have -- as you all know, we've gone through your typical down cycle of semiconductors. And I'm referring particularly to non-AI, and we have talked about that before many times. We've gone through a down cycle. And as the ecosystem as many of our customers, but the broad ecosystems work on an adjustment in inventory levels in all stages in the supply chain. And we're not totally -- we are not immune from it, obviously, as we try to insulate ourselves from it as much as possible. We've gone through it and our -- the signs on the indications we have seen very clearly is we have, in fact, passed through the bottom. The best indicator is the bookings we are receiving. In non-AI, our bookings in Q3 of non-AI semiconductor demand is up 20%. And so also this -- we are well on the way to recovery. Now by end markets, as I indicated, the level of the amount of recovery, the timing of recovery somewhat varies. But we're seeing largely on enterprise, enterprise data center, enterprise IT spending, we've passed the bottom. And we are, in Q3 was, in fact, sequentially, a recovery from the bottom of, we believe Q2 or Q1 this fiscal year. And we'll see Q4 continuing that recovery and obviously, in our view, into '25 in terms of the cycle. Broadband, we are not seeing it yet in terms of the bottom, but we see that as close to bottom in the sense that here again, bookings are up from where it used to be. And so we are very, very clear in our thinking that broadly, we have, as a whole, non-AI semiconductors, we've gone through the down cycle is on an uptick. And like, all previous cycles, my sense, Stacy, is we will get us back to the level we used to be. There's no reason at all why it doesn't and given the rate of bookings, it won’t go. I dare say even put a thought in your mind that as AI permeates enterprises all across and digital natives, you need to upgrade servers. You need to upgrade storage. You need to upgrade networking, connectivity across the entire ecosystem. And if anything else, we are headed -- we could be headed for up cycle. Timing precisely when, we’re not sure. But an up cycle, that could even meet or even surpass what our previous up cycles would be, simply because the amount of bandwidth you need, the amount of compete -- to manage store, manage all these workloads that come out of AI would just put -- need to refresh and upgrade hardware. So that’s my $0.02 worth on where we’re headed from this down cycle. So my belief in ‘24 was the lowest point for the uptick. As part of the reasons we are stating it very clearly here. On the software side, your question, no, I think we have reached a level of stability that puts and takes Brocade, one of those goes up and down very volatile, and that’s largely. But on the non-Vmware revenue, on software revenue, I think we’ve reached a level of very clear stability. And what we are looking towards more is how Vmware picks up over the next several a year and 1.5 years. Stacy Rasgon: Got it. That’s helpful. Thank you, Hock. Operator: Thank you. One moment for our next question. And that will come from the line of Ben Reitzes with Melius Research. Your line is open. Ben Reitzes: Hey. Thanks a lot for the question. Hock, I wanted to ask you about semiconductors, your AI revenue. If you could just clarify some of your comments. Was the third quarter $3.1-ish billion in line with your expectations and it was anything weaker than expected? And then with the sequential growth, the 3.5, where are you expecting that to come from? And then, if you don't mind, you said next year AI revenue should grow quite a bit. I was just wondering if that was due to any additional customers, within your hyperscaler and consumer Internet portfolio? Thanks. Hock Tan: Well, our number in third quarter is pretty much in line what we expect AI revenue to be. And our revenue in Q4 was -- forecast for Q4 is what's giving us the basis to a large extent to step up our guidance for AI revenue for the full year to over $12 billion. So if nothing else, that continues to indicate, I hope to us, that next year the trend will continue to be strong. And again, it's all largely hyperscalers, cloud, and digital natives. And it's again, a mix of AI accelerators and networking. And it's also largely based on backlog we have in place for that. Beyond that -- and it shows the growth. Beyond that, no, we're not guiding you beyond the backlog we have. So I kind of answer your question indirectly on, do I have any more customers? We shall see. Ben Reitzes: Okay. Thank you, Hock. Operator: Thank you. One moment for our next question. And that will come from the line of Karl Ackerman with BNP Paribas. Your line is open. Karl Ackerman: Yes. Thank you. Curious, I was hoping you could speak to the relocation of IP back to the U.S. that is causing a $4.5 billion tax liability. Historically, Broadcom has redomiciled ahead of a pending transaction, and I'm getting questions from investors, if this action may relate to any asset sales as the company seeks to pay down debt. So if you could clarify that, that would be helpful? Thank you. Kirsten Spears: Yeah. No, it was just the timing of when we chose to do it this time. And no, it doesn't have anything to do with that. It's just we relocated the IP and that caused the $4 billion charge. The offset to that is a deferred tax liability, so think of that as non-cash, very little cash impact to that. Karl Ackerman: Thank you. Operator: One moment for our next question. And that will come from the line of Timothy Arcuri with UBS. Your line is open. Timothy Arcuri: Thanks a lot. Hock, I wanted to ask about the growth rate in your AI revenue versus what we're seeing on the GPU side. Your AI revenue grew in the same zip code this year is what the GPU compute is growing. And you did say that it would be up next year, but your main customer's ramping a new version of their custom ASIC next year. And there's some thought that they might shift some of their purchasing back to GPUs next year. So do you think that the growth of your AI revenue should still approximately track how much GPU compute is going to grow next year? If you can give us any qualitative or quantitative thoughts there, that would be great. Thank you. Hock Tan: Tim, I think we had some communication gaps here. Could you repeat the question? Timothy Arcuri: Yeah. So the question, Hock, really is around the growth rate of your AI revenue versus what we're seeing on the GPU side because this year, you grew about the same as what GPU compute's growing. And the question is, is there anything happening next year that would change that equation so that your growth rate of your AI revenue would be materially different than what GPU compute is growing next year? Hock Tan: That's a very difficult question for me to answer because it comes in two parts, right? In terms of GPU growth, you should ask the guys who does merchant GPU or GPU which is obviously, NVIDIA and ASD. And I don't see -- I don't play in the enterprise market at all. See, that's part of the market I don't see. Having said that, they do both play somewhat in the hyperscalers, where I'm totally focused on doing. So that's really very -- there's really no connection one with the other, that is indirect. But enough suffice for me to say long term, I’m saying actually and thoughtfully long term, the large hyperscalers, few and large hyperscalers with very large platforms, huge consumer platform subscriber base have the entire model predicated on running a lot of large language models, a lot of AI requirements, workloads out there. And it will drive, matter of time, towards creating as much as possible their own compute silicon, their own custom accelerators as a matter of time. And we are in the midst of seeing that transition, which may take several – a few years for that to happen. So that is on a different trajectory, a different path, and I’m in that path of doing this, enabling custom accelerators. I’m in that that. I’m not in a path of, in the meantime, a different trajectory of enabling enterprises to do AI on their own workloads. That’s more the merchant guys. Some of the merchant guys obviously also in the – in the hyperscaler today, but there’s a process, obviously, of a transition going on. So one doesn’t really connect with the other theme in that regard. But I would likely say obviously, as the transition occurs, we have a good tailwind in the business model we have of providing accelerators and networking to the AI data centers of those large hyperscalers. Timothy Arcuri: Right, Hock. Okay. Thank you so much. Operator: One moment for our next question. And that will come from the line of Harsh Kumar with Piper Sandler. Your line is open. Harsh Kumar: Yeah, Hock. I was curious about the profitability of VMware. Historically, your software businesses have had operating margins greater than 70%. VMware, I know is newer and you're doing things a little different. You're keeping more customers than you historically have kept. But I was curious, if you see a similar profile as the rest of your software businesses for VMware after you're done with all the cuts and everything? A – Hock Tan: Well, I’ll let you draw your own conclusion, Harsh, but I was at pains to lay out as you probably heard. In Q3, our revenue from Vmware was $3.8 billion and our operating expenses is $1.3 billion. And you can pretty quickly figure out where we’re headed in terms of operating margin and, as I indicated, EBITDA margin. And Q4, we’ll continue the trajectory of revenue continuing to grow and expenses starting -- still dropping even as it starts to stabilize but continue to reduce. Harsh Kumar: Thank you, Hock. Operator: One moment for our next question. And that will come from the line of C.J. Muse with Cantor Fitzgerald. Your line is open. CJ Muse: Yeah. Good afternoon. Thank you for taking the question. I wanted to focus on software gross margin. So when you closed the acquisition of VMware, we ticked lower from low 90s to kind of high 80s. And we're now pushing a bit higher in July. And curious, as we kind of get to that $4 billion threshold and you've kind of indicated higher in fiscal '25, how should we think about the gross margin trajectory overall for software? Hock Tan: Well, it's, for us, software gross margin is actually direct, it's not that relevant. You know that, right? So unless I'm running SaaS big time, now a lot of our products on subscription but they're not SaaS. We have some products on SaaS cloud-based, but most of them are not. And our gross margin will be around 90% at least. Operator: And one moment for our next question. And that will come from the line of Chris Caso with Wolfe Research. Your line is open. Christopher Caso: Yes. Thank you. Good evening. I wonder if you could speak to the custom AI revenue and perhaps the contribution from some of the other customers aside from that largest customer. How meaningful are the other customers in that segment and what do you expect into next year as some of those newer projects start to ramp? Hock Tan: Well, I know we're dancing around the thing, as I indicated, with three customers now going on and they're all three of them are meaningful. Otherwise, we won't call them customers as the criteria we've used. Until we get meaningful shipments out to them on AI accelerators, we do not really consider that as a customer. Simply because it's a new -- this is an emerging trend. It's not an easy product to deploy for any customer. And so we do not consider proof of concepts as production volume. These are all production accelerators deployed in AI data centers of those three customers. Operator: One moment for our next question. And that will come from the line of Christopher Rolland with Susquehanna. Your line is open. Christopher Rolland: Hi. Thanks for the question. My question is actually on storage. And Hock, you bought Seagate's hard disk drive SoC assets earlier in the year. Can you talk about what you actually bought there, what it means in terms of economics for your company, and whether this accelerates your storage business over the next few years? Thanks. Hock Tan: Well, this is more of a partnership than anything else. Basically, it's what we essentially created in that transaction was to begin with, we actually believe long term in the sustainability of hard disk drive media as a great long-term sustainable storage, alternative storage or medium for those hyperscalers. It makes sense. One way to think eventually, everything goes to flash, don't think so. Hard disk drive storage will still be meaningful. And the technology, which is most interesting for us, has a lot of ways to go. As hard disk goes on to -- from where it is today, which is 22, 23, 24 terabytes to going to 30, 40, and even 50 terabytes. A lot of technology along the way and one -- and a lot of that resides in silicon. So what we're doing, in effect, is a collaboration more than anything else, though structured, obviously, as a purchase of intellectual property. But we're also taking engineers, designers, combining it with the designers we have and basically enabling Seagate and eventually the entire industry to continue a road map that goes towards 50 terabytes. That's our ambition, that's our vision, and to be able to do that within 5 years or less. So that's pretty much what it is. It's a statement of our belief that hard disk drives, hard disk drive storage will sustain very well over the next five years, if not longer. Christopher Rolland: Thank you, Hock. Operator: One moment for our next question. And that will come from the line of Aaron Rakers with Wells Fargo. Your line is open. Aaron Rakers: Yeah. Thanks for taking the question. Kind of thinking strategically as we look forward ahead to NVIDIA's Blackwell product cycle, there's been some indications that possibly Broadcom has an opportunity to participate more deeply in the optical side of that product platform for NVIDIA. I'm curious, do you see that as an opportunity relative to prior generations of NVIDIA just to deepen a participation or just to participate in general in kind of the areas of DSPs and maybe other things related to the Blackwell cycle from NVIDIA? Thank you. A – Hock Tan: That’s an interesting question and I’ve got a simple answer. I’m not really participating in NVIDIA’s roadmap. I’m really not directly in that kind of market, in that kind of product road map. That’s NVIDIA product road map in terms of Blackwell. Impressive product on the way to coming out. Now in terms of base technology we developed, of course, it could be used, it could be applied, and we are very happy to share that with – as it may be useful to get – to enable Blackwell to be part of that, whether it’s on the optical component side, which is what you’re referring to, or even on the DSP side in terms of providing the interconnects to enable clusters of Blackwell to be built. That is fine on our engagement in that. We’re happy to be part of that ecosystem as I said. But directly, we’re not in that market as you know. Operator: One moment for our next question. And that will come from the line of Joe Moore with Morgan Stanley. Your line is open. Joseph Moore: Great. Thank you. I wonder, Hock, if you could talk about your thoughts on further M&A. Is that still on your radar down the road? And if you did, would it be still software-focused or any possibility of semiconductors becoming interesting to you again? Hock Tan: Joe, that's a beautiful question. I'll tell it is bluntly so they're not disappointed. Right now, I'm having my hands really full and enjoying myself doing is on really turning, transforming the business model of VMware. It's a great experience and you're feeling great about it when you do and when you're doing it pretty much running way beyond expectation as we indicated in that side. So no, I'm very focused on getting VMware continue -- as it continues to accelerate in getting private cloud deployed in the largest enterprises in the world. And you know what, might another year, two years to go to make that transformation totally complete. Joseph Moore: Very clear. Thank you. Operator: One moment for our next question. And that will come from the line of Harlan Sur with JPMorgan. Your line is open. Harlan Sur: Good afternoon. Thanks for taking my question. Hock, last quarter, you talked about an acceleration in R&D investments by your AI customers, and you talked about your follow-on wins for their next-generation XPU ASIC programs. It also looks like they're trying to accelerate their deployments of their GPUs, XPUs, and networking into their data centers here in the second half of the year. We know that on AI accelerators specifically, supply is quite tight, given the colos packaging and the HBM memory constraints. So has the team seen upside orders and demand for XPUs and networking here in the second half? Have you been able to meet that upside demand or is the team somewhat supply constrained? I guess in other words, is the AI demand greater than your supply here in the second half of the year? Hock Tan: Yeah. We continue to see orders. We continue to see upside. And you're right in the pattern of that behavior that is going because it's -- as our customers, these are hyperscalers trying to deploy more and more capacity of AI data centers -- in AI data centers. And you start to hear them talk in terms of power. They don't even talk in terms of how many XPU or GPU plus they found in the 500 megawatt, 1 gigawatt was no but people that. So we are as they get this enable, we're getting, we're getting upsides. And I expect that to happen a lot more in 2025. We're not putting that in any guidance or indication we're giving you. But I what you say is exactly right on. We do expect to see upside as we've been seeing recently. We continue to see that probably going forward over the next 12 months, especially related to XPUs getting deployed and getting infrastructure available and rushing to deploy them. We see quite a bit of that. Harlan Sur: Have you been able to meet that upside or are you somewhat limited by supply constraints? Hock Tan: We can meet those upsides. Harlan Sur: Okay. Thank you, Hock. Hock Tan: Thanks. Operator: One moment for our next question. And that will come from the line of Edward Snyder with Charter Equity Research. Your line is open. Edward Snyder: Thank you very much. Hock, that was a perfect segue into my question. You've said in the past calls that you thought that AI compute would move away from ASICs and go to merchant market. But it looks like the trend is kind of heading the other way. Are you still the opinion that, that's going to be the long-term trend of this? And secondly, as you just pointed out, power is becoming the defining factor for deployment with all the big guys at this point. Given the performance per watt of the ASICs over GPUs, which is superior to GPUs, why shouldn't we see more of these guys moving to custom ASIC? I know it takes a long time and it takes a lot of funding, etc. But especially as the enterprise starts getting more involved with this, there are going to be some applications that are kind of standard across some of the enterprises wouldn't even see some of the bigger, like AWS, move to a custom silicon for a specific workload. So basically, the overall trend in ASICs in AI. Thanks. Hock Tan: Okay. Ed, did I hear you right to say at the beginning, maybe you meant that there is a trend towards ASIC or XPU from general purpose GPU, right? Edward Snyder: Yes. Hock Tan: You're right, and you're correct in pointing out to me that, hey, I used to think that general purpose merchant silicon will win at the end of the day. Well, based on history of semiconductors mostly so far, general purpose, small merchant silicon tends to win. But like you, I flipped in my view. And I did that, by the way, last quarter, maybe even 6 months ago. But nonetheless, catching up is good. And I actually think so because I do think there are two markets here on AI accelerators. There's 1 market for enterprises of the world, and none of these enterprises are incapable nor have the financial resources or interest to create the silicon, the custom silicon, nor the large language models or the software and going maybe to be able to run those AI workloads on custom silicon. It's too much and there's no return for them to do it because it's just too expensive to do it. But there are those few cloud guys, hyperscalers with the scale of the platform and the financial wherewithal for them to make it probably rational, economically rational, to create their own custom accelerators because it's all -- right now, not going to -- not trying to emphasize it, it's all about compute engines. It's all about especially training those large language models and enabling it on your platform. It's all about constraint, to a large part, about GPUs. Seriously, it came to a point where GPUs are more important than engineers, these hyperscalers in terms of how they think. Those GPUs are much more -- XPUs are much more important. And if that's the case, what better thing to do than bringing the control and the control of their own destiny by creating your own custom silicon accelerators. And that's what I'm seeing all of them do. It's just doing it at different rates and do -- and they're starting at different times but they all have started. And obviously, it takes time to get there. But they're all -- a lot of them, there are a lot of learning in the process versus what the biggest guy of them who had longer have been doing for seven years. Others are trying to catch up and it takes time. I'm not saying you'll take seven years. I think you'll be accelerated, but it will still take some time step by the time to get there. But those few hyperscalers, platform guys will create their own if they haven't already done it and start to train them on the large language models. And that is, yes, you're right, they will on go in that direction totally into ASIC or, as we call it, XPUs, custom silicon. Meanwhile, there's still a market for in enterprise for merchant silicon. Edward Snyder: Right. But that basically suggests that you're on the early part of your curve where I'm not trying to call the GPUs whatever, but you could be getting to something closer to the peak of the GPU market just because everything, right, beside the cost expense and as you're spending all this money and you're paying all this money for power, the ASICs become more and more attractive. So the curves are going to look different, right? Hock Tan: It's an accelerating curve. It may take longer than we all want it to happen but definitely accelerating because the size of those -- and the size of the demand from those hyperscalers will totally rival that in the enterprise. Operator: Thank you. And that is all the time we have for our question-and-answer session. I would now like to turn the call over to Ji Yoo for any closing remarks. Ji Yoo: Thank you, operator. This quarter, Broadcom will be presenting at the Goldman Sachs Communacopia and Technology Conference on Wednesday, September 11 in San Francisco. Broadcom currently plans to report its earnings for the fourth quarter and fiscal year 2024 after the close of market on Thursday, December 12, 2024. A public webcast of Broadcom's earnings conference call will follow at 2:00 p.m. Pacific. That will conclude our earnings call today. Thank you, all, for joining. Operator, you may end the call. Operator: This concludes today's program. Thank you all for participating. You may now disconnect.

Operator: Welcome to Broadcom Inc. Second Quarter Fiscal Year 2024 Financial Results Conference Call. At this time, for opening remarks and introductions, I would like to turn the call over to Ji Yoo, Head of Investor Relations of Broadcom Inc. Ji Yoo : 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 Kawwas, President, Semiconductor Solutions Group. Broadcom distributed a press release and financial tables after the market closed, describing our financial performance for the second quarter of fiscal year 2024. If you did not receive a copy, you may obtain the information from the Investor section of Broadcom's website at Broadcom.com. This conference call is being webcast live and an audio replay of the call can be accessed for 1 year through the Investor section of Broadcom's website. During the prepared comments, Hock and Kirsten will be providing details of our second quarter fiscal year 2024 results, guidance for our fiscal year 2024, 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 Hock. Hock Tan : Thank you, Ji. And thank you everyone for joining today. In our fiscal Q2 2024 results -- consolidated net revenue was $12.5 billion, up 43% year-on-year as revenue included a full quarter of contribution from VMware. But if we exclude VMware, consolidated revenue was up 12% year-on-year. And this 12% organic growth in revenue was largely driven by AI revenue, which stepped up 280% year-on-year to $3.1 billion, more than offsetting continued cyclical weakness in semiconductor revenue from enterprises and telcos. Let me now give you more color on our two reporting segments. Beginning with software. In Q2 infrastructure software segment revenue of $5.3 billion was up 175% year-on-year and included $2.7 billion in revenue contribution from VMware, up from $2.1 billion in the prior quarter. The integration of VMware is going very well. Since we acquired VMware, we have modernized the product SKUs from over 8,000 disparate SKUs to four core product offerings and simplified the go-to-market flow, eliminating a huge amount of channel conflicts. We are making good progress in transitioning all VMware products to a subscription licensing model. And since closing the deal, we have actually signed up close to 3,000 of our largest 10,000 customers to enable them to build a self-service virtual private cloud on-prem. Each of these customers typically sign up to a multi-year contract, which we normalize into an annual measure known as Annualized Booking Value, or ABV. This metric, ABV for VMware products, accelerated from $1.2 billion in Q1 to $1.9 billion in Q2. By reference, for the consolidated Broadcom software portfolio, ABV grew from $1.9 billion in Q1 to $2.8 billion over the same period in Q2. Meanwhile, we have integrated SG&A across the entire platform and eliminated redundant functions. Year-to-date, we have incurred about $2 billion of restructuring and integration costs and drove our spending run rate at VMware to $1.6 billion this quarter, from what used to be $2.3 billion per quarter pre-acquisition. We expect spending will continue to decline towards a $1.3 billion run rate exiting Q4, better than our previous $1.4 billion plan, and will likely stabilize at $1.2 billion post-integration. VMware revenue in Q1 was $2.1 billion, grew to $2.7 billion in Q2, and will accelerate towards a $4 billion per quarter run rate. We therefore expect operating margins for VMware to begin to converge towards that of classic Broadcom software by fiscal 2025. Turning to semiconductors, Let me give you more color by end markets. Networking. Q2 revenue of $3.8 billion grew 44% year-on-year, representing 53% of semiconductor revenue. This was again driven by strong demand from hyperscalers for both AI networking and custom accelerators. It's interesting to note that as AI data center clusters continue to deploy, our revenue mix has been shifting towards an increasing proportion of networking. We doubled the number of switches we sold year-on-year, particularly the PAM-5 and Jericho3, which we deployed successfully in close collaboration with partners like Arista Networks, Dell, Juniper, and Supermicro. Additionally, we also double our shipments of PCI Express switches and NICs in the AI backend fabric. We're leading the rapid transition of optical interconnects in AI data centers to 800 gigabit bandwidth, which is driving accelerated growth for our DSPs, optical lasers, and PIN diodes. And we are not standing still. Together with these same partners, we are developing the next generation switches, DSP, and optics that will drive the ecosystem towards 1.6 terabit connectivity to scale out larger AI accelerated clusters. ,: Next year, we expect all mega-scale GPU deployments to be on Ethernet. We expect the strength in AI to continue, and because of that, we now expect networking revenue to grow 40% year-on-year compared to our prior guidance of over 35% growth. Moving to wireless. Q2 wireless revenue of $1.6 billion grew 2% year-on-year, was seasonally down 19% quarter-on-quarter and represents 22% of semiconductor revenue. And in fiscal '24, helped by content increases, we reiterate our previous guidance for wireless revenue to be essentially flat year-on-year. This trend is wholly consistent with our continued engagement with our North American customer, which is deep, strategic, and multiyear and represents all of our wireless business. Next, our Q2 server storage connectivity revenue was $824 million or 11% of semiconductor revenue, down 27% year-on-year. We believe though, Q2 was the bottom in server storage. And based on updated demand forecast and bookings, we expect a modest recovery in the second half of the year. And accordingly, we forecast fiscal '24 server storage revenue to decline around the 20% range year-on-year. Moving on to broadband. Q2 revenue declined 39% year-on-year to $730 million and represented 10% of semiconductor revenue. Broadband remains weak on the continued pause in telco and service provider spending. We expect Broadcom to bottom in the second half of the year with a recovery in 2025. Accordingly, we are revising our outlook for fiscal '24 broadband revenue to be down high 30s year-on-year from our prior guidance for a decline of just over 30% year-on-year. Finally, Q2 industrial rev -- resale of $234 million declined 10% year-on-year. And for fiscal '24, we now expect industrial resale to be down double-digit percentage year-on-year compared to our prior guidance for high single-digit decline. So to sum it all up, here's what we are seeing. For fiscal '24, we expect revenue from AI to be much stronger at over $11 billion. Non-AI semiconductor revenue has bottomed in Q2 and is likely to recover modestly for the second half of fiscal '24. On infrastructure software, we're making very strong progress in integrating VMware and accelerating its growth. Pulling all these three key factors together, we are raising our fiscal '24 revenue guidance to $51 billion. And with that, let me turn the call over to Kirsten. Kirsten Spears : Thank you, Hock. Let me now provide additional detail on our Q2 financial performance, which included a full quarter of contribution from VMware. Consolidated revenue was $12.5 billion for the quarter, up 43% from a year ago. Excluding the contribution from VMware, Q2 revenue increased 12% year-on-year. Gross margins were 76.2% of revenue in the quarter. Operating expenses were $2.4 billion and R&D was $1.5 billion, both up year-on-year primarily due to the consolidation of VMware. Q2 operating income was $7.1 billion and was up 32% from a year ago with operating margin at 57% of revenue. Excluding transition costs, operating profit of $7.4 billion was up 36% from a year ago, with operating margin of 59% of revenue. Adjusted EBITDA was $7.4 billion or 60% of revenue. This figure excludes $149 million of depreciation. Now a review of the P&L for our two segments, starting with semiconductors. Revenue for our semiconductor solutions segment was $7.2 billion and represented 58% of total revenue in the quarter. This was up 6% year-on-year. Gross margins for our semiconductor solutions segment were approximately 67%, down 370 basis points year-on-year, driven primarily by a higher mix of custom AI accelerators. Operating expenses increased 4% year-on-year to $868 million on increased investment in R&D, resulting in semiconductor operating margins of 55%. Now moving on to infrastructure software. Revenue for infrastructure software was $5.3 billion, up 170% year-on-year, primarily due to the contribution of VMware and represented 42% of revenue. Gross margin for infrastructure software were 88% in the quarter, and operating expenses were $1.5 billion in the quarter, resulting in infrastructure software operating margin of 60%. Excluding transition costs, operating margin was 64%. Now moving on to cash flow. Free cash flow in the quarter was $4.4 billion and represented 36% of revenues. Excluding cash used for restructuring and integration of $830 million, free cash flows of $5.3 billion were up 18% year-on-year and represented 42% of revenue. Free cash flow as a percentage of revenue has declined from 2023 due to higher cash interest expense from debt related to the VMware acquisition and higher cash taxes due to a higher mix of US income and the delay in the reenactment of Section 174. We spent $132 million on capital expenditures. Days sales outstanding were 40 days in the second quarter, consistent with 41 days in the first quarter. We ended the second quarter with inventory of $1.8 billion down 4% sequentially. We continue to remain disciplined on how we manage inventory across our ecosystem. We ended the second quarter with $9.8 billion of cash and $74 billion of gross debt. The weighted average coupon rate and years to maturity of our $48 billion in fixed rate debt is 3.5% and 8.2 years respectively. The weighted average coupon rate and years to maturity of our $28 billion in floating rate debt is 6.6% and 2.8 years, respectively. During the quarter, we repaid $2 billion of our floating rate debt, and we intend to maintain this quarterly repayment of debt throughout fiscal 2024. Turning to capital allocation. In the quarter, we paid stockholders $2.4 billion of cash dividends based on a quarterly common stock cash dividend of $5.25 per share. In Q2, non-GAAP diluted share count was 492 million as the 54 million shares issued for the VMware acquisition were fully weighted in the second quarter. We paid $1.5 billion withholding taxes due on vesting of employee equity, resulting in the elimination of 1.2 million AVGO shares. Today, we are announcing a 10-for-1 forward stock split of Broadcom's common stock to make ownership of Broadcom stock more accessible to investors and to employees. Our stockholders of record after the close of market on July 11, 2024, will receive an additional nine shares of common stock after the close of market on July 12, with trading on a split-adjusted basis expected to commence at market open on July 15, 2024. In Q3, reflecting a post-split basis, we expect share count to be approximately 4.92 billion shares. Now on to guidance. We are raising our guidance for fiscal year 2024 consolidated revenue to $51 billion and adjusted EBITDA to 61%. For modeling purposes, please keep in mind that GAAP net income and cash flows in fiscal year 2024 are impacted by restructuring and integration-related cash costs due to the VMware acquisition. That concludes my prepared remarks. Operator, please open up the call for questions. Operator: Thank you. [Operator Instructions] And our first question will come from the line of Vivek Arya with Bank of America. Your line is open. Vivek Arya: Thanks for taking my question. Hock, I would appreciate your perspective on the emerging competition between Broadcom and NVIDIA across both Accelerators and Ethernet switching. So on the Accelerator side, they are going to launch their Blackwell product that many of the same customers that you have a very large position in the custom compute. So I'm curious how you think customers are going to do that allocation decision, just broadly what the visibility is. And then I think Part B of that is as they launch their Spectrum-X Ethernet switch, do you think that poses increasing competition for Broadcom and the Ethernet switching side in AI for next year? Thank you. Hock Tan: Very interesting question, Vivek. On AI accelerators, I think we are operating on a different -- to start with scale, much as a different model. It is -- and on the GPUs, which are the AI accelerator of choice on merchant -- in a merchant environment is something that is extremely powerful as a model. It's something that NVIDIA operates in, in a very, very effective manner. We don't even think about competing against them in that space, not in the least. That's where they're very good at and we know where we stand with respect to that. Now what we do for very selected or selective hyperscalers is, if there's a scale and the skills to try to create silicon solutions, which are AI accelerators to do particular very complex AI workloads. We are happy to use our IP portfolio to create those custom ASIC AI accelerator. So I do not see them as truly competing against each other. And far for me to say I'm trying to position myself to be a competitor on basically GPUs in this market. We're not. We are not a competitor to them. We don't try to be, either. Now on networking, maybe that's different. But again people may be approaching and they may be approaching it from a different angle. We are as I indicated all along, very deep in Ethernet as we've been doing Ethernet for over 25 years, Ethernet networking. And we've gone through a lot of market transitions, and we have captured a lot of market transitions from cloud-scale networking to routing and now AI. So it is a natural extension for us to go into AI. We also recognize that being the AI compute engine of choice in merchants in the ecosystem, which is GPUs, that they are trying to create a platform that is probably end-to-end very integrated. We take the approach that we don't do those GPUs, but we enable the GPUs to work very well. So if anything else, we supplement and hopefully complement those GPUs with customers who are building bigger and bigger GPU clusters. Vivek Arya: Thank you. Operator: One moment for our next question, and that will come from the line of Ross Seymore with Deutsche Bank. Your line is open. Ross Seymore: Hi guys. Thanks for taking my question. I want to stick on the AI theme, Hock. The strong growth that you had in the quarter, the 280% year-over-year, could you delineate a little bit between if that's the compute offload side versus the connectivity side? And then as you think about the growth for the full year, how are those split in that realm as well? Are they kind of going hand-in-hand? Or is one side growing significantly faster than the other, especially with the I guess, you said the next-generation accelerators are now going to be Broadcom as well? Hock Tan: Well, to answer your question on the mix, you are right. It's something we don’t really predict very well, not understand completely except in hindsight. Because it's like, to some extent, to the cadence of deployment of when they put in the AI accelerators versus when they put in the infrastructure that puts it together, the networking. And we don't really quite understand it 100%. All we know, it used to be 80% accelerators, 20% networking. It's now running closer to two-thirds accelerators, one-thirds networking and we'll probably head towards 60%-40% by the close of the year. Ross Seymore: Thank you. Operator: Thank you. One moment for our next question. And that will come from the line of Stacy Rasgon with Bernstein. Your line is open. Stacy Rasgon: Hi, guys. Thanks for taking my question. I wanted to ask about the $11 billion AI guide. You'd be at $11.6 billion even if you didn't grow AI from the current level in the second half. And it feels to me like you're not suggesting that. It feels to me like you think you could be [guided] (ph). So why wouldn't that AI number be a lot more than $11.6 billion? It feels like it ought to be. Or am I missing something? Hock Tan: Because I guided just over $11 billion, Stacy could be what you think it is. It's -- quarterly shipments get sometimes very lumpy. And it depends on rate of deployment, depends on a lot of things. So you may be right. You may estimate it better than I do, but the general trajectory is getting better. Stacy Rasgon: Okay. So I guess again, how do I -- are you just suggesting that, that more than $11 billion is sort of like the worst it could be because that would just be flat at the current levels, but you're also suggesting that things are getting better into the back half? Hock Tan: Correct. Stacy Rasgon: Okay. So I guess we just take that, that's a very -- if I'm reading it wrong, that's just a very conservative number? Hock Tan: That's the best forecast I have at this point, Stacy. Stacy Rasgon: All right. Okay, Hock, thank you. I appreciate it. Hock Tan: Thank you. Operator: One moment for our next question, and that will come from the line of Harlan Sur with JPMorgan. Your line is open. Harlan Sur: Yeah, good afternoon. Thanks for taking my question. Hock, on cloud and AI networking silicon, good to see that the networking mix is steadily increasing. Like clockwork, the Broadcom team has been driving a consistent two year cadence, right of new product introductions, Trident, Tomahawk, Jericho family of switching and routing products for the past seven generations. You layer on top of that your GPU -- TPU customers are accelerating their cadence of new product introductions and deployments of their products. So is this also driving faster adoption curve for your latest Tomahawk and Jericho products? And then maybe just as importantly, like clockwork, it is been two years since you've introduced Tomahawk 5 product introduction, right which if I look back historically, means you have silicon and are getting ready to introduce your next-generation three-nanometer Tomahawk 6 products, which would, I think, puts you two years to three years ahead of your competitors. Can you just give us an update there? Hock Tan: Harlan, you're pretty insightful there. Yes, we launched Tomahawk 5 in 2023. So you're right, by late 2025, the time we should be coming out with Tomahawk 6, which is the 100 terabit switch, yes. Harlan Sur: And is the -- is this acceleration of cadence by your GPU and TPU partners, is that also what's kind of driving the strong growth in the networking products? Hock Tan: Well, you know what, sometimes you have to let things take its time. But it's two-year cadence so we're right on. Late 2023, once when we shoot it out to a Tomahawk 5 and adoption. You're correct with AI has been tremendous because it ties in with the need for a very large bandwidth in the networking, in the fabric for AI clusters, AI data centers. But regardless, we have always targeted Tomahawk 6 to be out two years after that, which should put it into late '25. Harlan Sur: Okay, thank you Hock. Operator: Thank you. One moment for our next question, and that will come from the line of Ben Reitzes with Melius. Your line is open. Ben Reitzes: Hi, thanks a lot. And congrats on the quarter and guide. Hock, I wanted to talk a little bit more about VMware. Just wanted to clarify if it is indeed going better than expectations. And how would you characterize the customer willingness to move to subscription? And also just a little more color on Cloud Foundation. You've cut the price there, and are you seeing that beat expectations? Thanks a lot. Hock Tan: Thanks, and thanks for your kind regards on the quarter. But it's -- as far as VMware is concerned, we're making good progress. The journey is not over by any means, but it is pretty much very much to expectation. Moving to subscription, well, in VMware we are very slow compared to, I mean a lot of other guys, Microsoft, Salesforce, Oracle, who have already been pretty much in subscription. So VMware is late in that process. But we're trying to make up for it by offering it and offering it in a very, very compelling manner because subscription is the right things to do, right? It's a situation where you put out your product offering, and you update it, patch it, but update it feature-wise, everything as capabilities on a continual basis, almost like getting your news on an ongoing basis, subscription online versus getting it in a printed manner once a week. That's how I compare perpetual to subscription. So it is very interesting for a lot of people to want to can't get on. And so to no surprise, they are getting on very well. The big selling point we have as I indicated, is the fact that we are not just trying to keep customers kind of stuck on just server or compute virtualization. That's a great product, great technology, but it's been out for 20 years. Based on what we are offering now at a very compelling price point, compelling in a very attractive price point, the whole stack, software stack to use vSphere and its basic fundamental technology to virtualize networking, storage, operation and management, the entire data center and create this self-service private cloud. And thanks for saying it, you're right, and we have priced it down to the point where it is comparable with just compute virtualization. So yes, that is getting a lot of interest, a lot of attention from the customers. We have signed up who would like to deploy -- the ability to deploy private cloud, their own private cloud on-prem. As a nice complement, maybe even alternative or hybrid to public clouds, that's the selling point, and we are getting a lot of interest from our customers in doing that. Ben Reitzes: Great. And it's on track for $4 billion by the fourth quarter still, which is reiterated? Hock Tan: Well, I didn't give a specific time frame, did I? But it's on track as we see this process growing towards a $4 billion quarter. Ben Reitzes : Okay, thanks a lot Hock. Hock Tan : Thanks. Operator: Thank you. One moment for our next question, and that will come from the line of Toshiya Hari with Goldman Sachs. Your line is open. Toshiya Hari: Hi, thank you so much for taking my question. I guess kind of a follow-up to the previous question on your software business. Hock, you seem to have pretty good visibility into hitting that $4 billion run rate over the medium term, perhaps. You also talked about your operating margin in that business converging to classic Broadcom levels. I know the integration is not done and you're still kind of in debt paydown mode. But how should we think about your growth strategy beyond VMware? Do you think you have enough drivers, both on the semiconductor side and the software side to continue to drive growth or is M&A still an option beyond VMware? Thank you. Hock Tan: Interesting question. And you're right. As I indicated in my remarks, even we found the contribution from VMware this past quarter where we have AI helping us, but we have non-AI semiconductor sort of bottoming out. We're able to show 12% organic growth year-on-year. So almost have to say, so do we need to rush to buy another company? Answer is no. But all options are always open because we are trying to create the best value for our shareholders who have entrusted us with the capital to do that. So I would not discount that alternative because our strategy, our long-term model has always been to grow through a combination of acquisition, but also on the assets we acquire to really improve, invest, and operate them better to show organic growth as well. But again, organic growth often enough is determined very much by how fast your market would grow. So we do look towards acquisitions now and then. Toshiya Hari : All right. Thank you. Operator: Thank you. One moment for our next question, and that will come from the line of Blayne Curtis with Jefferies. Your line is open. Blayne Curtis: Hi, thanks for taking my question. I wanted to ask you Hock, on the networking business kind of ex AI. Obviously, I think there's an inventory correction the whole industry is seeing. But just kind of curious, I don't think you mentioned that it was at a bottom. So just the perspective, I think it's down about [60%] (ph) year-over-year. Is that business finding a bottom? I know you said overall whole semi business should -- non-AI should see a recovery. Are you expecting any there any perspective on just customer inventory levels in that segment? Hock Tan: We see it behaving. I didn't particularly call it out, obviously because more than anything else, I kind of link it very much to server storage, non-AI that is. And we call server storage as at a bottom Q2, and we call it to recover modestly second half of the year. We see the same thing in networking, which is a combination of enterprise networking, as well as the hyperscalers who run their traditional workloads on those, though it's hard to figure out sometimes. But it is. So we see the same trajectory as we are calling out on server storage. Blayne Curtis: Okay, thank you. Operator: Thank you. One moment for our next question, and that will come from the line of Timothy Arcuri with UBS. Your line is open. Mr. Arcuri, your line is open. Timothy Arcuri: Hi, sorry. Thanks. Hock, is there a way to sort of map GPU demand back to your AI networking opportunity? I think I've heard you say in the past that if you spent $10 billion on GPU compute, you need to spend another $10 billion on other [infrastructure] (ph), most of which is networking. So I'm just kind of wondering if when you see these big GPU numbers, is there sort of a rule of thumb that you use to map it back to what the opportunity will be for you? Thanks. Hock Tan: There is, but it's so complex, I stopped creating such a model, Tim. I've said it. But there is because one would say that for every -- you almost say, for every $1 billion you spend on GPU, you probably would spend probably on networking, and if we include the optical interconnects as part of it, though we are not totally in that market, except for the components like DSPs, lasers, PIN diodes that go into those, high-bandwidth optical connect. But if you just take optical connects in totality, switching, all the networking components, it goes into -- attaches itself to clustering a bunch of GPUs, you probably would say that about 25% of the value of the GPU goes to networking, the rest on networking. Now not entirely all of it is my available market. I don't do the optical connects, but I do the few components I talked about in it. But roughly, the simple way to look at it is probably about 25%, maybe 30% of all these infrastructure components is kind of attached to the GPU value point itself. But having said that, it's never – we are never that precise that deployment is the same way. So you may see the deployment of GPU or purchase of GPU much earlier. And the networking comes later or sometimes less the other way around, which is why you're seeing the mix going on within my AI revenue mix. But typically, you run towards that range over time. Timothy Arcuri: Perfect Hock, thank you so much. Operator: Thank you. One moment for our next question, and that will come from the line of Thomas O'Malley with Barclays. Your line is open. Thomas O’Malley: Hi, guys. Thanks for taking my question. And nice results. My question in regards to the custom ASIC AI. Hock, you had a long run here of a very successful business, particularly with one customer. If you look in the market today, you have a new entrant who's playing with different customers. And I know that you said historically, that's not really a direct customer to you. But could you talk about what differentiates you from the new entrant in the market as of late? And then there's been profitability questions around the sustainability of gross margins longer term. Can you talk about if you see any increased competition? And if there's really areas that you would deem more or less defensible in your profile today? And if you would see kind of that additional entrant maybe attack any of those in the future? Hock Tan: Let me take the second part first, which is our AI -- custom AI accelerator business. It is a very profitable business, and let me put to scale -- look examine from a model point of view. I mean, each of these AI accelerators no different from a GPU. The way these large language models get run computing, get run on these accelerators, no one single accelerator, as you know, can run these big large language models. You need multiple of it no matter how powerful those accelerators are. But also, and the way the models are run, there is a lot of memory access to memory requirements. So each of this accelerator comes with a large amount of cache memory, as you call it, what you guys probably now know as HBM, high-bandwidth memory specialized for AI accelerators or GPUs. So we're supplying both in our custom business. And the logic side of it, where the compute function is on doing the chips, the margin there are no different than the margin in any -- in most of any of a semiconductor silicon chip business. But when you're attached to it, a huge amount of memory, memory comes from a third-party. There are a few memory makers who make this specialized thing. We don't do margin stacking on that part. So by almost buying basic math will dilute the margin of these AI accelerators when you sell them with memory, which we do. It does push up revenue somewhat higher but it has diluted the margin. But regardless, the spend, the R&D, the OpEx that goes to support this as a percent of the revenue, which is higher revenue, so much less. So on an operating margin level, this is easily as profitable, if not more profitable, given the scale that each of those custom AI accelerators can go up to. It's even better than our normal operating margin scale. So that's the return on investment that attracts and keeps us going at this game. And this is more than a game. It is a very difficult business. And to answer your first question, there is only one Broadcom, period. Thomas O'Malley: Thanks Hock. Operator: Thank you. One moment for our next question, and that will come from the line of Karl Ackerman with BNP. Your line is open. Karl Ackerman: Hi, thank you. Good afternoon. Hock, your networking switch portfolio with Tomahawk and Jericho chipsets allows hyperscalers to build AI clusters using either a switch-scheduled or endpoint-scheduled network. And that, of course is unique among competitors. But as hyperscalers seek to deploy their own unique AI clusters, are you seeing a growing mix of white-box networking switch deployments? I ask because while your custom sales and business continues to broaden, it will be helpful to better understand the growing mix of your $11 billion AI networking portfolio combined this year. Thank you. Hock Tan: Let me have Charlie address this question. He's the expert. Charlie Kawwas: Yes. Thank you, Hock. So two quick things on this. One is the – you are exactly right that the portfolio we have is quite unique in providing that flexibility. And by the way, this is exactly why Hock, in his statements earlier on, mentioned that seven out of the top eight hyperscalers use our portfolio. And they use it specifically because it provides that flexibility. So whether you have an architecture that's based on an endpoint and you want to actually build your platform that way or you want that switching to happen in the fabric itself, that's why we have the full end-to-end portfolio. So that actually has been a proven differentiator for us. And then on top of that, we've been working, as you know, to provide a complete network operating system that's open on top of that using SONiC and Psi, which has been deployed in many of the hyperscalers. And so the combination of the portfolio plus the stack really differentiates the solution that we can offer to these hyperscalers. And if they decide to build their own NICs, their own accelerators are custom or use standard products, whether it is from Broadcom or other, that platform, that portfolio of infrastructure switching gives you that full flexibility. Karl Ackerman: Thank you. Operator: Thank you. One moment for our next question, and that will come from the line of C.J. Muse with Cantor Fitzgerald. Your line is open. CJ Muse: Yeah. Good afternoon. Thank you for taking my question. I was hoping to ask two part software question. So excluding VMware, your Brocade, CA, and Symantec business now running $500 million higher for the last two quarters. So curious, is that the new sustainable run rate or were there onetime events in both January and April that we should be considering? And then the second question is as you think about VMware Cloud Foundation adoption, are you seeing any sort of crowding out of spending like other software guys are seeing as they repurpose their budgets to IT? Or is that business so less discretionary that it's just not an impact to you? Thanks so much. Hock Tan: Well, on the second one, I don't know about any crowding out, to be honest. It's not. What we are offering, obviously, is not something that they would like to use themselves, to be able to do themselves, which is they're already spending on building their own on-prem data centers. And typical approach people take, a lot of enterprises take historically continue today than most people do a lot, people do is they have best of breed. What I mean is they create a data center that is compute as a separate category, best compute there is and they often enough use vSphere for compute virtualization due to improved productivity, but best of breed there. And best of breed on networking and best of breed on storage with a common management operations layer, which very often is also VMware we realize. And what we're trying to say is this mixed bag, and what they see -- is this mixed bag best of [big] (ph) data center, very heterogenous, is not driving that, is not a highly resilient data center. I mean, you have a mixed bag. So it goes down. Where do you find quickly root cause? Everybody is pointing fingers at the other. So you got a problem, not very resilient and not necessary secure between bare metal in one side and software on the other side. So it's a natural thinking on the part of many CIOs we talk to, to say, hey, I want to create one common platform as opposed to just [best-of-breed of age] (ph). So that gets us into that. So it is a greenfield that’s not bad, they started from scratch. If it's a brownfield, that means they have existing data centers trying to upgrade. It's -- that sometimes that's more challenging for us to get that adopted. So I'm not sure there's a crowding out here. There's some competition, obviously, on greenfield, where they can spend their budget on an entire platform versus best-of-breed. But on the existing data center where you're trying to upgrade, that's a trickier thing to do. And it cuts the other way as well for us. So that's how I see it. So in that sense, best answer is I don't think we're seeing a level of crowding out that is -- any and that very significant for me to mention. In terms of the revenue mix, no, Brocade is having a great, great field year so far and still chugging along. But will that sustain? Hell no, you know that. Brocade goes through cycles like most enterprise purchases. So we're enjoying it while it lasts. CJ Muse: Thank you. Hock Tan: Thanks. Operator: Thank you. And we do have time for one final question, and that will come from the line of William Stein with Truist Securities. Your line is open. William Stein: Great. Thanks for squeezing me in. Hock, congrats on the yet another great quarter and a strong outlook in AI. I also want to ask about something you mentioned with VMware. In your prepared remarks, you highlighted that you've eliminated a tremendous amount of channel conflict. I'm hoping you can linger on this a little bit and clarify maybe what you did. And specifically also what you did in the heritage Broadcom software business, where I think historically, you've shied away from the channel. And there was an idea that perhaps you'd reintroduce those products to the channel through a more unified approach using VMware's channel partners or resources. So any sort of clarification here, I think, would be helpful. Hock Tan: Yes, thank you. That's a great question. Yes, VMware taught me a few things. They have 300,000 customers, 300,000. That's pretty amazing. And we look at it. I know under CA, we took a position that let's pick an A-list strategic guy and focus on it. I can't do that in VMware. I approached it differently. And I start to learn the value of a very strong bunch of partners they have, which are a network of distributors and something like 15,000 VARs, value-added resales supported with these distributors. So we have doubled down and invested in this resale network in a big way for VMware. It's a great move, I think but six months into the game. But we are seeing a lot more velocity out of it. Now these resellers, having said that, tend to be very focused on a very long tail of their 300,000 customers. The largest 10,000 customers of VMware are large enterprises who tend to -- they are very large enterprises, the largest banks, the largest health care companies. And their view is I want very bespoke service, support, engineering solutions from us. So we've created a direct approach, supplemented with the VAR of choice where they need to. But on the long tail of 300,000 customers, they get a lot of services from the resellers, value-added resellers, and so in their way. So we now strengthen that whole network of resellers so that they can go direct, manage, supported financially with distributors. And we don't try to challenge those guys unless the customers. On the end of the day, the customer chose where they like to be supported. So we kind of simplify this together with the number of SKUs they have. In the past, unlike what we're trying to do here, everybody is a partner. I mean, you're talking a full range of partners. And whoever makes the biggest deal gets the lowest. The partner that makes the biggest deal gets the lower -- biggest discount, lowest price. And they are out there basically kind of creating a lot of channel chaos and conflict in the marketplace. Here, we don't. The customers, I am aware. They can take it direct from VMware to their direct sales force or they can easily move to the resellers to get it that way. And as a third alternative which we offer, if they chose not -- they want to run their applications on VMware and they want to run it efficiently on a full stack. They have a choice now of going to a hosted environment managed by network of managed service providers, which we set up globally, that will run the infrastructure, invest and operate the infrastructure. And these enterprise customers just run their workloads in and get it as a service, basically VMware as a service. That's a third alternative, and we are clear to make it very distinct and differentiated for our end-use customers. They're available to all three is how they choose to consume our technology. William Stein: Great. Thank you. Operator: Thank you. I would now like to hand the call over to Ji Yoo, Head of Investor Relations, for any closing remarks. Ji Yoo: Thank you, Cherie. Broadcom currently plans to report its earnings for the third quarter of fiscal '24 after close of market on Thursday, September 5, 2024. A public webcast of Broadcom's earnings conference call will follow at 2:00 p.m. Pacific Time. That will conclude our earnings call today. Thank you all for joining. Operator, you may end the call. Operator: Thank you all for participating. This concludes today's program. You may now disconnect.

Operator: Hello, and welcome to Broadcom's Inc. First Quarter Fiscal Year 2024 Financial Results Conference Call. At this time, for opening remarks and introductions, I will turn the call over to Ji Yoo, Head of Investor Relations of Broadcom Inc. You may begin. Ji Yoo: 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 Kawwas, President, Semiconductor Solutions Group. Broadcom distributed a press release and financial tables after the market closed, describing our financial performance for the first quarter of fiscal year 2024. If you did not receive a copy, you may obtain the information from the Investors section of Broadcom's website at broadcom.com. This conference call is being webcast live and an audio replay of the call can be accessed for one year through the Investors section of Broadcom's website. During the prepared comments, Hock and Kirsten will be providing details of our first quarter fiscal year 2024 results, guidance for our fiscal year 2024 as well as commentary regarding the business environment. We'll take questions after the end of our prepared comments. Please refer to our press release today and our recent filings with the SEC for information on the specific risk factors that could cause our actual results to differ materially from the forward-looking statements made on this call. In addition to U.S. GAAP reporting, Broadcom reports certain financial measures on a non-GAAP basis. A reconciliation between GAAP and non-GAAP measures is included in the tables attached to today's press release. Comments made during today's call will primarily refer to our non-GAAP financial results. I'll now turn the call over to Hock. Hock Tan: Thank you, Ji, and thank you, everyone, for joining us today. In our fiscal Q1 2024, consolidated net revenue was $12 billion, up 34% year-on-year as revenue included 10.5 weeks of contribution from VMware. Excluding VMware, consolidated revenue was up 11% year-on-year. Semiconductor solutions revenue increased 4% year-on-year to $7.4 billion, and infrastructure software revenue grew 153% year-on-year to $4.6 billion. With respect to infrastructure software, revenue contribution from consolidating VMware drove a sequential jump in revenue by 132%. We expect continued strong bookings at VMware will accelerate revenue growth through the rest of fiscal 2024. In semiconductors, AI revenue quadrupled year-on-year to $2.3 billion during the quarter, more than offsetting the current cyclical slowdown in enterprise and telcos. Now let me give you more color on our two reporting segments. Starting with software. Q1, software segment revenue of $4.6 billion was up 156% year-on-year and included $2.1 billion in revenue contribution from VMware. Consolidated bookings in software grew sequentially from less than $600 million to $1.8 billion in Q1 and is expected to grow to over $3 billion in Q2. Revenue from VMware will grow double-digit percentage sequentially, quarter-over-quarter, through the rest of the fiscal year. This is simply a result of our strategy with VMware. We are focused on upselling customers, particularly those who are already running their compute workloads with vSphere virtualization tools to upgrade to VMware Cloud Foundation, otherwise branded as VCF. VCF is the complete software stack, integrating compute, storage and networking that virtualizes and modernizes our customers' data centers. This on-prem self-service cloud platform provides our customers a complement and an alternative to public cloud. And in fact, on a VM Explore last August, VMware and NVIDIA entered into a partnership called VMware Private AI Foundation, which enables VCF to run GPUs. This allows customers to deploy their AI models on-prem. And wherever they do business without having to compromise on privacy and data -- in control of their data. And we are seeing this capability drive strong demand for VCF, from enterprises seeking to run their growing AI workloads on-prem. And reflecting all these factors for the full year, we reiterate our fiscal 2024 guidance for software revenue of $20 billion. Turning to semiconductors. Before I give you an overall assessment of this segment, let me provide more color by end markets. Q1 networking revenue of $3.3 billion grew 46% year-on-year, representing 45% of our semiconductor revenue. This was largely driven by strong demand for our custom AI accelerators at our 2 hyperscale customers. This strength extends beyond AI accelerators. Our latest generation Tomahawk 5 800G switches saw through Ethernet mix refinements, DSPs and optical components are experiencing strong demand at hyperscale customers as well as large-scale enterprises deploying AI data centers. For fiscal 2024, given continued strength of AI NAND working demand, we now expect networking revenue to grow over 35% year-on-year compared to our prior guidance for 30% annual growth. Moving on to wireless. Q1 wireless revenue of $2 billion decreased 1% sequentially and declined 4% year-on-year representing 27% of semiconductor revenue. As you all may know, the engagement with a North American customer continues to be very deep strategic and, of course, multiyear. And in fiscal 2024, helped by content increases, we reiterate our previous guidance for wireless revenue to be flat year-on-year. Next, our Q1 server storage connectivity revenue was $887 million or 12% of semiconductor revenue, down 29% year-on-year. We are seeing weaker demand in the first half, but expect recovery in the second half. Accordingly, we are revising our outlook for fiscal '24 server storage revenue to decline in the mid-20 percentage range year-on-year compared to prior guidance for high teens percent decline year-on-year. On broadband, Q1 revenue declined 23% year-on-year to $940 million and represented 13% of semiconductor revenue. We are seeing a cyclical trough this year for broadband as telco spending continues to weaken and do not expect improvement until late in the year. And accordingly, we are revising our outlook for fiscal '24 broadband revenue to be down 30% year-on-year from our prior guidance of down mid-teens year-on-year. And finally, Q1 industrial resales of $215 million declined 6% year-on-year. In fiscal '24, we continue to expand industrial resales to be down high single digits’ year upon year. And in summary, with stronger-than-expected growth from AI more than offsetting the cyclical weakness in broadband and server storage, Q1 semiconductor revenue grew 4% year-over-year to $7.4 billion. Turning to fiscal '24. We reiterate our guidance for Semiconductor Solutions revenue to be up mid- to high single-digit percentage year-on-year. I know we told you in December, our revenue from AI would be 25% of our full year semiconductor revenue. We now expect revenue from AI to be much stronger, representing some 35% of semiconductor revenue at over $10 billion. And this more than offset weaker-than-expected demand in broadband and service storage. So for fiscal 2024 in summary, we reiterate our guidance for consolidated revenue to be $50 billion, which represents 40% year-on-year growth. And we reiterate our full year adjusted EBITDA guidance of 60%. Before I turn this call over to Kirsten, who will provide more details of our financial performance this quarter, let me just highlight that Broadcom recently published its fourth annual ESG report available on a corporate citizenship side, which discusses the company's sustainability initiatives. As a global technology leader, we recognize Broadcom's responsibility to connect our customers, employees and communities. Through our product and technology innovation and operational excellence, we remain committed to this mission. Kirsten? Kirsten Spears: Thank you, Hock. Let me now provide additional detail on our Q1 financial performance, which was a 14-week quarter and included 10.5 weeks of contribution from VMware. Consolidated revenue was $12 billion for the quarter, up 34% from a year ago. Excluding the contribution from VMware, Q1 revenue increased 11% year-on-year. Gross margins were 75.4% of revenue in the quarter. Operating expenses were $2.2 billion and R&D was $1.4 billion, both up year-on-year primarily due to the contribution from VMware. Q1 operating income, including VMware, was $6.8 billion and was up 26% from a year ago, with operating margin at 57% of revenue. Excluding transition costs of $226 million in Q1, operating profit of $7.1 billion was up 30% from a year ago, with operating margin of 59% of revenue. Adjusted EBITDA was $7.2 billion or 60% of revenue. This figure excludes $139 million of depreciation. Now a review of the P&L for our two segments, starting with Semiconductor. Revenue for our Semiconductor Solutions segment was $7.4 billion and represented 62% of total revenue in the quarter. This was up 4% year-on-year. Gross margins for our semiconductor solutions segment were approximately 67%, down 190 basis points year-on-year driven primarily by product mix within our semiconductor end markets. Operating expenses increased 8% year-on-year to $865 million, reflecting a 14-week quarter resulting in semiconductor operating margins of 56%. Now moving on to our infrastructure software segment. Revenue for infrastructure software was $4.6 billion, up 153% year-on-year, primarily due to the contribution of VMware and represented 38% of revenue. Gross margins for infrastructure software were 88% in the quarter, and operating expenses were $1.3 billion in the quarter, resulting in infrastructure software operating margin of 59%. Excluding transition costs, operating margin was 64%. Moving on to cash flow. Free cash flow in the quarter was $4.7 billion and represented 39% of revenues off a higher revenue base. Excluding restructuring and integration spend of $658 million free cash flows were 45% of revenue. We spent $122 million on capital expenditures. Days sales outstanding were 41 days in the first quarter compared to 31 days in the fourth quarter on higher accounts receivable due to the VMware acquisition. The accounts receivable we brought on from VMware has payment terms of 60 days unlike Broadcom standard 30 days. We ended the first quarter with inventory of $1.9 billion, up 1% sequentially. We continue to remain disciplined on how we manage inventory across the ecosystem. We ended the first quarter with $11.9 billion of cash and $75.9 billion of gross debt. The weighted average coupon rate and years to maturity of our $48 billion in fixed rate debt is 3.5% and 8.4 years, respectively. The weighted average coupon rate and used to maturity of our $30 billion in floating rate debt is 6.6% and three years, respectively. During the quarter, we repaid $934 million of fixed rate debt that came due. This week, we repaid $2 billion of our floating rate debt, and we intend to maintain this quarterly repayment of debt throughout fiscal 2024. Turning to capital allocation. In the quarter, we paid stockholders $2.4 billion of cash dividends based on a quarterly common stock cash dividend of $5.25 per share. We executed on our plan to complete our remaining share buyback authorization. We repurchased $7.2 billion of our common stock and eliminated $1.1 billion of common stock for taxes due on vesting of employee equity, resulting in the repurchase and elimination of approximately 7.7 million AVGO shares. To help you with modeling share count, the weighted effect of the 54 million shares issued for the VMware acquisition resulted in a sequential increase in Q1 to $478 million. With the Q2 non-GAAP diluted share count expected to increase to approximately $492 million as the shares issued are fully weighted in the second quarter. Now on to guidance. Regardless of the updated dynamics of our semiconductor and software segments as Hock discussed, we choose to reiterate our guidance for fiscal year 2024 consolidated revenue of $50 billion and adjusted EBITDA of 60%. With regard to VMware, in February, we signed a definitive agreement to divest the end-user computing division with the transaction expected to close in 2024, subject to customary closing conditions, including regulatory approvals. The EUC division has been classified as discontinued operations in our Q1 financials. We have decided to retain the Carbon Black business and merge Carbon Black with Symantec to form the enterprise security group. The impact on revenue and profitability is not significant. That concludes my prepared remarks. Operator, please open up the call for questions. Operator: [Operator Instructions] Our first question comes from the line of Harsh Kumar with Piper Sandler. Harsh Kumar: Yes, thank you, Hock. Once again, tremendous results and tremendous activity that you guys are benefiting from in AI. But my question was on software. I think if I heard you correctly, Hock, you mentioned that your software bookings will rise quite dramatically to $3 billion in 2Q. I was hoping that you could explain to us why it would rise almost 100% up, if my math is correct, in 2Q over 1Q. Is it something simple? Or is it something that you guys are doing from a strategy angle that's making this happen? Hock Tan: As I indicated, with the acquisition of VMware we're very focused on selling, upselling and helping customers, not just buy but deploy this private cloud what we call virtual private cloud solution or platform on their on-prem data centers. It has been very successful so far. And I agree it's early innings still at this point. We just have closed on the deal -- well, we closed on the deal late November, and we are now March, early March. So we had the benefit of at least three months, but we have been very prepared to launch and focus on this push initiative on private cloud, VCF. And the results has been very much what we expect it to be, which is very, very successful. Harsh Kumar: Thank you, Hock. Operator: Our next question comes from the line of Harlan Sur with JPMorgan. Your line is open. Harlan Sur: Good afternoon. Thanks for taking my question. Hock, on the AI outlook being revised from greater than $7.5 billion, I think, last quarter to $10 billion plus this quarter. As you mentioned, AI compute pulls your ASICs, but it also pulls your networking, optical, PCIe, connectivity solutions as well. So can you just help us understand like of that $2.5 billion increase in outlook? Is it stronger AI ASIC demand, stronger networking, stronger optical, et cetera. But more importantly, are you also seeing a similar acceleration in your forward ASIC design win pipeline as well? Hock Tan: There's a lot of questions, a lot of information you want me to disgorge. Let's take them one at a time, shall we. Yes, the increase, as we have said before as we shown before, it's roughly two-thirds, one-third or 70-30, which is AI celebrators which are custom ASIC AI accelerators this. We've a couple of hyperscalers compared to the other components, which are collectively considered as networking components. And it's about 70%, 30% mix. And that increase of almost $3 billion that you mentioned, it's a similar combination. Harlan Sur: And then are you seeing a similar acceleration on the forward design win pipeline and customer engagements? Hock Tan: I have indicated that I only have to really only have to say, I don't count anybody. I do not go into production as a rail customer at this point. Harlan Sur: Okay. Thanks, Hock. Operator: Our next question comes from the line of Vivek Arya with Bank of America Securities. Your line is open. Vivek Arya: Thank you for taking my question. Hock, on, again, on the over $10 billion for AI, is this still a supply constrained number? Or do you think that this is kind of a very project-driven number, so it's not really supply that gets it. So if you were to get, let's say, increase supply, could there be upside? And then kind of part B of that is, on the switching side, have you already started to see benefits from the 51 terabit per second switches? Is that something that comes along later? Like what is the contribution of 51T to the switching upside that you mentioned for this year? Hock Tan: Yes. No, our Tomahawk 5 is going great guns. Now it's not driven unlike in the past, Tomawak 3, Tomawak 4 by traditional scale-out in hyperscalers on their cloud environment. This is all largely coming from a scaling out of AI data centers. The building of larger and larger clusters to enable generative AI computing functionality. And you're going for bigger and bigger pipes. Hence, the Tomahawk 5 51 terabit is a perfect solution, and we're seeing a lot of demand. And in many cases, we are basically, they are surpassing the rate of adoption that we had previously thought. So it is a very good solution in connecting GPUs. And with respect to AI accelerators where I think you are focusing on, is that a constraint on supply chain? We do get enough lead time out of our hyperscale customers that we do not have a supply chain constraint. Vivek Arya: Thank you. Operator: Our next question comes from the line of Stacy Rasgon with Bernstein Research. Your line is open. Stacy Rasgon: Hi, guys. Thanks for taking my question. I had a question on the core software business. So you said VMware for the two months that was in there was $2.1 billion, which would put the rest of the software, CA Symantec and Brocade at like 2.5 almost could be up like 25% sequentially and almost 40% year-over-year. I guess do I have my math right? And if so, like how can that be? What's going on in the core business? And how should we be thinking about the growth of the core business in VMware as we go through the year? Is the VMware still $12 billion or just -- how do we think about that? Hock Tan: Yes, don't get too excited over that. I think it's certain products, contracts we obtained and -- but it's very strong contract renewals in the older -- from old Broadcom contracts, especially in mainframes were very strong, as was some of our other distributor software platform. So that has also accelerated, but that's not the star of this show, Stacy. Star this show is the accelerating bookings and backlog we are accumulating on VMware. Stacy Rasgon: Okay. So VMware is still running at like an $11 billion to $12 billion run rate benefit. So that sounds like that should accelerate. So the overall for VMware should be more than the $12 billion that you talked about. So the core business, the strength this quarter that was kind of a onetime we could model that kind of like falling off because you've shown at the overall software at 20? Hock Tan: Correct. Stacy Rasgon: Got it. Okay. Thank you. Operator: Our next question comes from the line of Aaron Rakers with Wells Fargo. Aaron Rakers: Yes. Thanks for taking the question. I wanted to ask kind of continuing on the VMware discussion a little bit. Hock, now that you've had the asset for a little while, I'm curious of how you how the go-to-market strategy looks with VMware relative to the prior software acquisitions that you've done. What I'm really getting at is kind of like how have you kind of thought about the segmentation of the customer base of VMware? Are you -- I know there's been some discussion around your channel engagement, VM legacy VMware channel in the past. So I'm just kind of curious of how you've been managing that go-to-market. Hock Tan: I think now we haven't had it for that long, to be honest. It's like three months, about three months. But yes, it's what -- and it seems to be that things to work out, but things seem to be progressing very well as we had hoped it would. Because where we are focusing our go-to-market -- and more than go to market, where we are focusing our resources on don't just go to market but on engineering a very improved VCF stack, which we have and selling it out there and being able to then support it and in the process that help customers deploy and start to really make it stand up in your data centers. All that focus is on the largest, I would say, 2,000 strategic customers. These are guys who want to still have significant distributed data center on-prem. Many of our customers is looking at a hybrid situation, not trying to use the word too loosely. Basically, a lot of these customers had some very legacy but critical mainframe. That's an old platform not growing, except it's still vital. Then what they have in modernizing workloads cut today and in the future, is they really have a choice, which they are taking both angles of running a lot of applications in data centers on-prem distributed data centers on-prem, which can handle these modernized workloads while at the same time to -- because of elastic demand, to be able to also put some of these applications into public cloud. Today's environment, most of these customers do not have an on-prem data center that resembles what's in the cloud, which is very high availability, very low latency, highly resilient, which is one we are offering with VMware Cloud Foundation of VCF. It's exactly replicate what they get in a public cloud. And they love it. Now three months. But we are seeing it in the level of bookings we are generating over the last three months. Aaron Rakers: Thank you. Operator: Our next question comes from the line of Chris Danely with Citi. Your line is open. Chris Danely: Thanks, for letting me ask question. I have just a question on the AI upside in terms of a customer perspective. How much of the upside is coming from new versus existing customers? And then how do you see the customer base going forward? I think it's going to broaden. And we know how you like to price. So if you do get a bunch of new customers for these products, could there be some better pricing and better margins as well? Hopefully, they're not listening to the call. Hock Tan: Chris, thanks for this question. Love it. Because perhaps let me try to perhaps give you a sense how we think of the AI market, the new generative AI market, so to speak, using it very loosely and generically as well. It's really -- we see it as two broad segments. One segment is hyperscalers, especially very large hyperscalers with huge, huge consumer subscriber base. You probably can guess who this few people are, very large subscriber base and very -- an almost infinite amount of data. And their model is getting subscribers to keep using this platform they have. And through that, be able to generate a better experience for not only the subscribers, but a better advertising opportunity for their advertising clients. It's a great ROI as we are seeing ROI that comes very quickly. And the investment continues vigorously with those -- with that segment, comprising very few players. But we will choose subscriber base, but with the scale to invest a lot. And here, ASICs custom silicon, custom AI accelerators makes plenty of sense and that's where we focus that attention on. They also buy as a scale out those AI accelerators, through clusters increasing large clusters because of the way the models are running, the foundation models run and large language models need to generate those parameters. They buy a lot of networking together with it. But in comparison, obviously, to the value of AI accelerators we sell. Now the network working side, while growing its small percentage compared to the size, the value of the accelerators. That's one big segment we have. The other segment we have, which is smaller is the enterprise, what I broadly call enterprise segment in AI. Here, you're talking about companies, large not so large, but large who wants to do -- who have AI initiatives going on. All these big news and hype about AI being the savior to productivity and all that gets all these companies on multiple on their own initiatives. And here, short of going to public cloud, they're trying to run it on-prem. If they try to run it on-prem, they take standard silicon for an AI accelerators as much as possible. And here, in terms of the AI accelerator, we don't have a market. That's the merchant silicon market. But in the networking side as they tie it together with their data centers, they do buy all those are -- our networking components beginning with switches, routers even through people like Arista 7800 but switches for sure, and the various other components I mentioned. And that's a different sense market that we have. So it's an interesting mix, and we see both. Chris Danely: Thanks a lot, Hock. Operator: Our next question comes from the line of Karl Ackerman with BNP Paribas. Your line is open. Karl Ackerman: Yes, thank you. Hock, weakness in broadband, server and storage customers is understandable given what your peers have said this earnings season. But perhaps you could speak to the backlog visibility you have with your customers in those markets that would indicate those markets could begin to order again and see sequential growth in the second half through the calendar year? Thank you. Hock Tan: You're correct. We are -- as I say, we are almost like near the trough. This year, '24, first half, for sure, will be the trough. Second half 24, don't know yet. But I tell you what, we have 52-week lead time, as you know. We are very disciplined in sticking to it. And based on that, we are seeing bookings lately, significantly up from bookings a year ago. Karl Ackerman: Thank you. Operator: Our next question comes from the line of Christopher Rolland with Susquehanna. Your line is open. Christopher Rolland: Thanks for the question. So Hock, this one is for you on optical. So, our checks suggest that you're vertically integrating there. You're now putting in your own drivers, TIAs, you're starting to get traction in PAM4 DSP. And I think you kind of had an early lead in 100-gig data center lasers as well. And this is -- a lot of this should be on the back of AI networking that appears to be exploding here. So I was wondering if you could help us size the market and then also talk about how fast this is growing for you. I think there may have been some clues in that one-third number the AI you gave us, but perhaps if you can kind of double click or square that for us, it would be great. Thanks. Hock Tan: Okay. Before you get carried away, please, and those in the other categories outside AI accelerators, all those things that PAM-4, DSPs, optical components, retirements. They are small compared to Tomahawk switches and Jericho routers using AI networks. And also being in an environment where, as you all know, traditional enterprise networking is kind of also in a bit of a slowdown now. So always think, it's demand driven very much by AI. And that tends to push us in a line of thinking that could be very biased because what it is showing is that the mix and the content on networking relative to compute, is very skewed very different from -- in an AI data center compared to a traditional CPU-based data center. So I don't want to get you guys all in the wrong way. But you're right, in the AI data center, there's a lot of -- there's quite a bit of content on DSPs, PAM4s, optical components and retirements and PCI Express switches. But they are still not that big in the overall scheme of things compared to what we sell in switches and routers. And compared to AI accelerators, they are even small, I think in that ratio. As I said, AI revenue of $10 billion plus this year, 70% would be AI accelerators. 30%, everything else. And within that everything else, 30% or so, I would say more than half of that 30%, more like 20% are the switches and routers. And the rest are other various retirement DSP components because we are not -- unlike what you said, we're not vertically integrated in the sense we do not do the entire transceiver the optical transceiver. We don't do that. Those are manufactured typically by OEM contract manufacturers like in online, Eoptolink guys in China. Where those guys are much more competitive, but we provide those key components we talk about. So when you look at it that way, you can understand the kind of the weighting of the various values. Christopher Rolland: Super helpful. Thank you, Hock. Operator: Our next question comes from the line of Toshiya Hari with Goldman Sachs. Your line is open. Toshiya Hari: Hi, thank you for taking the question. Hock, I think we all appreciate the capabilities you have in terms of custom compute. I asked this question last quarter on the group call back. But there is one competitor based in Asia, who continues to be pretty vocal and adamant that one of the future designs at your largest customer, they may have some share and we're picking up conflicting evidence, and we're getting a bunch of investor questions. I was hoping you could address that and your confidence level in sort of maintaining, if not extending your position there? Thank you. Hock Tan: You know, I can't stop somebody from trash talking, okay? It's the best way to describe it. Let the numbers speak for themselves, please, and leave it that way. And I add to it like most things we do in terms of large critical technology products. We tend to always have, as we do here, a very deep strategic and multiyear relationship with our customer. Toshiya Hari: Understood. Thank you. Operator: Our next question comes from the line of Vijay Rakesh with Mizuho. Your line is open. Vijay Rakesh: Yes, hi, Hock. Just on the custom silicon side, obviously, you guys dominate that space. But you mentioned two customers, only two major customers. But just wondering what's really holding back other hyperscalers from ramping up their custom silicon side. And on the flip side, you're hearing some peers talk about custom silicon road maps as well, so if you could hit both? Thanks. Hock Tan: Well, number one, we don't dominate this market. I only have two. I can’t be dominating it, too and number one. Number two, the second point is very -- it takes years. It takes a lot of heavy lifting to create that custom silicon because you need to do more than just hardware of silicon to really have a solution for generative AI or even AI in trying to create those AI capabilities in our data centers. It's more than just silicon. You have to invest a lot in creating software models that works on your custom silicon that matches. You've got to match your business model in the first place, which leads to and create foundation models which then needs to work and optimize on the custom silicon you are developing. So it's an iterative process. And it's a constant evolving process even for the same customer we deal with. I mentioned that in the last call. So it takes years to really understand or to be able to basically reach a point where you can say that, hey, I'm finally delivering production worthy -- and it's not because silicon is bad. It's because it doesn't work well with the foundation models that the customer put in place and a software layer that works with it, the firmware, the software layer that translates into it. All that has to work you are almost like creating an entire ecosystem on -- in a limited basis, which we are recognized very well in x86 CPUs, but in GPUs, those kind of AI accelerators is something still very early stage. So it takes years. And for our two customers, we have engaged for years. With one of them, we have engaged for eight years to get to this point. So it's something you have to be very patient, persevere and hope that everything lines up because ultimate success, if you are just a silicon developer, it's not just dependent on you, but dependent as much even more on your partner or customer doing it. So just got to be patient guys. I got the two only so far. Vijay Rakesh: And on the peers getting into that market? Hock Tan: Who is getting to the market, please repeat? Vijay Rakesh: You talked about some of your peers like I think NVIDIA has been talking about entering the custom silicon market. Just your thoughts around that, yes. Hock Tan: Oh, custom silicon market. I have no comment to be made on it. All I do say is I have no interest in going into a market where -- we have a philosophy in running our business, Broadcom. And maybe other people have a different philosophy. Let me tell you my simple philosophy, which I've articulated over time, every now and then, which is very clear to my management team and to the whole Broadcom. You do what you're good at. And you do -- you keep doubling down on things you know you are better than anybody else. And you just keep doubling down because nobody else will catch up to you if you keep running in of the pack. But do not do something that you think you can do, but somebody else is doing much better job than you are. That's my philosophy. Vijay Rakesh: Thanks, Hock. Operator: Our next question comes from the line of Matt Ramsay with TD Cowen. Your line is open. Matt Ramsay : Thank you very much for squeezing me in guys. Just kind of a 2-part thing on the custom silicon stuff. I guess, Hock, if some of the merchant leaders in AI who are interested in some custom networking stuff from you either in switching routing would you consider it? And the second question is for Kirsten. The business model around custom silicon for most folks is taking our e-payments upfront and sell the end product at a lower gross margin, but a higher operating margin and you guys have wrapped this massive custom business with no real impact to gross margin. So maybe you could just unpack the philosophy and the accounting about the way that you guys approach the custom silicon opportunities just from a margin perspective? Thanks guys. Hock Tan: I'll take that, because you're asking business model, you're not asking really number crunching. So let me try to answer in this way. No, there's no particular reason shot of what constitutes an AI accelerator. An AI accelerator, the way it's configured now, whether it's a merchant or its customer has a -- for AI accelerator to run foundation models very well needs not just a whole bunch of loads of floating point multipliers to do matrix multiplication, matrix analysis on regression. That's the logic part, compute part. It comes -- you have to come with access to a lot of memory, literally almost cash memory tied to it. The chip is not just a simple multiplier. It has -- it comes attached to memory. It's almost a layer 3-dimensional chip, which it is. Memory is not something we -- any of us in AI accelerators are super good at designing or building. So we buy the memory from very specialized high-bandwidth memory, you all know about that, from key memory suppliers. Every one of us does that. So you parted combine the two together, that's what an AI accelerator is. So even if I get very good net corporate silicon gross margin on mine compute, logic chip on multipliers. There's no way I can apply that kind of add-on margin to the high-bandwidth memory, which is a big part of the cost of the total chip. And so naturally, by simple math, it will -- that hold an entire consolidated AI accelerator brings a gross margin below on a traditional silicon product we have out there. No going away from that because you are adding on memory, even though we have to create the excess, the IOs that attach in, we do not and could not justify adding that kind of margin to memory, Nobody could, for us. So it brings a natural lower margin. That's really the simple basis to it. But on the logic part of it, sure, with the kind of content with the kind of IP that we develop cutting edge to make those high-density floating point multipliance [ph] on 800 square millimeters of advanced silicon we can command the margin similar to our corporate gross margin. Operator: Our next question comes from the line of Edward Snyder with Charter Equity Research. Your line is open. Edward Snyder: Thanks a lot. First, a housekeeping one, if I could, Hock. You mentioned the second customer as customer, but you also mentioned that it takes years of work iteratively. I mean you can -- anybody has looked at the TPU history, I guess, understands that. So -- and you've said before that it takes time to ramp it up. But maybe you could give us a little bit of color of phenomenal growth in your custom silicon products. Is much or a material part of that coming from your second customer and taking into account the low revenue number, is the growth rate, generally speaking, fairly comparable? And then I had a question about VMware. Hock Tan: You better go on to VMware customers. And because on the first -- I don't tell about my customer individually, sorry. Edward Snyder: Okay. Okay, never mind. That's a waste of time. So closing VMware held kind of a significant shift in your software strategy from focus on the largest 1,000 or so customers to hundreds of thousands now. Why should we expect once you get through, I don't say, the low-hanging fruit of selling into the, like you mentioned, the first 1,000 customers with the VCF product that your OpEx is a share of sales, firstly, in sales and marketing would start to increase because that's the big leverage Broadcom has had over almost all your acquisitions in software, and that seems to be changing now? Hock Tan: We have a shift here. And it's interesting. You're right, now we've got. We are spending more on go-to-market and support because we have a lot of customers with VMware. They are 300,000, but we stratify. So we have the strategic guys. We sell, upsell VC private cloud very good. But the long tail of what we call smaller commercial customers, we continue to support and sell improved versions of just vSphere compute virtualization to improve productivity on their service. We don't attempt to say, go build up your whole VCM. They don't have the skills, don't have the scale to do it. But only it adds up you're right, costs of my spend, OpEx spend, be it support services, go-to-market will increase. But the difference between that and, say, CA, under acquisition we did is we're growing this business very fast. And you don't have to increase your spend growing this business. So we have operating leverage through revenue growth over the next three years. Edward Snyder: Great. If I could squeeze one more in. You'd mentioned several times actually in the last quarter that there were two divisions you're going to divest including Carbon Black, and that's changed. What has changed? Is the market outlook kind of softened and you just wait and see? Or did you change your strategy and how you're going to integrate? I'm just curious why last quarter, you said you probably get rid of it in months and now you're keeping it. Hock Tan: Well, we find now that we could generate more value to you, the shareholders. I assume you are -- I'm just kidding, but we would generate more value to our shareholders by taking Carbon Black, which is not that big and integrating it, Symantec, that by doing it, we would generate much better value to our shareholders than taking a one-shot divestiture on this asset, not particularly large to begin with. Edward Snyder: Great. Thank you. Operator: Ladies and gentlemen, just in the interest of time, I would now like to turn the call back over to Ji Yoo for closing remarks. Ji Yoo: Thank you, operator. In closing, we would like to highlight our Broadcom enabling AI an Infrastructure Investor Meeting on Wednesday, March 20, 2024, at 9:00 a.m. Pacific 12:00 p.m. Eastern Time. Charlie Kawwas, President of Broadcom's Semiconductor Solutions Group and several General Managers will present on Broadcom's merchant silicon portfolio. The live webcast and replay of the investor meeting will be available at investors.broadcom.com. Broadcom currently plans to report its earnings for the second quarter of fiscal '24, after close of market on Wednesday, June 12, 2024. A public webcast that Broadcom's earnings conference call will follow at 2:00 p.m. Pacific Time. That will conclude our earnings call today. Thank you all for joining. Operator, you may end the call. Operator: Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Operator: 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 Ji Yoo, Head of Investor Relations of Broadcom Inc. The floor is yours. Ji Yoo: 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 Kawwas, President, Semiconductor Solutions Group. Broadcom distributed a press release and financial tables after the market closed, describing our financial performance for the fourth 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. This conference call is being webcast live and an audio replay of the call can be accessed for one year through the Investors section of Broadcom’s website. During the prepared comments, Hock and Kirsten will be providing details of our fourth quarter and fiscal year 2023 results, guidance for our fiscal year 2024, as well as commentary regarding the business environment. We’ll take questions after the end of our prepared comments. Please refer to our press release today and our recent filings with the SEC for information on the specific risk factors that could cause our actual results to differ materially from the forward-looking statements made on this call. In addition to U.S. GAAP reporting, Broadcom reports certain financial measures on a non-GAAP basis. A reconciliation between GAAP and non-GAAP measures is included in the tables attached to today’s press release. Comments made during today’s call will primarily refer to our non-GAAP financial results. I’ll now turn the call over to Hock. Hock Tan: Thank you, Ji, and thank you, everyone, for joining us today. In our fiscal Q4 2023, consolidated net revenue was $9.3 billion, up 4% year-on-year and very much as we had guided at the last conference call. Semiconductor solutions revenue 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 remains very stable, semiconductor is continuing the cyclical slowdown at enterprises and telcos that we have been seeing over the past six months. However, hyperscalers remain strong. Generative AI revenue, driven by Ethernet solutions and custom AI accelerators, represented close to $1.5 billion in Q4 or 20% of semiconductor revenue, while the rest of the semiconductor revenue continued to be rather stable at around $6 billion. Moving on to results for the year. For fiscal 2023, consolidated revenue hit a record $35.8 billion, growing 8% year-on-year. And since 2020, even though we have not made an acquisition, we have shown a robust trajectory of growth, driven by semiconductor growing at an 18% CAGR over the past three years. In fiscal 2023, operating profit grew by 9% year-on-year, and our free cash flow grew 8% year-on-year to $17.6 billion or 49% of revenue. We returned $13.5 billion in cash to our shareholders through dividends and stock buybacks. As you well know, we just closed the acquisition of VMware on November 22, just about four weeks into Broadcom’s fiscal 2024. We are now refocusing VMware on its core business of creating private and hybrid cloud environments among large enterprises globally and divesting noncore assets. Reflecting the consolidation of a restructured VMware into our 2024 outlook, we forecast our fiscal year ‘24 consolidated revenue to be $50 billion. We expect the integration to take about a year and will require close to $1 billion in transition spending, which will largely be done as we exit fiscal ‘24. Regardless, we expect our fiscal year 2024 adjusted EBITDA to be approximately 60% of revenue. Kirsten will give you more details in her section. Now, let me give you more color on our two reporting segments, and I’ll start with software. 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. Consolidated renewal rates averaged 119% over expiring contracts. And in our strategic accounts, we actually averaged 130%. Over 90% of the renewal value represented recurring subscription and maintenance. For the year, renewal rates averaged 116% over expiring contracts and in strategic accounts, we averaged 124%. Revenue in fiscal 2023 was $7.6 billion, up 3% year-on-year and our expectation for fiscal ‘24 is for this revenue to be $8 billion, which is 4% year-on-year. For the s2024 outlook, we are excited to now include VMware. As we all know, VMware has the leading technology to virtualize entire data centers, not just compute, and by doing so, create private cloud on-prem. Our strategy going forward is simply to enable global enterprises to run their applications across the other data centers as well as on public clouds by consuming VMware’s higher-value software stack. And to attract and keep these workloads across the environment, we are investing in a rich catalog of microservices tools. This will be our focus. And the noncore businesses of end-user computing and Carbon Black will be divested. So for 2024, based on 11 months of contribution from VMware, we expect VMware to contribute $12 billion in revenue. And on a consolidated basis, we expect our infrastructure software revenue in 2024 to be $20 billion. Turning now to the semiconductor segment. 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 hyperscalers for our custom AI accelerators and as well for our networking switches, routers and NICs, Network Interface Cards, dedicated towards scaling our AI data centers. As you know, even as Ethernet is the standard protocol in front-end networks, hyperscalers are also deploying Ethernet predominantly in their AI networks. In fiscal ‘23, networking revenue grew 21% year-on-year to $10.8 billion. If we exclude the AI accelerators, networking connectivity represented about $8 billion, and this is purely silicon, not systems, not cable nor subsystems. In fiscal 2024, we expect networking revenue to grow 30% year-on-year, driven by accelerating deployment of networking connectivity and expansion of AI accelerators in hyperscalers. Moving to wireless. Consistent with the seasonal launch by our North American customers, Q4 wireless revenue of $2 billion increased 23% sequentially and declined 3% year-on-year, representing 27% of semiconductor revenue. In fiscal ‘23, wireless revenue was relatively flat at $7.3 billion, just down 2% year-on-year. The engagement with our North American customers continues to be deep, strategic and multiyear. And accordingly, in fiscal ‘24, we expect wireless revenue to again remain stable year-on-year. Next, our Q4 server storage connectivity revenue was $1 billion or 14% of semiconductor revenue and down 17% year-on-year. In fiscal ‘23, server storage connectivity was $4.5 billion, up 11% year-on-year. And going to fiscal ‘24, we expect server storage revenue to decline mid- to high-teens percentage year-on-year, driven by the cyclical weakness that began late ‘23. And moving on to broadband. Q4 revenue declined 9% year-on-year to $950 million, in line with expectations and represented 13% of semiconductor revenue. And in fiscal ‘23, broadband revenue was $4.5 billion and up 8% year-on-year. Moving on to fiscal ‘24, 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 ‘23 continues into fiscal ‘24. And finally, Q4 industrial sales of $236 million was stable year-on-year. In fiscal ‘23, industrial resales were $962 million. In fiscal ‘24, we expect industrial resales to be down low single digits year-on-year. So in summary, fiscal ‘23 semiconductor solutions revenue was up 9% year-on-year to $28.2 billion. Revenue from generative AI in fiscal ‘23 reached 15% of semiconductor revenue, in line with our expectation. And moving on to fiscal ‘24, 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 more than 25% of the semiconductor revenue, consistent with prior guidance, which more than offset the lack of growth from non-AI semiconductor revenue. With the consolidation of VMware, bringing our Infrastructure Software segment revenue to $20 billion and the semiconductor segment holding at mid-high single digit growth year-on-year, we are, therefore, guiding our fiscal ‘24 revenue to be $50 billion, which represents 40% year-on-year growth from fiscal ‘23. With that, let me turn the call over to Kirsten. Kirsten Spears: 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 were 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 at $822 million, resulting in operating profit growth of 2% year-on-year and semiconductor operating margins of 58%. Now, moving on to our infrastructure software segment. Revenue for infrastructure software was $2 billion, up 7% year-on-year and represented 21% of revenue. Gross margins for infrastructure software were 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 is 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-year. 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 spent $452 million on capital expenditures, and free cash flow grew 8% year-on-year to $17.6 billion or 49% of fiscal 2023 revenue. Now, turning to capital allocation. For fiscal 2023, we spent $15.3 billion, consisting of $7.6 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 remaining. 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 the 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 ‘24 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 in annual dividends since we initiated dividends in fiscal 2011. Now on to 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 year 2024 is for consolidated revenues of $50 billion. Within this, our fiscal year 2024 semiconductor revenue is expected to grow mid- to high-single-digit percent year-on-year. Our fiscal year 2024 infrastructure software segment revenue from continuing operations is expected to be $20 billion, including $8 billion from CA, Symantec Enterprise and Brocade and $12 billion from VMware. With regard to VMware, our forecast for fiscal ‘24 revenue of $12 billion reflects 11 months of contribution from VMware. This does not include revenue from EUC and Carbon Black of approximately $2 billion, which we plan to divest. We are also converting an installed base of licenses that is over 60% perpetual today to one that will be mostly subscription by the end of fiscal 2024. Offsetting these, our new strategy for VMware will accelerate revenue growth over the next three years. During fiscal ‘24, 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 exits fiscal ‘24 at approximately $1.4 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. Operator: [Operator Instructions] Our first question will come from the line of Vivek Arya with Bank of America. Vivek Arya: Hock, so yesterday, one of your peers suggested that the market for AI accelerators could be as large as $400 billion. So kind of three related questions. What do you think about that number? And then number two, how does Broadcom participate in that, just beyond your large kind of ASIC project on the compute offload side? And then what does this larger AI accelerator market imply for your Ethernet networking business? I 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’s growth prospect? Hock Tan: Thank you for those very interesting questions. Starting with the first part, I mean, it’s -- what we’re seeing is a market that continues to grow, to accelerate. What is also very obvious is it’s very, very dynamic as architectures of large language models, software models continues to change, I mean, literally change on the fly. We are also seeing the requirements for compute silicon change. And it’s very interesting, very fascinating for us, but it also presents quite an interesting opportunity, which is to say that if a customer has a business model that is substantial and have resources which obviously supports that, is getting to a stage that it might make a lot of sense to design AI compute engines, which comprises memory as well as the compute engine itself, then that can be tailored or better word, customized for their particular requirements on applications, on their particular LLM model. And we’re seeing this as we all are seeing LLM models continue to change and the face -- the shape of generative AI dynamically change more and more, where training and inference are now starting to, in a way, converge and the chip designs are changing. And we are seeing that in the way we design specific custom chips for hyperscalers. That’s interesting. So that’s a very interesting opportunity for us. And as I indicated in my remarks, we see that revenue as part of networking revenue, $4 billion and networking -- AI networks and going -- doubling almost during 2024. Nothing new. We have said that before. And if anything else, we are reinforcing that particular guidance. Now, networking is particularly interesting as you heard in my opening remarks. It is accelerating as fast as our AI accelerators, the compute engines are growing. And we see that growing hand in hand and particularly so as training -- continuous training of very large language models with very different and very large parameters keep going on and things keep changing. So we’re seeing no slowdown, in fact, in the update on building out this AI networks. If anything else on average, we are seeing a doubling on size of those networks across the board. So, that’s -- to your answer question. Yes, I fully concur with AMD, when they indicate that it looks like demand appears to be accelerating rather than staying stable or decelerating. Operator: Thank you. One moment for our next question. And that will come from the line of Ross Seymore with Deutsche Bank. Ross Seymore: Just a quick clarification on the question. The clarification is, is the fiscal year guidance going to be the new protocol, or is that just this quarter? And then the real question, Hock, is on the VMware side of things, Kirsten 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 were 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? Hock Tan: Yes. We are very -- we are in a very interesting, very exciting situation here as we move into the next chapter of VMware. As I said, we focus the business on VMware Cloud Foundation, which is the full software stack that virtualizes data centers on-prem, not totally [ph] virtualize it, a cloud environment, and we are converting more and more customers step-by-step as they come up for renewal into this higher value stack, and we’re doing it on a subscription basis. So become very focused. So we will kick it off at a much lower rate -- because subscription generally brings down revenues, as you know, in 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 it’s the math and the trajectory. And to answer your question, you’re right, we are accelerating from $12 billion, and we’re probably seeing a double-digit growth for the next three years, just by sheer math of selling that higher value virtualization stack versus the very loose component sales in the past, particularly on compute only. Ross Seymore: And on the fiscal year side, is this a one quarter thing, or is this the new way you guys are going to be doing it? Hock Tan: Well, that’s a good question. Well, we will -- just to give you an indication, in 2024 because it’s an accelerating trend, our view is that it’s more appropriate and more relevant to getting you guys a sense of where we’re headed to get to turn it to an annual guidance for ‘24. And we will report results every quarter and update our annual guidance ‘24 each time we report the quarterly actuals. Operator: Thank you. One moment for our next question. And that will come from the line of Harlan Sur with JPMorgan. Harlan Sur: One quick housekeeping item question. So, even off the lower revenue base starting in fiscal ‘24 for VMware, is the team still targeting $8.5 billion-plus of EBITDA in three years? And then for my main question, Hock. As you mentioned, right, one of the fastest growing workloads in accelerated compute is accelerated compute and generative AI. And all of these workloads are increasing at an exponential rate. You talked about the benefits to your silicon franchise. But 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, TPU, accelerated servers. So, how is the team exploiting a software-defined data center solutions via either cloud foundations or Tanzu to try to help customers focus on AI sort of drive better utilization, better economics, faster deployments on this very fast growing part of the market? Hock Tan: Well, as you may be aware, in the last VM Explore in Las Vegas, VMware came out and announced in partnership with NVIDIA, the VMware Private AI Cloud Foundation. Another way of describing it is, the VMware Cloud Foundation Software Stack, the whole VCF stack runs NVIDIA coder, runs the NVIDIA GPU. That is the partnership. So, if you’re an enterprise, it’s a very easy step to get into gen AI analytics because the data center that you as an enterprise own on-prem that runs VCF will by default run the NVIDIA GPU software stack as well. Another way to put it, it virtualizes the NVIDIA GPU. That’s the VMware software stack as well. So it’s a very strong attraction in our -- from our perspective to, in fact, accelerate thinking of a lot of enterprise to adopting the whole VCF site. It’s simply because not only does it virtualize the data centers and make your data on-prem data center much more resilient, easier to manage, lower cost to manage, it has the added benefit, a big attraction this is of being able to right away start running AI workloads. Harlan Sur: And then, just on my first question, are you guys still targeting $8.5 billion of EBITDA in three years on VMware? Hock Tan: As Kirsten indicated, as we exit fiscal ‘24, we are practically at a run rate of $8.5 billion EBITDA. Operator: One moment for our next question. And that will come from the line of Stacy Rasgon with Bernstein. Stacy Rasgon: Kirsten, along that line, I was wondering if you’re going to do 60% EBITDA margin for the Company for the full year, how 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 -- that VMware OpEx would be down 40% exiting the year versus the entry trade. I’m actually kind of surprised it’s not down more. Maybe that’s the reinvestment. But is that $1.4 billion per quarter for VMware, that’s the right exit rate going for VMware OpEx? And should we sort of go off of that or what? Kirsten Spears: That’s VMware spending. So that’s total spending. Hock Tan: Yes, it will be. But, let me tell you, Stacy, you’re missing the biggest point. We are on a -- as I indicated to an earlier question by Vivek, I think, our revenue during this process, even 12 months, 4 quarters, is on the growth trajectory, 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 will keep running beyond 2024. But 2024 by itself won’t be on a revenue trajectory that goes up very rapidly. So what you have think about picture is, is a revenue trajectory in ‘24 that is expanding or growing while the expense -- operating expense, total spend because of reduction of transition expenses is declining. And that’s why we are telling you that by the end of -- as we exit fiscal ‘24, we pretty much get to the guidance we gave you at the beginning of when we announced this deal. Stacy Rasgon: So what’s the total company EBITDA margin, say, exiting the year then, just to level set? Hock Tan: Well, that’s a total -- we will get pretty close to where we are supposed to, before we started this whole exercise. Stacy Rasgon: What was that 65%? I can’t remember. Hock Tan: It’s somewhere between 60% and 65%. How does that sound, Stacy? Stacy Rasgon: I mean you did say 65% on it. I think I recall you saying you were going to run VMware at 65%. So I guess, 65% is the right exit rate? Hock Tan: At steady state, you’re right. At steady state, we’ll get to pretty close to 65% on VMware. Operator: Thank you. One moment for our next question. And that will come from the line of Timothy Arcuri with UBS. Timothy Arcuri: Hock, in the 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. Hock Tan: No. I think those conditions are pretty well laid out in the website of the relevant authorities. I frankly don’t think that it’s very appropriate for me to sit here and repeat all those conditions again. It’s right on the website, and that’s what it is. Timothy Arcuri: Okay. And it doesn’t make you think any differently about the synergies that you can drive from the business? Hock Tan: No. Operator: Thank you. One moment for our next question. That will come from the line of Christopher Rolland with Susquehanna. Christopher Rolland: Thanks for the question. Congrats on the quarter and closing the VMware deal. 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 sounds like you bounced -- you bumped the divi 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 Broadcom with acquisitions in mind as you delever? Kirsten Spears: Always with acquisitions in mind, we’re continuing our share repurchase program that we promised. So that’s -- we’re definitely buying back shares. Yes, as being Broadcom, we’ll delever quickly. So, we’ll keep everything in mind essentially. Hock Tan: Chris, to expand a bit on that. We acquired VMware with part of cash because it took longer. So we got ourselves some part of cash. And with that flexibility, not only are we able to give dividends to the new shareholders from VMware side, we are continuing to complete the commitment we make to you, the shareholders, to -- for the rest of fiscal -- for the rest of calendar ‘23 to buy back that $7 million of shares out there. Christopher Rolland: 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? Hock Tan: We just bought a company that’s pretty sizable. We are restructuring the business model and we’re changing, among other things, the business model to a subscription business model, as Kirsten said. And we see therefore that trajectory of the revenue -- a sharp trajectory of growth for the revenue just by sheer conversion to subscription and the fact that we are also upselling a higher-value product. The combination of that and the new -- in fact it’s company, we -- makes it more -- much more sensible, let’s put it this way, for us to be able to give you a full year number than a three-month guidance. Because spending -- transition spending might slip, might accelerate, revenue might accelerate, might slip. And giving ourselves three months to tell you what it is, especially on a new environment to us, it’s not very, very, I call it -- we are not being good to you guys, the shareholders. But for the full year, I think we have hell a lot more confidence we will attain those endpoints at the exit. Operator: And one moment for our next question. And that will come from the line of Toshiya Hari with Goldman Sachs. Toshiya Hari: Hock, I had a question on the semiconductor business and specifically on the non-AI side of things for both networking and server storage connectivity. As you noted, you’re obviously going through a cyclical correction. Historically, you’ve had a pretty good understanding of where customer inventory is. And 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. Hock Tan: On our books, you can see inventory for our products is pretty damn good, right, especially compared to our peers, and that’s because we keep it tight. Out in customers, and we don’t sell through channels, we don’t sell much through channels. We usually do a lot of it direct to our logic customers. We feel they are in good shape, relatively speaking. We are still in good shape. Now, if you ask me, maybe server storage, that could be a little excessive, but not broadband and certainly not in networking. So overall, on our products, we still feel 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, not just because they have too much of my inventory, I think because they have too much of everybody else inventory out there. We tend to see some caution in the way they choose to buy. Having said that, we’re still keeping to our lead times. Toshiya Hari: And Hock, any comment on sort of the timing or the shape of the recovery in ‘24? Hock Tan: If only I know. I mean, I’ll be speculating to say second half of ‘24 things will start looking better compared to the first half of ‘24. Operator: And one moment for our next question. And that will come from the line of Karl Ackerman with BNP Paribas. Karl Ackerman: Hock, I was hoping you may discuss the reason for divesting EUC 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 CXL within data centers that would seem to be a very big opportunity for VMware? Thank you. Hock Tan: Yes. What was the first question again? Sorry. Okay. Why do I chose to sell End-User Computing and Carbon Black? Those are good assets. Let’s make no mistake. They are very sustaining. They are 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 biggest value for our business model. And basically, we then do not want to be distracted by noncore focus. And VMware for us is about core. It’s about data centers, it’s about core networks and core compute. And so, we’re now going to invest and focus our sales and R&D on those core areas of VMware Cloud Foundation. And to us, End-User Computing, Carbon Black, good assets as they may be, we prefer now to divest them. We’ll find good homes for them because there are a lot of very interested parties who are more than happy to take those assets. And we’ll be very, very thoughtful about where we put those assets eventually, simply because the customers of many of these two assets, many of the customers are also the same customers to the VMware Cloud Foundation. Operator: Thank you. And one moment for our next question. And that will come from the line of Matt Ramsay with TD Cowen. Matt Ramsay: Hock, I guess I’ll caveat my question saying that I’m a semiconductor guy rather than a software expert. But I wanted to ask about the plan to convert the VMware customer base to subscription models and contrast that with what you guys did with CA and Symantec. So, are there -- do you feel like the process is going to be pretty similar in duration and success, or are there differences in maybe the customer base, the length of the long tail outside the sort of Fortune 1000, the type of technologies there? Are there any similarities or differences in the plan there that we should sort of think about and what that might mean for how quickly you can convert that business? Thanks. Hock Tan: No. These are very different assets, not saying anyone necessarily much better than the other, just different. In CA, particularly where we’re mainframe but also some distributors, we focus very much especially on core customer base, which represented at that time, we bought 70% of the overall revenue of those -- CA. We focus on these customers. We focus on supporting them and they’re continuing to basically give them really good support, feature request growth in the area. And that’s how we then and -- we focus on Symantec too, which is a small core group of customers. And a big part of it is the technology of CA, especially on mainframe is honestly -- is running a lot of legacy applications that are still very, very much alive today, but customers preferring to run it on those mainframe tools simply because it makes no sense to modernize or change for whatever -- for their own good reasons. VMware, however, we’re selling a product of the present and of the future. It is a growth product to be able to create a virtualized cloud environment in your own data center on-prem for any global company. The good thing about going to public cloud is also totally virtualize, but very resilient when you run -- 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 are already running VMware products that application that’s already written on VMware Cloud Foundation. This is then giving these enterprises the opportunity to have a hyperscaler on-prem. That’s the plan we’re doing, plain and simple. Operator: Thank you. One moment for our next question. And that will come from the line of William Stein with Truist. William Stein: Hock, in the past, I think we’ve all been aware that there’s one major customer on the accelerated compute side. I suspect that he’s broadened and deepened perhaps and 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. Hock Tan: Yes, it has. It has, which reflects some of my opening remarks that say that I used to tell you guys, hey, merchant silicon will triumph. But I think with the evolution -- a very rapid evolution I’ve been seeing on the AI, large language model, generative AI large language models and the fact that in hardware one size doesn’t fit all. That is variation depending on the models you run. I would say that if -- for some of those hyperscalers with the resources, with the scale requirements to be able to create customized versions of hardware to match with customization of their foundation models and even their application models, we begin to see the effect of that. Other than that, I’d rather not disclose any more to you at this point because we’re kind of under NDA overall. Operator: Thank you. One moment for our next question. And that will come from the line of Harsh Kumar with Piper Sandler. Harsh Kumar: Yes. Hock, first of all, congratulations on closing the VMware deal. I know you’ve been trying to close that for a while. I wanted to -- you’ve had a lot of time. Your management had a lot of time to look at this deal through the process of closing. I was curious what you have seen so far that pleases you the most and what do you think will be the most challenging aspect of the integration over the next 12 months that you highlighted? Hock Tan: Well, over the past 18 months almost, we had on the journey of closing this deal from the date of announcement. You’re right, we had a great opportunity, and thanks to a very supportive management team from VMware that engages with us very, very well. Again, it’s planning. We can see, we can’t touch, but it has 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 talked one-on-one or in small groups to at least 150 CIOs globally of the largest customers of VMware out there. And one thing is very clear. The VMware core product, the VMware Cloud Foundation software stack that enables virtualization of not just computing, servers, compute, but storage, networking as well as orchestration and management layer over that whole stack is something that CIOs, head of infrastructure of large -- many large companies out there really want. They want to be able to deploy. They want to make their data centers, which is very heterogenous now between virtualization and compute to bare metal and the mix environment and different vendors where each is trying to optimize best-of-breed to one that is managing under a single abstraction layer across a diversity of hardware. That saves a lot of hardware purchases. That creates a lot of cost reduction in a way to manage it. That is the value of the technology VMware brings to bear. And the products are there. For us is focusing and execution, which is what you hear us say that today and which is what you hear Kirsten lay out in the numbers we are looking at just in the first year of completion of this acquisition. Operator: And that concludes today’s question-and-answer session. I would now like to turn the call back over to Ms. Ji Yoo for any closing remarks. Ji Yoo: Thank you, operator. In closing, Broadcom currently plans to report its earnings for the first quarter of fiscal ‘24 after close of market on Thursday, March 7, 2024. A public webcast of Broadcom’s earnings conference call will follow at 2:00 p.m. Pacific. That will conclude our earnings call today. Thank you all for joining. Operator, you may end the call. Operator: Thank you all for participating. This concludes today’s program. You may now disconnect.

Operator: Welcome to the Broadcom Inc.'s 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 Ji Yoo, Head of Investor Relations of Broadcom Inc. Ji Yoo: 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 Kawwas, President, Semiconductor Solutions Group. Broadcom distributed a press release and financial tables after the market closed, 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's website at broadcom.com. This conference call is being webcast live and an audio replay of the call can be accessed for one year through the Investors section of Broadcom's website. During the prepared comments, Hock and Kirsten will be providing details of our third quarter fiscal year 2023 results, guidance for our fourth 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 Hock. Hock Tan: Thank you, Ji, and thank you, everyone, for joining us today. In our 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 and infrastructure software grew 5% year-on-year to $1.9 billion. Hyperscale continued to grow double-digits year-on-year, but enterprise and telco spending moderated. Meanwhile, virtually defying gravity, our wireless business has remained stable. Now generative AI investments are driving the continued strength in hyperscale spending for us. As you know, we supply a major hyperscale customer with custom AI compute engines. We are also supplying several hyperscalers, a portfolio of networking technologies as they scale up and scale out their AI clusters within their datacenters. Now representing over $1 billion, this represented virtually all the growth in our infrastructure business in Q3 this year-on-year. So without the benefit of generative AI revenue in Q3, our semiconductor business was approximately flat year-on-year. 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 expected a soft landing during fiscal '23, 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 landing, we see though that our broad portfolio of products influencing the puts and takes across revenues within all our end markets except one, and that is networking. And so, in my remarks today, we focus on networking, where generative AI has significant impact. Q3 networking revenue was $2.8 billion and was up 20% year-on-year in line with guidance, representing 40% of our semiconductor revenue. As we indicated above, our switches and routers as well as our custom silicon AI engines, drove growth in this end market as they would deploy in scaling out AI clusters among the hyperscale. We've always believed and more than ever now with AI networks that Ethernet is the best networking protocol to scale out AI clusters. Ethernet today already offers the low latency attributes for machine learning and AI, and Broadcom has the best technology today and tomorrow. As a founding member of the Ultra Ethernet Consortium with other industry partners, we are driving Ethernet for scaling deployments in large language model networks. Importantly, we're doing this based on open standards and a broad ecosystem. Over the past quarter, we have already received substantial orders for our next-generation Tomahawk 5 switch and Jericho3-AI routers and plan to begin shipping these products over the next six months to several hyperscale customers. This will replace the existing 400-gigabit networks with 800-gigabit connectivity. And beyond this, for the next-generation 1.6-terabit connectivity, we have already started development on the Tomahawk 6 switch, which has, among other things, 200G SerDes generating throughput capacity of over 100 terabit per second. We are obviously excited that generative AI is pushing our engineers to develop cutting-edge technology in silicon technology that has never been developed before. We know the end of Moore's Law has set limits on computing in silicon technology, but 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 to scale generative AI. We invest in industry-leading 200G SerDes that can drive optics and even copper cables. We have differentiating technology that breaks current bottlenecks in high-bandwidth memory access. We also have X high-speed and ultra-low power chip-to-chip connectivity to integrate multiple AI compute engines. We also have invested heavily in complex packaging technologies, migrating from today's 2.5D to 3D, which enables large memory to be integrated with the AI compute engines and accelerators. In sum, we have developed end-to-end platform of plug-and-play silicon IP that enables hyperscalers to develop and deploy their AI clusters in an extremely accelerated time-to-market. Not surprisingly, in Q4, moving on to Q4, continuing to be driven by generative AI deployments, we expect our networking revenue to accelerate in excess of 20% year-on-year. And this has been driven by the strength obviously in generative AI where we forecast to grow about 50% sequentially and almost two times year-on-year. Moving to wireless. Q3 wireless revenue, $1.6 billion, represented 24% of semiconductor revenue, up 4% sequentially, flat year-on-year. The engagement with our North American customer continues to be deep and multi-year across WiFi, Bluetooth, Touch, RF Front-End and Inductive Power. So in Q4, consistent with 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. With a difficult year-on-year compare, we expect server storage connectivity revenue in Q4 to be down mid-teens percent year-on-year. And moving on to 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 10G-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, though 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, if we exclude generated AI, our semiconductor revenue will be flat. Now turning to software. In Q3, infrastructure software revenue of $1.9 billion grew 5% year-on-year and represented 22% of total revenue. For core software, consolidated renewal rates averaged 117% over expiring contracts, and in our strategic accounts, we averaged 127%. Within strategic accounts, annualized bookings of $408 million included $129 million or 32% of cross-selling of other portfolio products to these same core customers and over 90% of the renewal value represented recurring subscription and maintenance. Over the last 12 months, I should add, consolidated renewal rates averaged 115% over expiring contracts, and in our strategic accounts, we averaged 125%. Because of this, our ARR, the indicator of forward revenue, at the end of Q3 was $5.3 billion. 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 are guiding Q4 revenue of $9.27 billion, up 4% year-on-year. Before Kirsten tells you more about our financial performance for the quarter, let me provide a brief update on our pending acquisition of VMware. We have received legal merger clearance in Australia, Brazil, Canada, the European Union, Israel, South Africa, Taiwan and the United Kingdom and foreign investment control clearance in all necessary jurisdictions. In the US, the Hart-Scott-Rodino pre-merger waiting periods have expired, and there is no legal impediment to closing under US merger regulations. We continue to work constructively with regulators in a few other jurisdiction and are in the advanced stages of the process towards obtaining the remaining required regulatory approvals, which we believe will be received before October 30th. We continue to expect to close on October 30th, 2023. Now Broadcom is confident that the combination with VMware will enhance competition in the cloud and benefit enterprise customers by giving them more choice and control where they locate their workloads. With that, let me turn the call over to Kirsten. Kirsten Spears: Thank you, 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 75.1% of revenue in the quarter, in line with our expectations. Operating expenses were $1.1 billion, down 8% year-on-year. R&D of $913 million was also down 8% year-on-year on lower variable spending. Operating income for the quarter was $5.5 billion and was up 6% from a year ago. Operating margin was 62% of revenue, up approximately 100 basis points year-on-year. Adjusted EBITDA was $5.8 billion or 65% of revenue. This figure excludes $122 million of depreciation. Now a review of the P&L for our two 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 were approximately 70%, down 160 basis points year-on-year, driven primarily by product mix within 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. Q3 semiconductor operating margins were 59%. Moving to the P&L for our infrastructure software segment. Revenue for the infrastructure software segment was $1.9 billion, up year-on-year and represented 22% of revenue. Gross margins for infrastructure software were 92% in the quarter, and operating expenses were $337 million in the quarter, down 10% year-over-year. 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 was $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 $1.1 billion is short term. The weighted average coupon rate and years to maturity of our fixed rate debt is 3.61% and 9.7 years, respectively. Turning to capital allocation. In the quarter, we paid stockholders $1.9 billion of cash dividends. 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 AVGO shares. The non-GAAP diluted share count in Q3 was $436 million. As of the end of Q3, $7.3 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 to end 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 a 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. Operator: Thank you. [Operator Instructions] And our first question will come from the line of Vivek Arya with Bank of America. Your line is open. Vivek Arya: Thanks for taking my question. Hock, 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 face some kind of annual competitive situation because you have a range of both domestic and Taiwan-based ASIC competitors, right, who think they can do it for cheaper. So I'm just curious, what is your visibility into maintaining this competitive win and then hopefully growing content in this over the next several years? Hock Tan: Love to answer your question, Vivek, but I will not, not directly anyway because we do not discuss our dealings and especially specific dealings of the nature you're asking with respect to any particular customer. So that's not appropriate. But I tell you this in broad generality, 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 a multiyear, very strategic engagement in usually more than one leading-edge technologies, which is what you need to create those kind of products, whether it's in wireless or in this case, in generative AI, multiple technologies that goes in creating the products they want. And it's multiple -- it's very strategic and it's multiyear and engagement is very broad and deep. Vivek Arya: Thank you, Hock. Operator: Thank you. One moment for our next question. And that will come from the line of Harlan Sur with JPMorgan. Your line is open. Harlan Sur: Good afternoon. Thanks for taking my question. 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 in a relatively weak macro environment. Looking at your customers' demand profiles, your strong visibility, given your lead times, can the team continue to sustain a stable-ish sort of $6 billion revenue profile ex-AI 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? Hock Tan: You're asking me to guide beyond a quarter. I mean, hey, that's beyond my pay grade, Harlan. But I know. But I just want to point out to you, we promised you a soft landing, late fiscal '22, that likely '23 will be a soft landing. And as you pointed out and what, to my remarks, that's exactly what we are seeing. Harlan Sur: Okay, perfect. Thank you. Operator: Thank you. One moment for our next question. And that will come from the line of Ross Seymore with Deutsche Bank. Your line is open. Ross Seymore: Hi, guys. Thanks for letting me ask a question. Hock, I want 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 is the networking side contributing as well? Any color on that would be helpful. Hock Tan: They go hand -- Ross, these things go very hand-in-hand. You don't deploy those AI engines in these days for generative AI, particularly in onsies or twosies anymore. They come in large clusters or parts as hyperscalers will call -- some hyperscalers will call it. And with that, it's -- you need a fabric, networking connectivity among thousands -- tens of thousands today of those AI engines, whether it's GPUs or some other customized AI silicon compute engine, the whole fabric with its AI engine represents literally the computer, the AI infrastructure. So it's hand-in-hand that our numbers are driven very, very correlated to not just AI engines, whether we do the AI engines or somebody else, merchant silicon does those GPU engines. We supply a lot of the Ethernet networking solutions. Ross Seymore: Thank you. Operator: Thank you. One moment for our next question. And that will come from the line of Stacy Rasgon with Bernstein. Your line is open. Stacy Rasgon: Hi, guys. Thanks for taking my question. If I take that sort of $6 billion non-AI run rate and I calculate what the AI 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 I think about how you get to that number if that so I guess two questions. One is, is that number still 25% 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 if the non-AI goes down? Hock Tan: Well, there are a couple of assumptions one has to make, none of which I'm going to help you with, as you know, because I don't guide next year. But except to tell you our AI revenue, as we indicated, has been accelerating -- on an accelerating trajectory and no surprise. You guys hear that because deployment -- it's been extremely on an urgent basis and the demand we are seeing has been fairly strong, very strong. And so we see it accelerating through end of '22, now accelerating and continued to accelerate through end of '23 that we just indicated to you. And for fiscal '24, we expect somewhat a similar accelerating trend. And so to answer your question, we have always indicated previously that for fiscal '24, which is just, which is a forecast, we believe it will be over 25% of our revenue -- of our semiconductor revenue over 25% of our semiconductor revenue. Stacy Rasgon: Got it. Thank you very much. Operator: Thank you. One moment for our next question. And that will come from the line of Toshiya Hari with Goldman Sachs. Your line is open. Toshiya Hari: Hi. Thank you so much for taking the question. I had one quick clarification then a question. On the clarification, Hock, 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 capacity perspective do you expect into fiscal '24? And then my question is more on the non-AI side. As you guys talked about, you've done really well in 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. So what's your confidence level as it pertains to a potential inventory correction in your non-AI business, networking business going forward? Thank you. Hock Tan: Okay. Well, on the first question, you're talking about supply chain. Well, these products for generative AI, whether they are networking or -- and the customer engines, take long lead times. These are very, very leading-edge silicon products, both in terms of across the entire stack from the chip itself, to the packaging to even memory, the kind of HBM memory that is used in those chips. It's all very long lead time and very cutting-edge products. So we're trying to supply, like everybody else wants to have, within lead times. So by definition, you have constraints. And so do we, we have constraints. And we're trying to work through the constraints, but it's a lot of constraints. And you'll never change as long as demand, orders flow in shorter than the lead time needed for production because the production of these parts are very long extended, and that's the constraint we see as they come in faster than lead times along as orders come in. The answer on your second part, well, as far as we do see we are 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 plateau. Think of it that way. We -- growth is kind of down to very little, but it's still pretty stable up there. And so we have a range -- as I indicated, too, we don't have any one product in any one end market. We have multiple products. As you know, our portfolio is fairly broad, diversified and categorized into each end market with multiple different products. And each product runs on its own cadence sometimes on the timing on when customer wants it. And so you see bumping up and down different levels. But again it averages out over each quarter, as we pointed out, around $6 billion. And for now, we're seeing that happen. Toshiya Hari: Great. Thank you. Operator: Thank you. One moment for our next question. And that will come from the line of Karl Ackerman with BNP Paribas. Your line is open. Karl Ackerman: Thank you. Just on gross margins, you had a tough compare year-over-year for your semiconductor gross margins, which, of course, remains some of the best in semis, but is there a way to think or quantify about the headwind to gross margins this year from still elevated logistics costs and substrate costs as we think about the supply chain perhaps freeing up next year that perhaps could be a tailwind? Thank you. Hock Tan: You know, Karl, it is Hock. Let me take a stab at this question because it's really a more holistic answer, and here's what I mean. The impact to us on gross margin more than anything else, it's not related to transactional supply chain issues. I'm sure they have in any particular point in time, but not as material and not as sustained in terms of impacting trends. What drives gross margin largely for us as a company is, frankly, a product mix, it's a 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 segment them classify them into multiple end markets. Within the end market, your products, and they all have different gross margins depending on the -- on where they used and the criticality and various other aspects. So they're different. So we have a real mixed bank. 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, so think in that way. And you measure it across multiple products. And each time a new generation of product -- of a particular product gets adopted, we get the opportunity to lift -- uplift gross margin. And therefore, the rate of adoption matters, for instance, because for some products that changes gross margin every few years versus one that's more extended one. You have different gross margin growth profile. And this is what is all tied to the most important variable. Now the more interesting thing to come down to us on a specifically your question is during '21, '22, in particular, with an up cycle in the semiconductor industry. We had a lot of lockdowns, change in behaviour, and a high level of demand for semiconductors. Or put it this way, a shortage of supply to demand. There was accelerated adoption of a lot of products, accelerated adoption. So we benefited, among other things, not just revenue, as I indicated, we benefited from gross margin expansion across the board as a higher percentage of our products out there gets adopted into the next-generation faster. We pass this. There is probably some slowdown in the adoption rate. And so gross margin expansion might actually not expand as fast. But it will work itself out over time. And I've always told you guys, the model this company has seen and is it's empirical, but based on this underlying basic economics, it's simply that when we have the broad range of products we have and each of them a different product life cycle of upgrading and next generation. We have seen over the years on a long-term basis, an 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. That happened in 2022. And so now later, you have to offset that with years where gross margin expansion might be much less like 50. And I think with that the process, you will see us go through on an ongoing basis. Karl Ackerman: Thank you. Operator: Thank you. One moment for our next question. That will come from the line of Harsh Kumar with Piper Sandler. Your line is open. Harsh Kumar: Yes, Hock. So congratulations on our 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 1 year for your -- most of your product lines. So I suppose you see visibility a year out. The question 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 time frame or maybe not even a year out? Just any color would be helpful. And then, as a clarification, Hock, is China approval needed for VMware or not needed? Hock Tan: Let's start with lead times and asking me to predict when the up cycle would happen. It's still too early for me to want to predict that, to be honest with you, because even though we have 50 weeks lead time, I have overlaid on it today. Nice, a lot of bookings related to generative AI. A decent amount of bookings related to wireless, too. So that kind of like buyers, what I'm looking at. So the answer to you -- a very unsatisfactory, I know answer to your question is too early for me to tell, but we do have a decent amount of orders. All right. Harsh Kumar: And then on VMware, Hock? Hock Tan: Let me say this. I made those specific notes or remarks on regulatory approval. I ask that you think it through, read it through and let's stop right there. Harsh Kumar: Okay. Fair enough. Thank you, Hock. Hock Tan: Thank you. Operator: Thank you. And one moment for our next question. And that will come from the line of Aaron Rakers with Wells Fargo. Your line is open. Aaron Rakers: 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 Hock, 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 Tomahawk5, Jericho3 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 AI networks? Thank you. Hock Tan: That's a very interesting question. And frankly, my personal view is InfiniBand has been the choice in the old -- for years and years, generations of high -- what we call -- what we have called before high-performance computing, right? And high-performance computing was the old term for AI, by the way. So that was it because it was very dedicated application workloads and not a scale out as large language models drive today. We launched language models driving and most of -- all this large 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 hyperscales. And -- it coexist best way to describe it with InfiniBand. And it all depends on the workloads. It depends on the particular application that's driving it. And at the end of the day, it also depends on, frankly, how large you want to scale your AI clusters. The larger you scale it, the more tendency you have to basically open it up to Ethernet. Aaron Rakers: Yeah, thank you. Operator: 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. Matthew Ramsay: Yes. Thank you very much. Good afternoon. Hock, I wanted to ask a question. I guess maybe a two-part question on your 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 Gen AI, maybe some not. But I wonder if the recent surge in Gen AI 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. Hock Tan: Well, thank you. That's a very insightful question. We only have one large customer in AI engines. We're not a GPU company, and we're not -- we don't do much compute, as you know, other than offload computing having said that, but it's very customized. And I mean, what I'm trying to say is that I don't want to mislead you guys. The fact that I may have engagement, and I'm not saying I do on a custom program should not at all be translated into your minds as oh, yes, this is a pipeline that will translate to revenue. Creating hardware infrastructure to run these large language models of hyperscalers is an extremely difficult and complex test and -- 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 leave it at that. I have one hyperscale who we are shipping custom AI engines to today and leave it at that, if you don't mind, okay? Now as far as customized switching, routing, sure. I mean, that happens. Most of the -- many of the -- those few OEMs, some OEMs who are supplying systems. Switch -- systems, which are switches or routers and have their own custom solutions together with their own proprietary network operating system. That's been the model for the last 20, 30 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 as behavior or performance over the last 20 years have shown. Matthew Ramsay: Thanks, Hock. Appreciate it. Operator: Thank you. One moment for our next question. And that will come from the line of Christopher Rolland with Susquehanna. Your line is open. Christopher Rolland: Hey, thanks for the question. So I think there's been two really great parts of the Broadcom story that has surprised me. And the first is the AI upside. And the second is just the resilience of the core business and particularly storage and broadband in light of what have been kind of horror shows for some of your competitors who, I think, are in clear down cycles. So I've 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. Maybe you're calling that reset a soft landing, Hock. 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 and demand that has started to deteriorate here? Thanks. Hock Tan: Thanks. First and foremost, and you've heard me talked about in preceding quarter earning calls, and I continue to say it, and Kirsten reemphasized it today, we shipped very much to only end demand of our end customers. And we're looking beyond in enterprise, even beyond and telcos even beyond OEM. We look to the end users, the enterprises of those OEM customers. We try to. Doesn't mean we are right all the time, but we pretty much are getting very good at it. And we only ship to that. And what you're seeing is -- why I'm saying this -- what you're looking at, for instance, some numbers in broadband, some numbers in service storage that seems not quite as flat, which is why I made the point of purposely saying, but look at it collectively taking out generative AI. My whole portfolio of products out there. It's pretty broad, and it gets segmented into different end markets. And when we reach, I call it a plateau as we are in, you got a soft landing, as you call it, you never stay flat. There will 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 largely related to logistics timing of customer shipments, particular customers and a whole range of products that go this way. This one I referred in my remarks as revenues, which are puts and takes around a median. And that median also paints to highlight to you guys has sit around $6 billion, and it has been sitting around $6 billion since the start of fiscal '23. And as we sit here in Q4, it's still at $6 billion. Now not quite there because there are some parts of it, they may go up, some parts of it go down. And that's the puts and takes we talk about. And I hope that pretty much addresses what you are trying to get at, which is, is this -- what's -- the fact that is it a trend? Or is it just a factor? And to use my expression, I call those flatters or puts and takes around a median that we're seeing here. And I wouldn't have said it if I'm not seeing it now for three quarters in a row, around $6 billion. Christopher Rolland: Thanks, Hock. Operator: Thank you. One moment for our next question. And that will come from the line of Edward Snyder with Charter Equity Research. Edward Snyder: Thank you very much. Hock, I want to 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 and the significant improvement you get over performance and size. This would be something of great interest. Is it limited by inertia or architectural inertia by the existing solutions? Or what kind of feedback you're getting? And why should we expect to see maybe because it's rather a new market for you overall. You've not been in it 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. Hock Tan: You should. I did. I made my investment, at least you should look at it a bit. I'm just kidding. But we have invested in silicon photonics, which is, I mean, literally integrating in one single solution packaging. As an example, our switch, our next-generation Tomohawk5 switch, which will start shipping middle of next year, what we call the program we call the Bailly, a fully integrated switch silicon photonic switch. And you're right, very low power, and it's -- you make optics have always have optical and mechanical characteristics by sucking them into an integrated silicon photonics solution. You take away this failures on yield rates on mechanical, optical and translated to literally silicon yield rates. And so it's much -- we like to believe very reliable than the conventional approach. So your question is, so why won't more people jump in it? Well, because nobody else has done it. This -- we are pioneering this silicon photonic architecture. And we're going to -- we have appeal done, a POC, proof of concept in selling Tomahawk 4 in a couple of hyperscale, but not in production volume. We now feel comfortable we have reliability data from those instances. And that's why we feel comfortable to now go into production launch in Tomahawk5. But as people say, the proof is in the eating. And we will get it in one or two hyperscale who will demonstrate how efficient power-wise, effective it can be. And once we do that, we hope it will start to proliferate to other hyperscalers because they cannot do it. If one of them does it and reap the benefits of this silicon photonics solution, and it's there. You know it. I have indicated the power is simply enormous, 30%, 40% power reduction. And power is a big thing now in data centers, particularly, I would add, in generative AI data centers. That's a big use case that could come over the next couple of years. All right. Operator: 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. Ji Yoo for any closing remarks. Ji Yoo: Thank you, operator. In closing, we would like to highlight that Broadcom will be attending the Goldman Sachs Communacopia and Technology Conference on Thursday, September 7th. Broadcom currently plans to report its earnings for the fourth quarter of fiscal '23 after close of market on Thursday, December 7th, 2023. A public webcast of Broadcom's earnings conference call will follow at 2:00 P.M. Pacific. That will conclude our earnings call today. Thank you all for joining. Operator, you may end the call. Operator: Thank you all for participating. This concludes today's program. You may now disconnect.

Operator: Welcome to Broadcom Inc.’s Second 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 Ji Yoo, Head of Investor Relations of Broadcom Inc. Ji Yoo: 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 Kawwas, President, Semiconductor Solutions Group. Broadcom distributed a press release and financial tables after the market closed, describing our financial performance for the second 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. This conference call is being webcast live and an audio replay of the call can be accessed for one year through the Investors section of Broadcom’s website. During the prepared comments, Hock and Kirsten will be providing details of our second quarter fiscal year 2023 results, guidance for our third 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 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 Hock. Hock Tan: Thank you, Ji, and thank you, everyone, for joining us today. So, in our fiscal Q2 2023, consolidated net revenue was $8.7 billion, up 8% year-on-year. Semiconductor Solutions revenue increased 9% year-on-year to $6.8 billion. And Infrastructure Software grew 3% year-on-year to $1.9 billion as the stable growth in core software more than offset softness in the Brocade business. Now, as I start this call, I know you all want to hear about how we are benefiting from this strong deployment of generative AI by our customers. Put this in perspective, our revenue today from this opportunity represents about 15% of our semiconductor business. Having said this, it was only 10% in fiscal '22. And we believe it could be over 25% of semiconductor revenue in fiscal '24. In fact, over the course of fiscal '23 that we're in, we are seeing a trajectory where our quarterly revenue entering the year doubles by the time we exceed '23. And in fiscal third quarter '23, we expect this revenue to exceed a $1 billion in the quarter. But, as you well know, we are also a broadly diversified semiconductor and infrastructure software company. And in our fiscal Q2, demand for IT infrastructure was driven by hyperscale, while service providers and enterprise continued to hold up. Following the 30% year-on-year increases we have experienced over the past five quarters, overall IT infrastructure demand in Q2 moderated to mid-teens percentage growth year-on-year. As we have always told you, we continue to ship only to end-user demand. We remain very-disciplined on how we manage inventory across our ecosystem. We exited the quarter with less than 86 days on hand, a level of inventory consistent with what we have maintained over the past eight quarters. Now, let me give you more color on our end markets. Let me begin with wireless. As you saw in our recent 8-K filing, we entered into a multiyear collaboration with a North American wireless OEM on cutting-edge wireless connectivity and 5G components. Our engagement in technology and supply remains deep, strategic and long term. Q2 wireless revenue of $1.6 billion represented 23% of semiconductor revenue. Wireless revenue declined seasonally, down 24% quarter-on-quarter and down 9% year-on-year. In Q3, as we just begin the seasonal ramp of the next-generation phone platform, we expect wireless revenue to be up low single digits sequentially. We expect however, it will remain around flattish year-on-year. Moving on to networking. Networking revenue was $2.6 billion and was up 20% year-on-year, in line with guidance, representing 39% of our semiconductor revenue. There are two growth drivers here. One, continued strength in deployment of our merchant Tomahawk switching for traditional enterprise workloads as well as Jericho routing platforms for telcos; and two, strong growth in AI infrastructure at hyperscalers from compute offload and networking. And speaking of AI networks, Broadcom’s next generation Ethernet switching portfolio consisting of Tomahawk 5 and Jericho3-AI offers the industry's highest performance fabric for large-scale AI clusters by optimizing the demanding and costly AI resources. These switches based on an open distributed disaggregated architecture will support 32,000 GPU clusters running at 800 gigabit per second bandwidth. Ethernet fabric, as we know it, already supports multi-tenancy capability and end-to-end congestion management. This lossless connectivity with high QoS performance has been well proven over the last 10 years of network deployment in the public cloud and telcos. In other words, the technology is not new. And we are, as Broadcom, very well positioned, to simply extend our best-in-class networking technology into generative AI infrastructure, while supporting standard connectivity, which enables vendor interoperability. In Q3, we expect networking revenue to maintain its growth year-on-year of around 20%. Next, our server storage connectivity revenue was $1.1 billion or 17% of semiconductor revenue and up 20% year-on-year. And as we noted last quarter, with the transition to next-generation MegaRAID largely completed and enterprise demand moderating, we expect server storage connectivity revenue in Q3 to be up low single digits year-on-year. Moving on to broadband. Revenue grew 10% year-on-year to $1.2 billion and represented 18% of semiconductor revenue. Growth in broadband was driven by continued deployments by telcos of next-generation 10G PON and cable operators of DOCSIS 3.1 with high attach rates of Wi-Fi 6 and 6E. And in Q3, we expect our broadband growth to moderate to low-single-digit percent year-on-year. And finally, Q2 industrial resales of $260 million increased 2% year-on-year as the softness in China was offset by strength globally in renewable energy and robotics. And in Q3, we forecast industrial resales to be flattish year-on-year on continuing softness in Asia, offset by strength in Europe. So summary, Q2 Semiconductor Solutions revenue was up 9% year-on-year. And in Q3, we expect semiconductor revenue growth of mid-single-digit year-on-year growth. Turning to software. In Q2, Infrastructure Software revenue of $1.9 billion grew 3% year-on-year and represented 22% of total revenue. As expected, continued softness in Brocade was offset by the continuing stable growth in core software. Relating to core software, consolidated renewal rates averaged 114% over expiring contracts. And in our strategic accounts, we averaged 120%. Within the strategic accounts, annualized bookings of $564 million included $133 million or 23% of cross-selling of other portfolio products to these same core customers. Over 90% of the renewal value represented recurring subscription and maintenance. And over the last 12 months, consolidated renewal rates averaged 117% over expiring contracts. And among our strategic accounts, we averaged 128%. Because of this, our ARR, the indicator of forward revenue at the end of Q2 was $5.3 billion, up 2% from a year ago. And in Q3, we expect our Infrastructure Software segment revenue to be up low single digits percentage year-on-year as the core software growth continues to be offset by weakness in Brocade. On a consolidated basis, we're guiding Q3 revenue of $8.85 billion, up 5% year-on-year. Before Kirsten tells you more about our financial performance for the quarter, let me provide a brief update on our pending acquisition of VMware. We're making good progress with our various regulatory filings around the world, having received legal merger clearance in Australia, Brazil, Canada, South Africa and Taiwan and foreign investment control clearance in all necessary jurisdictions. We still expect the transaction will close in Broadcom's fiscal 2023. The combination of Broadcom and VMware is about enabling enterprises to accelerate innovation and expand choice by addressing their most complex technology challenges in this multi-cloud era. And we are confident that regulators will see this when they conclude their review. With that, let me turn the call over to Kirsten. Kirsten Spears: Thank you, Hock. Let me now provide additional detail on our financial performance. Consolidated revenue was $8.7 billion for the quarter, up 8% from a year ago. Gross margins were 75.6% of revenue in the quarter, about 30 basis points higher than we expected on product mix. Operating expenses were $1.2 billion, down 4% year-on-year. R&D of $958 million was also down 4% year-on-year on lower variable spending. Operating income for the quarter was $5.4 billion and was up 10% from a year ago. Operating margin was 62% of revenue, up approximately 100 basis points year-on-year. Adjusted EBITDA was $5.7 billion or 65% of revenue. This figure excludes $129 million of depreciation. Now, a review of the P&L for our two segments. Revenue for our Semiconductor Solutions segment was $6.8 billion and represented 78% of total revenue in the quarter. This was up 9% year-on-year. Gross margins for our Semiconductor Solutions segment were approximately 71%, down approximately 120 basis points year-on-year, driven primarily by product mix within our semiconductor end markets. Operating expenses were $833 million in Q2, down 5% year-on-year. R&D was $739 million in the quarter, down 4% year-on-year. Q2 semiconductor operating margins were 59%. So, while semiconductor revenue was up 9%, operating profit grew 10% year-on-year. Moving to the P&L for our Infrastructure Software segment. Revenue for Infrastructure Software was $1.9 billion, up 3% year-on-year and represented 22% of revenue. Gross margins for Infrastructure Software were 92% in the quarter and operating expenses were $361 million in the quarter, down 3% year-over-year. Infrastructure Software operating margin was 73% in Q2, and operating profit grew 8% year-on-year. Moving to cash flow. Free cash flow in the quarter was $4.4 billion and represented 50% of revenues in Q2. We spent $122 million on capital expenditures. Days sales outstanding were 32 days in the second quarter compared to 33 days in the first quarter. We ended the second quarter with inventory of $1.9 billion, down 1% from the end of the prior quarter. We ended the second quarter with $11.6 billion of cash and $39.3 billion of gross debt, of which $1.1 billion is short term. The weighted average coupon rate and years to maturity of our fixed rate debt is 3.61% and 9.9 years, respectively. Turning to capital allocation. In the quarter, we paid stockholders $1.9 billion of cash dividends. Consistent with our commitment to return excess cash to shareholders, we repurchased $2.8 billion of our common stock and eliminated $614 million of common stock for taxes due on the vesting of employee equity, resulting in the repurchase and elimination of approximately 5.6 million AVGO shares. The non-GAAP diluted share count in Q2 was $435 million. As of the end of Q2, $9 billion was remaining under the share repurchase authorization. Excluding the potential impact of any share repurchases, in Q3, we expect the non-GAAP diluted share count to be $438 million. Based on current business trends and conditions, our guidance for the third quarter of fiscal 2023 is for consolidated revenues of $8.85 billion, and adjusted EBITDA of approximately 65% of projected revenue. In Q3, we expect gross margins to be down approximately 60 basis points sequentially on product mix. That concludes my prepared remarks. Operator, please open up the call for questions. Operator: [Operator Instructions] And today's first question will come from the line of Ross Seymore with Deutsche Bank. Ross Seymore: Hock, I might just as well start off with the topic that you started, AI these days is everywhere. Thanks for the color that you gave and the percentage of the sales that it was potentially going to represent into the future. I wanted to just get a little bit more color on two aspects of that. How you've seen the demand evolve during the course of your quarter? Has it accelerated, in what areas, et cetera? And is there any competitive implications for it? We've heard from some of the compute folks that they want to do more on the networking side. And then obviously, you want to do more into the compute side. So I just wondered how the competitive intensity is changing, given the AI workload increases these days. Hock Tan: Okay. Well, on your first part of your question, yes, we -- I mean, last earnings call, we have indicated there was a strong sense of demand, and we have seen that continue unabated in terms of that strong demand such that's coming in. Now, of course, we all realize lead times -- manufacturing lead times on most of these cutting-edge products is fairly extended. I mean, you don't make this -- manufacture these products under our process anything less than 6 months or thereabouts. And while there is strong demand and a strong urgency of demand, the ability to ramp up will be more measured and addressing demands that are most urgent. On the second part, no, we've always seen competition. And really, even in traditional workloads in enterprise data centers and hyperscale data centers, our business, our markets in networking, switching, routing continues to face competition. So really nothing new here. Competition continues to exist, and we -- each of us do the best we can in the areas we are best at doing. Operator: One moment for our next question. That will come from the line of Vivek Arya with Bank of America Securities. Vivek Arya: Hock, I just wanted to first clarify. I think you might have mentioned it, but I think last quarter, you gave very specific numerical targets of $3 billion in ASICs and $800 million in switches for fiscal '23. I just wanted to make sure if there is any specific update to those numbers. Is it more than $4 billion in total now, et cetera? And then my question is, longer term, what do you think the share is going to be between kind of general purpose GPU-type solutions versus ASICs? Do you think that share shifts towards ASICs? Do you think it shifts towards general purpose solutions? Because if I look outside of the compute offload opportunity, you have generally favored, right, more the general purpose market. So, I'm curious, how do you see this share between general purpose versus ASICs play out in this AI processing opportunity longer term? Hock Tan: On your first part of your question -- you guys love your question in two parts, let's do the first part first. We guided or we indicated that for fiscal '23 that the revenue we are looking in this space is $3.8 billion. There's no reason nor are we trying to do it now in the middle of the year to change that forecast at this point. So, we still keep to that forecast we've given you in fiscal '23. We're obviously giving you a sense of trajectory in my remarks on what we see '24 to look like. And that, again, is a broad trajectory of the guidance, nothing more than that, just to give you a sense for the accelerated move from '22, '23 and headed into ‘24. Nothing more than that. But in terms of specific numbers that you indicated we gave, it's -- we stay by our forecast of fiscal '23, 3.8%, frankly, because my view, it's a bit early to give you any revised forecast. Then beyond that, on your most broad specific question, ASICs versus merchant, I always favor merchant, whether it's in compute, whether it's in networking. In my mind, long-term, merchant will eventually, in my view, have a better shot at prevailing. But what we're not talking -- what we're talking about today is, obviously, a shorter term issue versus a very long-term issue. And the shorter term issue is, yes, compute offload exists. But again, the number of players in compute offload ASICs is very, very limited, and that's what we continue to see. Operator: One moment for our next question. And that will come from the line of Harlan Sur with JP Morgan. Harlan Sur: Great to see the strong and growing ramp of your AI compute offload and networking products. On your next generation -- Hock, on your next-generation AI and compute offload programs that are in the design phase now, you've got your next-gen switching and routing platforms that are being qualified. Like, are your customers continuing to push the team to accelerate the design funnel, pull in program ramp timing? And then, I think you might have addressed this, but I just wanted to clarify, all of these solutions use the same type of very advanced packaging, like stack die, HBM memory [Indiscernible] packaging. And not surprisingly, this is the same architecture used by your AI GPU peers, which are driving the same strong trends, right? So is the Broadcom team facing or expected to face like advanced packaging, advanced substrate supply constraints? And how is the operations team going to sort of manage through all of this? Hock Tan: Well, you're right in that -- this kind of AI product, this -- in this generative AI products, next-generation, current generation are all using very leading-edge technologies in wafers, silicon wafers and substrates and packaging, including memory stacking. And -- but it's -- from consumption, it's still -- there's still products out there. There's still capacity out there as I said. And this is not something you want to be able to ship or deploy right away. It takes time. And we see it as a measured ramp over -- that has started in fiscal '23 and will continue its pace through to '24. Harlan Sur: And on the design win funnel, are you seeing customers still trying to pull in all of their designs? Hock Tan: Well, it's -- we are -- our basic opportunity still lies in the networking of AI networks. And we have the products out there. And we are working with many, many customers, obviously, to put in place this disaggregated -- distributed, disaggregated architecture, which -- of Ethernet fabric on AI. And yes, that's a lot of obvious interest and lots of design that exists out there. Operator: One moment for our next question. And that will come from the line of Timothy Arcuri with UBS. Timothy Arcuri: Hock, I was wondering if you can sort of help shed some light on the general perception that all this AI spending is sort of boxing out traditional compute. Can you talk about that? Or is it that just CapEx budgets are going to have to grow to support all this extra AI CapEx? I mean, the trick is probably somewhere in between, but I'm wondering if you can help shed some light on just the general perception that all of this is coming at the expense of the traditional compute and the traditional infrastructure. Thanks. Hock Tan: Your guess is as good as mine, actually. I can tell you this. I mean, you're right, there's this AI networks and this budget that are now allocated more and more by the hyperscale towards this AI networks. But not necessary, particularly in enterprise, at the expense of traditional workloads and traditional data centers. I think there's going to be -- there's definitely coexistence. And a lot of the large amount of spending on AI today that we see for us, that is very much on the hyperscale. And so, enterprises are still focusing a lot of their budgets as they have on the traditional data centers and traditional workloads supporting x86. But it's just maybe too early to -- really for us to figure out whether that is that cannibalization. Operator: One moment for our next question. And that will come from the line of Ambrish Srivastava with BMO Capital Markets. Ambrish Srivastava: I have a less sexy topic to talk about, but obviously very important in how you manage the business. Can you talk about lead times and especially in the light of demand moderating, manufacturing cycle times coming down, not to mention the six months that you highlighted for the cutting edge? Are you still staying with the 52-week kind of lead quoting to customers, or has that changed? Thank you. Hock Tan: By the way, it's 50. Yes, my standard lead time for our products is 50 weeks, and we are still staying with it because it's not about as much lead time to manufacture the products as our interest and, frankly, mutual interest between our customers and ourselves to take a hard look at providing visibility for us in ensuring we can supply and supply in the right amount at the right time the requirements. So yes, we're still sticking to 50 weeks. Operator: One moment for our next question, and that will come from the line from Harsh Kumar with Piper Sandler. Harsh Kumar: Yes. Hey Hock, I was hoping you could clarify something for us. I think earlier in the beginning of the call when you gave your AI commentary, you said that gen AI revenues are 15% odd today, they’ll go to 25% by the end of 2024. That's practically all your growth. That's the $4 billion -- $3 billion, $4 billion that you'll grow. So looking at your commentary, I know your core business is doing really well. So I know that I'm probably misinterpreting it. But I was hoping that maybe there's not so many -- hoping that there's no cannibalization going on in your business, but maybe you could clarify for us. Hock Tan: Answer -- from an earlier question by a peer of yours, we do not see -- obviously, we do not know, we do not see cannibalization, but these are early innings, relatively speaking, and budgets don't change that rapidly. If there's cannibalization, obviously, it comes from where the spending goes in terms of priority. It's not obvious to us there is that clarity to be able to tell you there's cannibalization, not in the lease. And by the way, if you look at the numbers that all the growth is coming from it, perhaps you're right. But as we talk -- as we sit here in '23 and we still show some level of growth, I would say, we still show growth in the rest of our business, in the rest of products, augmented -- perhaps that growth is augmented with the growth in our AI revenue, in delivering AI products, but it's not entirely all our growth. I would say at least half the growth is still on our traditional business, the other half may be out of generative AI. Operator: One moment for our next question. And that will come from the line of Karl Ackerman with BNP Paribas. Karl Ackerman: Hock, you rightly pointed to the custom silicon opportunity that supports your cloud AI initiatives. However, your AI revenue that's not tied to custom silicon appears to be doubling in fiscal '23. And the outlook for fiscal '24 implies that it will double again. Obviously, Broadcom has multiple areas of exposure to AI really across PCI switches, Tomahawk, Jericho and Ramon ASICs and electro-optics. I guess what sort of opportunity do you see your electric optics portfolio playing a role in high-performance networking environments for inferencing and training AI applications? Hock Tan: Look, what you say is very, very insightful. It's -- a big part of our growth now in AI comes from the networking components that we're supplying into creating this Ethernet fabric for AI clusters. In fact, a big part of it, you hit on. And the rate of growth there is probably faster than our offload computing can grow. And that's where we are focused on, as I say, our networking products are merchant standard products, supporting the very rapid growth of generative AI clusters out there in the compute side. And for us, this growth in the networking side is really the faster part of the growth. Operator: One moment for our next question, and that will come from the line of Joseph Moore with Morgan Stanley. Joseph Moore: I wanted to ask about the renewal of the wireless contract. Can you give us a sense for how much sort of concrete visibility you have into content over the duration of that? As you mentioned, it's both, RF and wireless connectivity. Just any the additional color you can give us would be great. Hock Tan: Okay. Well, I don't want to be what’s me if you are nitpicky? It's an extension, I would call it, of our existing long-term agreement. And it's an extension in the form of a collaboration and strategic arrangement is the best way to describe. It's not really a renewal. But the characteristics are similar, which is with supply technology, we supply products in a bunch of very specific products related to 5G components and wireless connectivity, which is our strength, which is the technology we keep leading in the marketplace. And it's multiyear. And beyond that, I truly would -- I'll refer you to our 8-K and not provide any more specifics simply because of sensitivities all around. Operator: One moment for our next question. And that will come from the line of Christopher Rolland with Susquehanna. Your line is open. Mr. Roland, your line is open. Okay. We'll move on to the next question. And that will come from the line of Toshiya Hari with Goldman Sachs. Toshiya Hari: Hock, I'm curious how you're thinking about your semiconductor business long term. You've discussed AI pretty extensively throughout this call. Could this be something that drives higher growth for your semiconductor business on a sustained basis? I think historically, you've given relatively subdued or muted growth rates for your business vis-à-vis many of your competitors. Is this something that can drive sustained growth acceleration for your business? And if so, how should we think about the rate of R&D growth going forward as well? Because I think your peers are growing R&D faster than what you guys are doing today. Thank you. Hock Tan: Very, very good question, Toshiya. Well, we are still a very broadly diversified semiconductor company, as I pointed out, with multiple -- with still multiple end markets beyond just AI, most of which AI revenue happen to sit in my networking segment of the business, as you all noted, and you see. So we still have plenty of others. And even as I mentioned, for fiscal '24, our view is that it could hit over 25% of our semiconductor revenue. We still have many large number of underpinnings for the rest of our semiconductor business. I mean, our wireless business, for instance, has a very strong lease of life for multi-years, and that's a big chunk of business. Just that the AI business appears to be trying to catch up to it in terms of the size. But our broadband server storage enterprise business continues to be very, very sustainable. And when you mix it all up, I don't know, we haven't updated our forecast long-term, so to show. I really have nothing more to add than what we already told you in the past. Would it have -- make a difference in our long-term growth rate? Don't know. We haven't thought about it. I’ll leave it to you to probably speculate before I put anything on paper. Operator: One moment for our next question. And that will come from the line of William Stein with Truist Securities. William Stein: Hock, I'm wondering if you can talk about your foundry relationships. You've got a very strong relationship with TSM. And of course, Intel has been very vocal about winning new customers potentially. I wonder if you can talk about your flexibility and openness and considering new partners. And then maybe also talk about pricing from foundry and whether that's influencing any changes quarter-to-quarter. There have been certainly a lot of price increases that we've heard about recently, and I'd love to hear your comments. Thank you. Hock Tan: Thank you. We tend to be very loyal to our suppliers. The same reason we look at customers, the same -- in that same manner, it cuts both ways for us. So, there's a deep abiding loyalty in all our key suppliers. Having said that, we also have to be very realistic of the geopolitical environment we have today. And so, we are also very open to looking at in certain specific technologies to broaden our supply base. And we have taken steps to constantly look at it, much as we still continue to want to be very loyal and fair to our existing base. So -- and so we continue that way. And because of that partnership and loyalty, for us, price increase is something that is a very long-term thing, it’s part of the overall relationship. And put it simply, we don't move just because of prices. We stay put because of support, service and abiding sense of -- a very abiding sense of commitment mutually. Operator: One moment for our next question. And that will come from the line of Edward Snyder with Charter Equity Research. Edward Snyder: Hock, basically housekeeping question. It sounded like your comments in the press release on the wireless deal did not include Mixed Signal, which is part of your past agreement. And everything you've seen to have said today doesn't -- suggest that may not be the next -- in wireless and RF, but you're also doing a lot of mixed single stuff, too. So maybe you can provide some clarity on that. And now also, why shouldn't we expect the increased interest in AI to increase the prospects, if not orders immediately for the electro-optic products that are coming on discipline? So I would think that would be much greater demand, given the clusters and the size of these arrays that people are trying to put together, provide enormous benefits, I think, in power. Maybe give us some color on that. Hock Tan: All right. You have two questions here, don't you? Edward Snyder: Well, it was a two-part question. I was going to do a three, but… Hock Tan: Thank you. I love you guys with your multipart questions. Let's do the first one. You're right. Our long-term collaboration agreement that we recently announced, it includes, as it indicated, wireless connectivity and 5G components. It does not include the high-performance analog components, mixed signal components that we also sell to the North American OEM customer. right? That doesn't make it any less, I would add, strategic, not deeply engaged with each other. I would definitely hasten to add. And on the second part, Ed, if you could indulge me, could you repeat that question? Edward Snyder: Yes. So, you're talking about general AI and the increase in demand that you're seeing from hyperscale guys. And we're already seeing how big these customers can get. And it's really putting, I don't want to say, stress on your networking assets. But I would think, given the size of the razor facing with the electro-optic products that you're releasing next -- in Tomahawk 5 that you're releasing next year that puts Tomahawks right on the chip, would become more attractive because it significantly uses the power requirements. And I know no one’s used, it has not been deployed, but I would think that interest in that should increase. Am I wrong? Hock Tan: You're not wrong. All this, as I indicated upfront in my remarks, current remarks, yes, we see our next generation coming up Tomahawk 5, which will have silicon photonics, which is co-packaging as a key part of that offering and not to mention that it's going up to 51 terabit per second cut-through bandwidth. It's exactly what you want to put in place for very high demanding AI networks, especially if those AI networks start running to -- over 32,000 GPU clusters running at 800 gigabit per second. Then you really need a big amount of switching because those kind of networks, as I mentioned, have to be very low latency, virtually lossless. Ethernet lossless calls for some interesting science and technology in order to make Ethernet lossless. Because by definition, Ethernet tends to have it traditionally. But the technology is there to make it lossless. So all this fits in with our new generation of products. And not to mention our Jericho3-AI, which, as you know, the router has a unique differentiated technology that allows for very, very low tail latency and in terms of how it transmits and reorder packets so that there's no loss and very little latency. And that exists in network routing in telcos, which we now apply to AI networks in a very effective manner, and that's our whole new generation products. So yes, we're leaning into this opportunity with our networking technology and next-generation products very much. So, you hit it right on, and which is, one, makes it very exciting for us in AI. It's in the networking area, networking space that we see most interesting opportunities. Operator: One moment for our next question, and that will come from the line of Antoine Chkaiban with New Street Research. Antoine Chkaiban: I'll stick to a single-part question. Can you maybe double-click on your computes offload business? What can you maybe tell us about how growth could split between revenues from existing customers or potential diversification of that business going forward? Thank you. Hock Tan: Thank you. Good question. And I’ll reiterate the answers in some other ways I've given to certain other audience who have asked this question. We really have only one rail customer -- one customer. And in my forecast, in my remarks so far in offload computing, it's pretty much very, very largely around one customer. It's not very diversified. It's very focused. That's our compute offload business. Operator: One moment for our next question. And that will come from the line of C.J. Muse with Evercore ISI. Unidentified Analyst: This is Kurt Swartz Kurt [ph] on for C.J. I wanted to touch on software gross margins, which continue to tick higher alongside softness in Brocade. Curious what sort of visibility you may have into Brocade stabilization and how we should think about software gross margins as mix normalizes. Thank you. Hock Tan: Okay. Well, our core -- our software segment comprises, you hit it correctly, two parts. That's our core software products revenues and sold directly to enterprises. And these are your typical infrastructure software products. And they are multiyear contracts. And we have ton -- and we have a lot of backlog, something like $17 billion of backlog, averaging over almost 2.5, 3 years. And every quarter, a part of that renews, and we give you the data on it. It's very stable. And given our historical pattern of renewing on expanding consumption of our core group of customers, we tend to drive that in a very stable manner. And the growth rate is very, very predictable, and we're happy with that. Then we overlay on it a business that is software, but also very appliance different, the fiber channel SAN business of Brocade. And that's very enterprise-driven, very, very much so. Only used by enterprises, obviously, and large enterprises at that. And it is a fairly cyclical business. And last year was a very strong up cycle. And this year, not surprisingly, the cycles are not as strong, especially compared year-on-year to the very strong numbers last year. So, that's -- well, this is the phenomenon -- the outcome of the combining the two is what we're seeing today. But given another -- my view next year, the cycle could turn around and Brocade would go on. And then instead of a 3% year-on-year growth in this whole segment, we could end up with high single digits year-on-year growth rate because the core software revenue, as I've always indicated to you guys, you want to plan long term on mid-single-digit year-on-year growth rate. And that's very predictable part of our numbers. Operator: And today's final question will come from the line of Vijay Rakesh with Mizuho. Vijay Rakesh: Yes. Hi Hock, just a quick -- I'll keep it a two-part question for you to wrap up. So just wondering what the content uplift for Broadcom is on an AI server versus a general compute server. And if you look at generative AI, what percent of servers today are being outfitted for generative AI as you look? You have a dominant share there. And where do you see that uptake ratio for generative AI and year out if you look at fiscal '24, '25? Hock Tan: I'm sorry to disappoint you on your two parts, but it's too early for me to be able to give you a good answer or a very definitive answer on that. Because by far the majority of servers today are your traditional servers driving x86 CPUs. And the networking today are very, very still running Ethernet traditional data center networking. Because most enterprises if not virtually, all enterprises today are very much still running their own traditional servers on x86. Generative AI is something so new and in a way, so -- the limits of it is so extended that what we largely see today are at the hyperscale guys in terms of deploying at scale those generative AI infrastructures. Enterprises continue to deploy and operate standard x86 servers and Ethernet networking in the traditional data centers. And so, that's still -- so what we're seeing today may be early part of the whole cycle, that's your question, which is why I cannot give you any definitive view, opinion of how -- what the attach rate, what the ratio will be or if there's any stability that could be achieved anywhere in the near term. We both -- we see both running and coexisting very much together. Operator: Thank you. I would now like to turn the call over to Ji Yoo for any closing remarks. Ji Yoo: Thank you, operator. In closing, we would like to highlight that Broadcom will be attending the BofA Global Technology Conference on Tuesday, June 6. Broadcom currently plans to report its earnings for the third quarter of fiscal '23 after close of market on Thursday, August 31, 2023. A public webcast of Broadcom's earnings conference call will follow at 2:00 p.m. Pacific. That will conclude our earnings call today. Thank you all for joining. Operator, you may end the call. Operator: Thank you all for participating. This concludes today's program. You may now disconnect.

Operator: Welcome to Broadcom Inc.’s First 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 Ji Yoo, Head of Investor Relations of Broadcom Inc. Ji Yoo: 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 Kawwas, President Semiconductor Solutions Group. Broadcom distributed a press release and financial tables after the market closed, 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. This conference call is being webcast live and an audio replay of the call can be accessed for one year through the Investors section of Broadcom’s website. During the prepared comments, Hock 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 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 today’s press release. Comments made during today’s call will primarily refer to our non-GAAP financial results. I will now turn the call over to Hock. Hock Tan: Thank you, Ji, and thank you, everyone, for joining us today. In our fiscal 20 -- in our fiscal Q1 2023, consolidated net revenue that was -- 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 to $1.8 billion, even as our core software sustained growth of 5% year-on-year. Stepping back, let me sum up what happened in Q1. From our view, infrastructure spending continues to be up, particularly in service providers, even as hyperscale 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 2023 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 know 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 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 code name Bailey, which integrates the active optical interconnects with our next-generation Tomahawk 5 switch at 51.2 terabit per second. Bailey doubles switching performance but it will reduce total system power. Keep in mind that at hyperscalers, a growing portion of our switches have been deployed within their AI networks, which are separate from the traditional x86 CPU scale outrunning existing workloads. Now this is today. Tomorrow, we generated AI using large scale -- large language, I should say, models with billions of parameters, we have to run thousands of AI engines in tower enabling large and synchronized bus of data at speeds of 400 gig and 800 gig. The network to support this massive processor density is critical and it’s important SDAI 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 2 switches and Ramon Fabric. In fact, in 2022, we estimated our Ethernet switch shipments deployed in AI was over $200 million. With the expected exponential demand from our hyperscale customers, we forecast that this could grow to well over $800 million 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, 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 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 or 18% of semiconductor revenue and up 57% year-on-year. Once again, as we discussed in preceding quarters, the rapid transition to next-generation megawatt solutions drove this substantial year-on-year content increase. After four consecutive quarters of such increases, this transition, however, is significantly complete and we expect that in Q2 on a year-on-year basis server storage connectivity revenue will moderate towards 20% year-on-year growth. Moving on to broadband. Revenue grew 34% year-on-year to a record $1.2 billion and represented 17% 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 WiFi 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 4% year-on-year, reflecting content increases, which we had previously indicated last quarter. Sequentially, wireless was flattish compared to Q4, and seasonally, we expect wireless to be down sequentially in Q2 and down high single-digit percentage year-over-year. 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 digits 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 Brocade business declined because of lumpiness in enterprise consumption in this very narrow vertical of SAN storage. For core software, consolidated renewal rates averaged 119% of expiring contracts, and within our strategic accounts, we averaged 129% and within this strategic accounts, annualized bookings of $536 million included $197 million, which represent 37% of cross-selling of our portfolio of products to these same core 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 is up 3% from a year ago. In Q2, we expect our Infrastructure Software 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 Brocade. So, in summary, we are guiding consolidated Q2 revenue for the company to be $8.7 billion, up 8% year-on-year. Before Kirsten, tells you more about our financial performance for the quarter, let me provide a brief update on our pending acquisition of VMware. We 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 time line 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. Kirsten Spears: Thank you, Hock. 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. Gross 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 two reportable segments. Revenue for our Semiconductor Solutions segment was $7.1 billion and represented 80% of total revenue in the quarter. This was up 21% year-on-year. As Hock discussed, this came from strength across all of our semiconductor end markets. Gross margins for our Semiconductor Solutions segment were approximately 69%, down approximately 160 basis points year-on-year, driven primarily by product mix 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%. 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 $8 -- $1.8 billion, down 1% year-on-year and represented 20% of revenue. Gross 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. 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 Q1 2023 consistent with what we achieved the same quarter last year. We spent $103 million on capital expenditures. Days 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 Hock 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 3.61% and 10.2 years, respectively. Turning to capital allocation. In the quarter, we paid stockholders $1.9 billion of cash dividends. Consistent with our commitment to return excess 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. 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 repurchases, in Q2, we expect the non-GAAP 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. Operator: Thank you. [Operator Instructions] Our first question will come from the line of Harsh Kumar with Piper Sandler. Your line is open. Harsh Kumar: Yeah. Hey, guys. Congratulations on yet another solid quarter and guide and thanks for all the color you guys provided. Hock, you mentioned generative models in your commentary. I wanted to understand the difference between what you are doing in AI so far versus maybe what our understanding of generative is. You talked about $200 million in Ethernet related to AI, is that largely generative, because we have heard other companies say that for large part, the generative models are using InfiniBand 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? Hock Tan: Well, yeah, thank you for that question and opportunity to clarify why we highlighted and why I highlighted it very purposefully. In 2022, generative is just barely starting to kick off. But they exist AI networks within the hyperscalers, particularly in fairly significant volume. And one we are trying to say is, very similar to CPUs, traditional CPUs in traditional workloads in those same data centers. We have constrained on performance of those silicon CPUs and Moore’s Law, we are starting to see scale out buying positioning rows and rows of server, CPUs and networking them together to work closely in parallel. As we step up to large language models in AI, generative AI in particular coming into play. GPUs are 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 fairly synchronous manner to basically run and do what we call bulk parametric exchange, basically, run GPUs together, all AI engines together, whether they are GPUs, AI or TPUs or other AI engines. You run them together. It becomes network. The network becomes now potentially a critical part of this whole AI phenomenon in hardware. To make it work, you have got to put together 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, high performance as Moore’s Law comes to an end and doesn’t make any difference here in the form of AI engine. They come from silicon, they have -- they face similar constraints. So network becomes a problem -- becomes the constrained, network becomes a very key part of fulfilling generative AI dream here. And what we are saying here -- what I am saying in my comments is, last year, 2022, these are more AI -- what you call the AI workloads that are running in hyperscale and the advent of generative AI is still relatively fresh and new, we are doing $200 million as far as we could 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 are seeing urgency in our hyperscale customers coming to us to secure products, to secure ability to put in place those very, very low lossless, I would call, very low latency networks that can scale and Ethernet is what makes those networks scale. Harsh Kumar: Understood. Hock Tan: Thanks, Harsh. Operator: Thank you. One moment for our next question. And that will come from the line of Harlan Sur with JP Morgan. Your line is open. Harlan Sur: Good afternoon. Thanks for taking my question. Hock, as your cloud customers are now aggressively focused on generative AI development and deployment across their data center footprint, right? This is driving strong AI-focused Ethernet switch port demand and demand for our compute offload as like TPU for this year, as you mentioned. But from a new product ramp and design win funnel perspective, is this also causing your cloud customers to want to pull forward some of your future programs like Tomahawk 5 or Jericho 3 next-gen switching and routing products and/or pulling the design and tape out of their next-generation compute offload AI ASIC programs? Hock Tan: 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. Harlan Sur: Okay. Hock Tan: Yes. Which is accounting for the color in my commentary about both net -- generative AI-based network 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 are right, we have 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 certain -- that are fairly customized dedicated to certain hyperscalers. Harlan Sur: Thank you, Hock. Operator: 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. Vivek Arya: Thank you for taking my question. Hock, I am just curious to understand just the views about the second half. If I look at the last few years, Broadcom has managed to grow semiconductor sales, right, anywhere between 5% 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? Hock Tan: In a sort of broadly conceptual, not a guidance, as you say, but trend this way. We are kind of getting rather hopeful that it would be a soft lending. That will be moderation as we are indicating this future -- in this Q2 quarter moderating growth, but we see nonetheless, as probably leading to a soft landing of still a year-on-year improvement in the second half. Vivek Arya: Understood. Thank you, Hock. Operator: Thank you. One moment for our next question. And that will come from the line of Stacy Rasgon with Bernstein. Your line is open. Stacy Rasgon: Hi, guys. Thanks for taking my question. I just wanted to verify, Hock, did you say that you started hearing urgency from your hyperscale customers around the AI in the last 90 days, and just given that, how do I think about that in the context of lead times that are still 50 weeks. You have got like, sounds like, $1.6 billion in incremental net working growth in year-over-year in 2023 from AI across both Ethernet and the ASICs. I guess given the lead times, is that more of a second half kind of thing when that contributes to the model or does it contribute more linearly for the year or I guess just how do I think about the timing levels in the wake of the strong demand right now just given the broader lead times? Hock Tan: Stacy, thank you for your question. Very perceptive. And as I say, we are not -- we are trying not to -- we are not guiding you guys what happens beyond the second quarter, not the second half of this year and... Stacy Rasgon: You give us some guidance for the year on this, right, so... Hock Tan: No guidance. Sorry, I give you a conceptual trend, how is that. But… Stacy Rasgon: Okay. Hock Tan: But having said that, no, we are 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 are in the midst of that. Stacy Rasgon: Okay. Because like the networking implied guide for Q2 has got to be up like, 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 are already -- once you get through this quarter, we are already through the first half, right? So I guess… Hock Tan: I think… Stacy Rasgon: ….I have been asking in the second half, right? Hock Tan: Stacy, I wish you guys will not do too much analysis, but I know that won’t happen. I am only guiding Q2. I will let you figure out what happens in the second half. I think you are probably better of did than I am. Stacy Rasgon: Got it. Okay. Thank you so much, Hock. Hock Tan: Thank you. Operator: Thank you. One moment for our next question. And that will come from the line of C.J. Muse with Evercore ISI. Your line is open. C.J. Muse: 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 are concerned, i.e., mix 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. Hock Tan: C.J., I appreciate the fact that you have been definitely reading a lot of those Reuters and Bloomberg and Lexicon report. I appreciate that. And you equally know that I cannot -- I 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. But just to let you know, we are making good progress. C.J. Muse: Thank you. Operator: Thank you. One moment for our next question. And that will come from the line of Vijay Rakesh with Mizuho. Your line is open. Vijay Rakesh: Yeah. Hi, Hock. 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 20 -- calendar 2023 or 2024? 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 terabytes switch. When do you see this ramping and what’s the power advantage on that? Thanks. Hock Tan: Okay. Well, it’s -- I am sure I don’t need to elaborate on what we all hear about on generative AI and it’s -- I think it’s still early innings on generative AI. But we obviously are also indicating, as we are seeing a very strong and a strong sense of urgency among our customers especially in the hyperscale environment to be -- to not miss out -- not to be late in this trend. And with generative AI, as I said, with many more -- much more billions of parameters that come into the models that they are doing. You are talking about scale out of A -- 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 deploy technology to support AI networks even today to certain hyperscalers, where we are talking about at least hundreds and on thousands of AI engines, AI service 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 performance -- 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 to say, 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 come up -- to start to work on even a new generation of switches in Ethernet that are dedicated -- 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. 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 are aware of and we are driving solutions -- silicon solutions that enable that. We have it but we think we need to improve the performance of what we have to -- and in anticipation of a trend that we foresee over the next several years and so we are putting… Vijay Rakesh: Okay. Hock Tan: … a lot of investment in that direction. Vijay Rakesh: On the silicon photonics cable, just wondering when the time of ramp and… Hock Tan: It’s there… Vijay Rakesh: … or advantages there? Thanks. Hock Tan: Well, we intend to launch Tomahawk 5 early 2024 as we indicated previously and that’s the conventional silicon-based with pluggable optics switch top of the rack switch Tomahawk 5 51.2 terabit per second. Bailey, which is the fully integrated silicon photonic version. You don’t fully integrate the active component -- element -- active elements of those pluggable optics into the switch. We anticipate launching that shortly thereafter. Power wise, you can see silicon photonics, that’s a lot. The Tomahawk 5 compared to what we have today is 2x the performance of Tomahawk 4 and but we believe we can do Tomahawk 5 at the same power, close to the same power if not lower than Tomahawk 4. Vijay Rakesh: Great. Thank you. Hock Tan: Sure. Operator: Thank you. One moment for our next question. And that will come from the line of Ross Seymore with Deutsche Bank. Your line is open. Ross Seymore: Thanks certainly ask 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, can you just talk about the breadth and types of compute offload and how that’s changing in the mix from the $2 billion last year to $3 billion this year? Hock Tan: Well, 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 are related components that support this engine. Ross Seymore: Is the concentration changing? So are you broadening customers in that growth? Hock Tan: No. No. Very concentrated. Ross Seymore: Okay. Thank you. Hock Tan: Thank you. Operator: 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. Edward Snyder: Thank you very much. Good quarter, Hock. So apparently over the last quarter you were getting out of wireless, you are getting into wireless or handset guys are going to start 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, mixed silicon baseband 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 architectures change, it has a big impact on supply chain and I know, historically, you have worked very closely with key players and helping develop all the other pieces of the puzzle like transceivers that are required if you are going to do your own. So maybe you could just kind of reset the bar on what you expect for without guidance, but in general, the wireless division in the next year or two, does that for you to get greater? Thanks. Hock Tan: Thanks. Good question, Ed. As you know, our wireless division -- group, as you call it, division, it’s really not one single product line or one single division, it’s not one homogenous group either and it is several -- a few key products that comprises this wireless division. All selling -- you are right -- you are correct, to the same application and very high end flagship status handsets and largely focused on one key customer in North America are much below the North American OEM customers. So in that sense, it’s one single focus area. And to answer your question, while we are multiple -- on 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 after while each on its own cadence. It’s a very, very good business for us. And to answer your question directly, no, it’s 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. Edward Snyder: And then just to remind if we could, a three-year roadmap, I mean, you see stuff pretty far out, right? Hock Tan: Yes. Edward Snyder: Great. Thank you. Hock Tan: Thank you. Operator: 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. Pierre Ferragu: Great. Thank you for taking question. Can you hear me well? Kirsten Spears: Yeah. Hock Tan: Yes. Pierre Ferragu: Great. So I am 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 you have compute for $1 billion growth -- by the billion, that might well represent all your growth in that -- in networking. So that would mean the only thing that is really growing and that we bring a lot this year in that space is AI. And when I look at outside of Broadcom, what we have seen is memory and x86 CPU servers are having a very difficult time at the moment, we expect a recovery in the second half, while the GPU segment of the market is actually in very, very good shape and growing very well and accelerating again. So my question at the end of the day is, is it fair to say that in these large data centers this year only AI is growing and is that a sign of what the future will be or do you think the general purpose started in infrastructure or like centered around x86 or similar or general purpose CPUs still is a very good growth market? Hock Tan: You post very, very interesting and good questions, Pierre. The problem is, I do not -- my customers -- hyperscale customers do not necessarily honor me by sharing all those insights that you -- 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 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 are seeing some of these hyperscalers bringing on a sense of urgency and focus, and of course, spending to be up to speed if not to not be left behind as we see the excitement hype perhaps in pushing applications and workloads in generative AI. That’s what we see driving a lot of this excitement, and we are always saying is, we have seen 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 the last quarter’s results, 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 are going to see beyond that. But right now, last quarter, this quarter, yeah, traditional data centers scale out in networking and deployment in networking continues to be strong and sustained in hyperscalers as well I might indicate in the enterprise. Pierre Ferragu: Okay. Great. And just to clarify specifically on what you are doing, is that 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 AIs Ethernet and $1 billion coming from [inaudible] or is that not the right way to think about it? Just for your business, I am not looking at anything else? Hock Tan: I will not think about it at this point. It might be a bit too mature. Don’t forget generative… Pierre Ferragu: Okay. Hock Tan: …AI is still early stage. Pierre Ferragu: Yes. Okay. That’ very clear. Thanks, Hock. Hock Tan: Thank you. Operator: Thank you. And we do have time for one final question and that will come from the line of Karl Ackerman with BNP Paribas. Your line is open. Karl Ackerman: Yeah. 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, 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 it relates to broadband, several companies across the broadband ecosystem have guided a softer outlook due to a buildup of inventory, but quite frankly, that’s been on the customer premise side, you obviously have more weighting towards fiber and sell into the infrastructure portion. And so I was hoping you could discuss how you are 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. Hock Tan: Thank you for that question. Yes. Broadband is, for 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. In my view, that’s rather exceptional even though in broadband, we have been seeing year-on-year growth now at least for the past four quarters, five quarters. But still 34% was rather exceptional and sure enough Q2, it normalizes to a most date level, but still growing. And the growth in that is simply because we are very well positioned with respect to next-generation PON, 10-gig PON, which has been deployed in big volumes now by telcos supported by the governments and countries all over Europe and even in North America, not to mention other country -- other nations beyond that. Basically, it is about reaching these 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 large strong continued deployment of cable, DOCSIS certainly coax to the home, because the cable operators, a few of them who 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 market -- 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. -- 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 this deployments come with very high attach rates of WiFi 6 and 6E. And that provides additional boost, content increases more, what I would call it, to our revenue growth in broadband. So that’s quietly still chugging along very nicely for us. All right. Operator: Thank you. As I am showing no further questions in the queue at this time. I would now like to turn the call back over to Ji Yoo for any closing remarks. Ji Yoo: Thank you, Sherri. 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 2023 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 call today. Thank you all for joining. Sherri, you may end the call. Operator: Thank you all for participating. This concludes today’s program. You may now disconnect.

Operator: Welcome to Broadcom Inc. Fourth Quarter and Fiscal Year 2022 Financial Results Conference Call. At this time, for opening remarks and introductions, I would like to turn the call over to Ji Yoo, Head of Investor Relations of Broadcom Inc. Ji Yoo: Thank you, Sherri, and good afternoon, everyone. Joining me on today’s call are Hock Tan, President and CEO; Kirsten Spears, Chief Financial Officer; and Charlie Kawwas, President, Semiconductor Solutions Group. Broadcom distributed a press release and financial tables after the market closed, describing our financial performance for the fourth quarter and fiscal year 2022. If you did not receive a copy, you may obtain the information from the Investors section of Broadcom’s website at broadcom.com. This conference call is being webcast live and an audio replay of the call can be accessed for one year through the Investors section of Broadcom’s website. During the prepared comments, Hock and Kirsten will be providing details of our fourth quarter and fiscal year 2022 results, guidance for our first quarter as well as commentary regarding the business environment. We’ll take questions after the end of our prepared comments. Please refer to our press release today and our recent filings with the SEC for information on the specific risk factors that could cause our actual results to differ materially from the forward-looking statements made on this call. In addition to U.S. GAAP reporting, Broadcom reports certain financial measures on a non-GAAP basis. A reconciliation between GAAP and non-GAAP measures is included in the tables attached to today’s press release. Comments made during today’s call will primarily refer to our non-GAAP results. I’ll now turn the call over to Hock. Hock Tan: Well, thank you, Ji. And thanks, everyone, for joining us today. Before I provide color on our Q4 results, let me put in perspective what we achieved in fiscal year ‘22. For the year, I’m pleased to report that consolidated revenue hit a record of $33.2 billion, growing 21% year-on-year, yet another year of double-digit organic growth. This growth was driven by our strong partnerships with customers and increased R&D investments, which enable accelerated adoption of our next-generation technologies. With our robust business model, we grew our fiscal 2022 operating profit by 28% year-on-year and our free cash flow per share by 25% year-upon-year. Now to discuss details of our fiscal Q4. In our fiscal Q4 ‘22, consolidated net revenue was a record $8.9 billion, up 21% year-on-year. Semiconductor solutions revenue increased 26% year-on-year to $7.1 billion, and infrastructure software revenue grew 4% year-on-year to $1.8 billion. In Q4, our semiconductor business continued to perform well across hyperscale, service providers and enterprise. On top of this, wireless grew sequentially as we ramp up the new platform and our North American customer. In reporting these results, I’d like to emphasize, we demonstrate our continued discipline in shipping our strong backlog only as and when needed by our end customers. So, in contrast to weak consumer electronics spending today and despite concerns of a global recession, we believe overall infrastructure spending remains strong, and we continue to experience sustained demand in most of our end markets, and this is what we continue to see in Q1. So, let me expand on this. Starting with networking. Networking revenue was a record $2.5 billion and was up 30% year-on-year, representing 35% of our semiconductor revenue. We see strong growth from deployment of Tomahawk 4 for data center switching at hyperscale customers. And we see upgrades of edge and core routing networks with our next-generation Jericho portfolio at cloud and service providers. And at multiple cloud customers, we continue to lead in delivering custom solutions for compute offload accelerators and actually surpassed the $2 billion amount in revenues in fiscal ‘22. Looking into Q1, we do expect networking revenue to be strong and grow about 20% year-over-year. Next, our storage connectivity revenue was a record $1.2 billion or 17% of semiconductor revenue and up 50% year-on-year. As we have mentioned in previous earnings call, we are benefiting here from substantial content increases as both, cloud and enterprise customers adopt our next-generation MegaRAID and storage adapters. This trend will continue in Q1, and we expect server storage connectivity revenue to grow above 50% year-on-year. Moving on to broadband. Revenue of $1 billion grew 20% year-on-year and represented 15% of semiconductor revenue. Our broadband business is benefiting from ongoing multiyear deployments by North American and European service providers of 10-gigabit PON and DOCSIS 3.1 with embedded Wi-Fi 6 and 6E. In Q1, we expect the secular drivers behind broadband to continue and our business to be strong at about 30% year-on-year growth. Moving on to wireless. Q4 revenue of $2.1 billion represented 29% of semiconductor revenue with the 13% year-on-year increase coming largely from higher content. And in Q1, we expect wireless revenue to be sequentially flat and up low single digits year-on-year. Finally, Q4 industrial resale of $234 million grew 1% year-over-year as softness in China mostly offset the strength in North American and European automotive. In Q1, we forecast industrial resales to continue the trend of low single-digit percent growth year-on-year. And so in summary, Q4 semiconductor solutions revenue was up 26% year-on-year. And in Q1, we expect semiconductor revenue growth to sustain at approximately 20% year-on-year. Moving on to software. In Q4, infrastructure software revenue of $1.8 billion grew 4% year-on-year and represented 21% of total revenue. Core software revenue grew 5% year-on-year. In spite of adverse ForEx impact in dollar terms, consolidated renewal rates averaged 117% of expiring contracts. And in our strategic accounts, we averaged 128%. Within our strategic accounts, annualized bookings of $357 million included $101 million of cross-selling of our portfolio of products to these customers. Over 90% of the renewal value represented recurring subscriptions and maintenance. Over the last 12 months, consolidated renewal rates averaged 120% over expiring contracts. And in our strategic accounts, we averaged 135%. Because of this, our ARR, which is annual recurring revenue, the indicator of forward revenue, at the end of Q4 was $5.4 billion, which was up 4% from a year ago. And in Q1, we expect our infrastructure software segment revenue to be flat year-on-year, reflecting core software revenue growth of mid-single-digit percent year-over-year, offset by a year-on-year decline in the Brocade enterprise and business. In summary, we’re guiding consolidated Q1 revenue of $8.9 billion, up 16% year-on-year. While we are fully booked for fiscal 2023, in this environment, we are not providing you guidance for the year. Before Kirsten tells you more about our financial performance for the quarter, let me provide a brief update on our pending acquisition of VMware. We are making progress with our various regulatory filings around the world, as we very much expect having received merger clearance in Brazil, Canada and South Africa. We anticipate that time line for the review process would be more extended in other key regions, especially given the size of this transaction. Having said that, we’re still confident that this transaction will close and be completed in our fiscal 2023. The combination of Broadcom and VMware is about enabling enterprises to accelerate innovation and expand choice by addressing their most complex technology challenges in this multi-cloud era. And we are confident that regulators will see this when they conclude their review. With that, let me turn the call over to Kirsten. Kirsten Spears: Thank you, Hock. Let me now provide additional detail on our financial performance. Revenue was $8.9 billion for the quarter, up 21% from a year ago. Gross margins were 75% of revenue in the quarter and up 10 basis points year-on-year. Operating expenses were $1.2 billion, up 3% year-on-year, driven by investment in R&D. Operating income for the quarter was $5.5 billion and was up 25% from a year ago. Operating margin was 62% of revenue, up approximately 240 basis points year-on-year. Adjusted EBITDA was $5.7 billion or 64% of revenue. This figure excludes $129 million of depreciation. Now, a review of the P&L for our two reportable segments. Revenue for our semiconductor solutions segment was $7.1 billion and represented 79% of total revenue in the quarter. This was up 26% year-on-year. Gross margins for our semiconductor solutions segment were approximately 71%, up 70 basis points year-on-year driven by product mix and adoption of next-generation products across our extensive product portfolio. Operating expenses were $825 million in Q4, up 4% year-on-year. R&D was $731 million in the quarter, up 4% year-on-year. Q4 semiconductor operating margins were 59%. So, while semiconductor revenue was up 26%, operating profit grew 33% year-on-year. Moving to the P&L for infrastructure software segment. Revenue for infrastructure software was $1.8 billion, up 4% year-on-year and represented 21% of revenue. Gross margins for infrastructure software were 91% in the quarter and operating expenses were $348 million in the quarter, down 1% year-over-year. Infrastructure software operating margin was 72% in Q4, and operating profit grew 6%. Moving to cash flow. Free cash flow in the quarter was $4.5 billion, representing 50% of revenue. We spent $122 million on capital expenditures. Days sales outstanding were 30 days in the fourth quarter compared to 29 days in the third quarter. We ended the fourth quarter with inventory of $1.9 billion, up 5% from the end of the prior quarter because we expect the mix of revenue in Q1 to have a higher cost of materials. We ended the fourth quarter with $12.4 billion of cash and $39.5 billion of gross debt, of which $440 million is short term. Based on current business trends and conditions, our guidance for the first quarter of fiscal 2023 is for consolidated revenues of $8.9 billion and adjusted EBITDA of approximately 63% of projected revenue. In forecasting such operating profitability, we would like to point out that because of product mix changes, our non-GAAP gross margin could be down roughly 100 basis points from Q4 and R&D spending could be up sequentially as we step up hiring of engineers for multiple critical projects. Let me recap our financial performance for fiscal year 2022. Our revenue hit a record $33.2 billion, growing 21% year-on-year. Semiconductor solutions revenue was $25.8 billion, up 27% year-over-year. Infrastructure software revenue was $7.4 billion, up 4% year-on-year. Gross margin for the year was 76%, up 110 basis points from a year ago. Our operating expenses were $4.8 billion, up 6% year-on-year. Fiscal ‘22 operating income was $20.3 billion, up 28% year-over-year and represented 61% of net revenue. Adjusted EBITDA was $21 billion, up 27% year-over-year and represented 63% of net revenue. This figure excludes $529 million of depreciation. We spent $424 million on capital expenditures. And free cash flow grew 22% year-on-year to $16.3 billion or 49% of fiscal ‘22 revenue. Turning to capital allocation. For fiscal ‘22, we spent $15.5 billion, consisting of $7 billion in the form of cash dividends and $8.5 billion in repurchases and eliminations. We ended the year with $13 billion of authorized share repurchase programs remaining and expect to resume our repurchase of common stock as soon as we can under SEC rules. Excluding the potential impact of any share repurchases, in Q1, we expect the non-GAAP diluted share count to be $435 million. Aligned with our ability to generate increased cash flows in the preceding year, we are announcing an increase in our quarterly common stock cash dividend in Q1 fiscal 2023 to $4.60 per share, an increase of 12% from the prior quarter. We intend to maintain this target quarterly dividend throughout fiscal ‘23, subject to quarterly Board approval. This implies our fiscal 2023 annual common stock dividend to be a record $18.40 per share. I would like to highlight that this represents the 12th consecutive increase in annual dividends since we initiated dividends in fiscal 2011. That concludes my prepared remarks. Operator, please open up the call for questions. Operator: Thank you. [Operator Instructions] And today’s first question will come from C.J. Muse with Evercore ISI. Please go ahead. C.J. Muse: You talked about infrastructure holding up well across most segments. I guess, I was hoping you could speak more to why infrastructure to date has been so immune from the weakness we’ve seen elsewhere in semis. Specifically, can you speak to trends you’re seeing perhaps in hyperscale versus enterprise? Any differences there? And also, can you speak to how you see these trends throughout all of fiscal ‘23? Thanks so much. Hock Tan: All right. Great question. What we see now, last quarter and this current quarter as we progress is hyperscale spending continues strong; enterprise consumption continues strong; and broadband deployment across North America, Europe and even parts of Asia continues their multiyear trend of growth simply because out of COVID-19, there was a lot of invest -- there was a lot of plans to invest, and these are multiyear. So, exactly as I said, all these areas currently continue to be very much on track as we’ve seen it. Now, keep in mind, as I said in previous earnings call and I’d just reemphasize here today, again, it’s -- I just want to assure you, we don’t believe we are shipping beyond true demand. We continue to scrub -- to basically judge orders, the backlog we have, and we also take pains to only ship to customers who can consume it pretty much within the same quarter before we do it. And so, as far as we can tell, based on what we see as a willingness of our customers to accept and consume the products we ship, that’s what we see right now. Asking me for the rest of ‘23, no, I tend to be more careful in being able to answer that. I don’t know the answer to that is my opinion. I do not know whether the strength in acquisition and consumption of our products will continue to sustain for the rest of ‘23. What we do see is over the next several months, we see those orders still in place. We see customers willing to take the products. We have -- talking to multiple, multiple CIOs among largest enterprise customers we have out there. We have not seen them talk about a reduction in their IT spending. We’ve seen many said it will grow and others saying it will at least remain flat. So, I guess, I’m cautiously positive about trends looking forward. Operator: Thank you. One moment for our next question. That will come from the line of Ross Seymore with Deutsche Bank. Please go ahead. Ross Seymore: Hock, I want to follow on C.J.’s and maybe ask similar question but in a slightly different way. Last quarter, you talked about actively scrubbing your backlog. And clearly, that’s helped to avoid some of the inventory pitfalls that some of your peers have seen. But have you noticed since last quarter’s call a change in either the rate of your backlog growth? I think it was up about 7% sequentially last quarter, the composition of your backlog or how actively and aggressively you need to scrub it? Any sort of changes in those forward-looking metrics that would alter your view on kind of the sustainability of demand, the duration of it, et cetera? Hock Tan: It comes down very simply to we continue to scrub our backlog in a manner this quarter, last quarter, no differently than we did it six months or a year ago. We haven’t changed our focus on ensuring that we do not ship products to the wrong people who just put it on the shelves. That is still very much, very, very intact in our view. Our backlog continues to be way up there, and you’re right, makes us change. As you can see, one quarter, it would be broadband growing 20% year-on-year and networking growing 30% year-on-year, and the following quarter is broadband growing 30% year-on-year and networking growing 20%. And it impacts not just from hyperscale bearing their purchases in -- for one of a better word, seasonal manner; it’s also the particular end markets it goes to. So there’s a mix of backlog and products we ship in any particular quarter will vary, and they all change. But it doesn’t change the fact that we have still a very, very strong backlog. And what we’re shipping, which is most important in the current quarter, we believe, is what we are reflecting as end demand for our products. Operator: One moment for our next question. That will come from the line of Stacy Rasgon with Bernstein. Stacy Rasgon: So Hock, I guess just to ask the question explicitly. Last quarter, I think you said your semiconductor backlog was $31 billion and your lead times were still 50 weeks, give or take. What are those numbers now? Like, where is backlog and where are lead times? Kirsten Spears: Stacy, this is Kirsten Spears. We’re not going to guide the year. So, we’re not providing that... Stacy Rasgon: I’m not asking you to guide the year. I’m not asking you to guide the year. Kirsten Spears: Right. We’re fully booked for the year. So, if I give you the backlog number, I’m effectively guiding you to the year. So, we’ve chosen not to provide that data at this time. Stacy Rasgon: Okay. I guess, can you just tell me, has it gone up, flat or down? Hock Tan: Our forecast for the year, if you want to call it, forecast base -- our backlog, it’s not our forecast. We’ll continue -- for the year, we’ll continue to grow. Other than that, I’m not telling you what it is. We don’t guide. Stacy Rasgon: Got it. But you think that backlog will grow for the year is what you’re saying? Hock Tan: Our year forecast will grow. Stacy Rasgon: Got it. Got it. Thank you. Operator: Thank you. One moment for our next question. That will come from the line of Harlan Sur with JP Morgan. Please go ahead. Harlan Sur: Hock, your server storage connectivity business has been extremely strong, right, up 50% plus in fiscal ‘22. And more importantly, that business continues to sustain based on the January quarter outlook. We typically tend to think about HDD controllers and preamps, but your business is much more diverse than this. So, can you just, first of all, walk us through like what percentage is MegaRAID, PCIe or what I call overall storage connectivity versus your storage controller business, which is primarily HDD controller and preamps? And maybe what’s driving the near-term growth in the storage franchise when many of your storage competitors and customers are seeing major weakness in this segment? Hock Tan: Well, that’s an interesting question. It’s -- our server storage connectivity -- and you’re right, which includes nearline hard drives, which includes some, what we call, on-prem server storage connectivity, host bus adapters included is broad. And I don’t have the numbers on my mind exactly what it is. Just broad-based, particularly from the MegaRAID business, as I said, a big part of the growth, the big dollar -- the big percentage growth, as I indicated before, is due to the fact that the new generation of products are all subsystems, our boards. We’re not just shipping chips. So, that counts for a big part of the growth. Notwithstanding, unit [ph] growth is up, but not as much as the 50% we announced, obviously. A big part of 50% is content growth as we ship subsystems and boards versus chips. But even then unit growth is up, and it’s across the board, and it’s not everything that grows. But enough said that overall, it grows. Operator: One moment for our next question. That will come from the line of Timothy Arcuri with UBS. Timothy Arcuri: Hock, you keep on scrubbing demand and you’re shipping to what you think is consumption. So I guess I take it to believe that there’s still a gap between what you’re shipping and what customers want in any given quarter, I guess we could call that delinquencies, some others call that delinquencies. Obviously, you haven’t changed your approach, but I would imagine that this delinquency or this gap between what you’re shipping in a quarter and what your customers want, that’s probably declining. So I guess the question is, can you quantify the gap? And is the gap getting smaller? Thanks. Hock Tan: That’s an interesting question. And we don’t really try to quantify the gap. And a big part of it is -- I don’t want to get you guys overly excited, but customer -- you know backlog is -- sometimes it’s very often categorized or characterized under CRD or customer request dates. Our customer requests date in this particular quarter, for instance, our last particular -- last quarter was much, much higher than what we actually shipped, and it was the same way six months ago. Has it got better from six months ago? I can only guess, and in this forum is the last thing I want to do. But there’s still a big amount of CRD’s backlog in excess of what we actually ship up. Operator: Thank you. One moment for our next question. That will come from the line of Vivek Arya with Bank of America. Vivek Arya: Thank you. I actually have two very quick clarifications. First, Hock, have you seen the impact or you expect to see any impact of China lockdowns in your wireless business in Q2? I know there’s nothing -- doesn’t seem to be anything in Q1. I was just wondering if there’s something we should be prepared for in Q2. And then on the gross margin, I thought I heard gross margin goes down sequentially in your semiconductor business in Q1. Is that really all mix-related, or is there a like-to-like impact that we should keep in mind? Hock Tan: Okay. Let’s take your first question first and then go to a more interesting second question, which is interesting, because it connects a few dots here. On the first one, as you know, our wireless is one single customer, and the COVID shutdown and all that does slow down inter-quarter shipments. But nothing -- we don’t see -- Q2 is too far away for me to really give you any sense and our accuracy of what is like, but that’s obviously movements between Q4 and Q1 as our numbers does kind of reflect. But -- which is why year-on-year is a pretty good measure. As you see there, Q4 year-on-year was just 13% -- and I shouldn’t say just -- was 13%, and Q1 was actually still 1% up, but there’s obviously some movements in between, but -- and I’m sure that has something to do with COVID logistics -- impact on logistics chain of our largest customer, but I can’t really tell in the bigger picture. Now switching and certainly on Q2, I’m not positioned to give you any indication. We don’t have visibility. Now turning to the second part of your question on gross margin, it’s all product mix. And it’s all product mix because there are some -- depending on the particular products we ship, as I’ve said many times before, the margin, product margin, gross margin does vary, simply because it’s the nature of the market conditions, the ecosystem that we have in each of those markets, those niche markets we participate in. But broadly, to give you a sense, perhaps that gives you more color, networking tends to have some of the highest margins collectively of our products and much higher than broadband; and of course, wireless has the lowest. And when you look at Q4 to Q1, the mix shifts away from networking somewhat and more to broadband, and wireless still remains a big chunk of it, even though it hasn’t receded as a percent. So, that’s why we see that impact on gross margin sequentially. Nothing more than just the mix of products we ship and the natural gross margin on those products vary one from the other. And you can actually see it with the way our inventory grew, too. As we -- as Kirsten reported, our inventory ending Q4 grew about 5% from that ending Q3, the quarter before. And obviously, the Q4 inventory is positioned to ship in Q1, and you see that increase even as our guidance on revenue remains pretty flat. Operator: One moment for our next question. That will come from the line of Joseph Moore with Morgan Stanley. Joseph Moore: Great. You talked about being booked for the whole year next year. How much visibility do you think that gives you really? And I guess, what’s your philosophy going to be if customers with non-cancelable backlog come to you and try to make an adjustment in a potentially weaker economic period next year? Hock Tan: Let’s start with the first part. I mean, when we’re booked, we’re really booked. I mean we got paper that says they have committed orders for us to ship. And as you know, our orders are non-cancelable orders. Customers know that. We have the paper. And when we say we are fully booked, it means we have the backlog sitting there. Now, the second question you asked is a more interesting question. What if we all hit a massive recession, depression or recession, late next year, in the next 6 months, 9 months, and customers -- and things really collapse around years, what would we do? My answer is I don’t know, which is partly why we’re not giving you annual guidance. We will react as and when circumstances require us to do. But at this point, we have the orders. Operator: And one moment for our next question. That will come from the line of William Stein with Truist. William Stein: Great. Thanks for taking my question, and congrats on the good results and outlook. The -- it seems that the capital allocation policy in terms of the outlook -- maybe the policy didn’t change, but at least the tactics did. The payout ratio relative to free cash flow, you’re setting that a little bit lower than the 50%, and you’re resuming the buyback. And I’m hoping you can just discuss why these decisions were made. Does it reflect an indication or a changing view about the timing of the VMware close, or is it related to concerns around macro or anything else? Thank you. Kirsten Spears: Well, I would say that we are -- policy-wise, we’ve always said we would pay out approximately 50% of the preceding year’s free cash flows. And in this economic environment that we’re all seeing, we believe that a 12% increase year-over-year is a robust dividend. And so yes, we’re quite happy with that. Hock Tan: And don’t forget, we’re going to start buyback once the rules allow us to do that. And so, that’s another return of cash to shareholders, and we fully intend to get that going as soon as we could. Kirsten Spears: As soon as we can, and we still have $13 billion under that program. Operator: And one moment for our next question. And that will come from the line of Matt Ramsay with Cowen. Please go ahead. Matt Ramsay: Hock, I think in some of the prepared script that you guys disclosed that you’re now sort of in the compute offload ASIC franchise, the fiscal year was $2 billion. And I think that’s maybe a third higher than it was last year. It looks like some of the -- you guys did an event on that business earlier in the year, and things really jumped up in fiscal ‘18 and then kind of leveled off a bit in terms of revenue. And this is a pretty big, I guess, acceleration in that compute offload business. Maybe you could talk a little bit about the trends there. And are you seeing a broadening of the customer base or maybe higher volumes per tape-out as you go down the node stack? I’d just be interested in seeing some of the trends there. It seems like hyperscale really wants custom silicon at this point. Thanks. Hock Tan: Yes, you’re right in that regard that we have multiple programs from the hyperscalers on custom or semi-custom silicon, or largely collectively we call as offload compute. And they all have -- do their own. So, that’s -- in one way that’s very positive and very opportunistic for our technologies to be deployed. On an ongoing basis, the tricky thing in all this is more will come on, the rate of ramp is harder for us to predict. These are very lumpy programs, fairly large and lumpy, which is why we can get to $2 billion and a raise -- an increase of like, as you correctly say, a third from a year ago. But it’s lumpy. And the trend is very hard for me to chart out unless you ask for it over the next five years. And even then, if you look it five years, it becomes a question now, would these hyperscalers revert to merchant silicon versus continuing to use custom ASICs, and that poses another issue for me to figure it out. But if you ask for me over the next year or two, where it will go, I’d be honest and say I’m not positioned to give you really a good forecast. Operator: And one moment for our next question. That will come from the line of Aaron Rakers with Wells Fargo. Aaron Rakers: Hock, I wanted to go back to the prior comment you had made, and I want to make sure I’m clear on it. I think possibly within the context of lead times, you talked about customers, I think it was giving you forecast that were notably longer. I just want to understand a little bit of the context behind that comment earlier. Any kind of -- appreciating that you’re not giving backlog, any kind of context around that lead time discussion would be helpful. Hock Tan: We haven’t in any major substantive way changed our lead times by any means, as I’ve said before, and we kind of go along on that practice mode. And we have forecast, but we’re really not talking about forecast either as it relates to the previous comment. I think I was referring to backlog and paper that we use. And as I said before, even on those papers, we have with customer request dates for shipments, we scrub that date and then scrub each of those demands before we ship it out in the current quarter or the preceding quarter, depending on what it is. But we don’t -- we have forecast. But obviously, we’re not giving you any indication of our forecast at this point simply because we are still grinding our way through the backlog. Operator: One moment for our next question. That will come from the line of Toshiya Hari with Goldman Sachs. Toshiya Hari: Hock, I was hoping you could talk a little bit about your business in China, not so much from a ship to perspective from -- end consumption perspective. I know you don’t have perfect visibility into being what’s consumed at the end customer level. But if you can kind of talk about what you’re seeing in terms of trends across enterprise, cloud and service providers, that would be helpful. How significant of a headwind was China in fiscal ‘22? And what are your expectations going forward? And what are you hearing from your end customers? Thank you. Hock Tan: Well, to answer your question directly is China has slowed down in terms of consumption of products across industrial, across even infrastructure. It has slowed down, and we see that. They’re still not totally collapsed, but they have slowed down compared to what they were taking a year ago. But that’s -- and we see that particularly in our industrial business, which as we -- I indicated in my prepared remarks, strength in Europe, strength in North America especially in automotive, but weakness in China, which is a big part of our industrial business slowed it down. But beyond that, in the IT side, yes, we have seen a slowdown. But keep in mind, China represents just less than 10% of our total revenues today. So, while it obviously has some level of offsetting effect, it’s not sufficiently launch to have that much impact on our overall growth trend for the entire company. Toshiya Hari: And any signs of improvement going forward, Hock, on the IT side, or is it too early to tell? Hock Tan: I think it’s too early at this point for me to make a call. It’s -- there’s a sense of some reopening. But if I make a call, good chance I could be wrong in a month’s time when things might shut down again. Operator: One moment for our next question. That will come from the line of Christopher Rolland with Susquehanna. Christopher Rolland: Congrats on bucking the trend on semis here, Hock. So, my question, it was kind of addressed on the last one, but I wanted to talk about the divergence, particularly between storage and maybe China enterprise networking. You had -- there’s a lot -- your other competitor in, call it, core hard disk drive, talked about a downturn in demand, in storage, a large inventory build, and something similar happening in China networking as well, and you guys have seemingly such a big divergence there. And I was wondering if perhaps you had an explanation for some of that and why the difference. Hock Tan: The only explanation to an earlier question was our portfolio in service storage is pretty broad-based. Now, with a couple of areas that are very large areas like RAID, MegaRAID, particularly pretty much, but they are more than MegaRAID we have. You’re correct. It’s pretty broad-based. And there are some puts and takes, obviously. But overall, we see what we tell you. Operator: One moment for our next question. That will come from the line of Edward Snyder with Charter Equity Research. Edward Snyder: Hock, I’d like to talk a little bit about your wireless business, which is more retail-focused and probably will be the first one to see any recessionary pressures if you him them. I know you guide this really solid. First, give us some idea of your firm order book. I know you get a projection when the model year starts on what the total number would be for the year, but you don’t get a firm order for that for some time. So just kind of what is -- what would you -- how would you characterize firm order book for that or orders per se? Is it a 30-day, 60-day? So help anticipate if you see a change when would that be. And then maybe if you could touch on how we should think about overall content at your largest customer in the next year or so because there’s obviously increased competition in some of your core areas, and I was wondering if you’re looking to shift more of your focus there into some of the mixed signal custom stuff and maybe wait for some of the RF. Thanks. Hock Tan: Okay. Interesting question. Let me try and address that. First, I assume you imply when you say orders or forecast on shipments, we only guide Q1, so I can only give you Q1. And it’s all -- we have been all on paper, orders. These are real orders, non-cancelable. So, we’re giving you numbers that we intend to ship that we think the customer needs as far as we can scrub. And we have it. These are committed orders. These are not forecasts at all, especially when you talk about Q1, which ends, by the way, end of January. We have orders beyond end of January as it is. So, these are very committed orders. And in that -- by that same token, pretty committed revenue forecast. Just to make it clear. You’re right -- and by the way, we have pretty good visibility for -- from that particular customer, too. Now beyond that, to the second part of your question, yes, we’re very pleased with content increase that we have experienced, not every year necessarily, as you know. But over a period of years, we always see this content increase. And we’re still very, very well positioned in our product line -- in those few product lines that are, I call it, almost franchise in our North American customers. And this is Wi-Fi, Bluetooth, this is RF front end, and this is touchscreen controllers, high performance, mixed single. And that’s -- we can only -- and that’s all we focus on because these are areas where we are the best, we believe we have the best technology and delivering value to our customers. There’s no reason to find something else where you’re not the best and hope to gain share from someone else. I could apply the same to my competitors in their thinking. Edward Snyder: But you don’t see the competitive landscape shifting and making things more difficult for you in that, especially in the RF section in the next coming year or so, you think your franchises or your franchises and you... Hock Tan: Answer is no. Operator: And our last question of the day will come from the line of Pierre Ferragu with New Street Research. Pierre Ferragu: Hock, you mentioned you’re fully booked for 2023. You’ve had a lot of questions on that one. So, I apologize in advance for squeezing in one last one. And I was wondering, if you look at the year as you see it books today, if you could tell us in this like booking dynamics, where do you see for the full year 2023 the most growth and the least growth? I know you can’t give us like numbers, and you don’t want to guide. I completely accepted that. But if you could give us like a kind of idea of where things keep growing very fast, where things are slowing down in your order dynamics over the full year. Hock Tan: Infrastructure is still holding up very well, as we have said in this call so far. We see -- we continue to see infrastructure. And infrastructure, by looking at it, comes from hyperscale, in building their data centers and components to their data centers; in service providers, like telcos, where we see our strength in broadband access, gateways and broadband. And I know people are finding hard to imagine, we’re seeing it even in enterprise, where we do not -- where -- that’s why I made a comment earlier, we do not see across a cross-section of large enterprises, reduction in the IT spending for 2023. We have not seen -- we have not come across too many enterprise customers, and I’m talking real end-use customers, end-user enterprise customers who are seeing their IT budget drop below ‘22. For most that we have asked, it’s either flat or even up as they all continue to have the compelling need to keep modernizing their platform and workloads and digitizing their business model. And I think that is the only -- that was the only explanation given to me why there was no such clear reduction even as we all hear every day the likelihood, possibility of a global recession. Operator: Thank you. As there are no further questions in the queue at this time, I would now like to turn the call back over to Ji Yoo for any closing remarks. Ji Yoo: Thank you, Sherri. Broadcom currently plans to report its earnings for the first quarter of fiscal ‘23 after close of market on Thursday, March 2, 2023. A public webcast of Broadcom’s earnings conference call will follow at 2 p.m. Pacific. That will conclude our earnings call today. Thank you all for joining. Sherri, you may end the call. Operator: Thank you. Thank you all for participating. This concludes today’s conference call. You may now disconnect.

Operator: Welcome to Broadcom Inc.’s Third Quarter Fiscal Year 2022 Financial Results Conference Call. At this time, for opening remarks and introductions, I would now like to turn the call over to Ji Yoo, Head, of Investor Relations of Broadcom Inc. Ji Yoo: Thank you, Sherri, and good afternoon, everyone. Joining me on today's call are Hock Tan, President and CEO; Kirsten Spears, Chief Financial Officer; and Charlie Kawwas, President, Semiconductor Solutions Group. Broadcom disturbed press release and financial tables after the market close, describing our financial performance for the third quarter of fiscal year of 2022. If you did not receive a copy, you may obtain the information from the Investors section of Broadcom's website at broadcom.com. This conference call is being webcast live, and an audio replay of the call can be accessed for one year through the Investors sections of the Broadcom's website. During the prepared comments, Hock and Kirsten will be providing details of our third quarter fiscal year '22 results, guidance for our fourth quarter as well as commentary regarding the business environment. We'll take questions after the end of our prepared comments. Please refer to our press release today and our recent filings with the SEC for information on the specific risk factors that could cause our actual results to differ materially from the forward-looking statements made on this call. In addition to U.S. GAAP reporting, Broadcom reports certain financial measures on a non-GAAP basis. A reconciliation between GAAP and non-GAAP measures is included in the tables attached to today's press release. Comments made during today's call will primarily refer to our non-GAAP financial results. I'll now turn the call over to Hock. Hock Tan: Thank you, Ji, and thank you everyone for joining today. I feel that -- we feel somewhat surreal here with what I'm about to report and go through in my screen. Let me start by saying, while consumer IT hardware spending has been reported to be weak, very weak, from our vantage point, infrastructure spend is still very much holding. In our fiscal Q3 '22, consolidated net revenue was a record $8.5 billion, up 25% year-on-year. Semiconductor solutions revenue increased 32% year-on-year to $6.6 billion and infrastructure software revenue grew 5% year-on-year to be $1.8 billion. In Q3, our semiconductor business was robust, with solid contributions from all our end markets. Cloud and service provider growth remained strong, and in Q4 is actually expected to accelerate year-on-year, driven by data center build-out and infrastructure upgrades. Year-on-year, enterprise continued to grow for the sixth consecutive quarter on campus deployments and data center refreshes. Looking at Q4, we expect enterprise to continue to grow double-digit percent year-over-year. Meanwhile, in wireless, which is very much tied to our large North American [headphone] (ph) OEM, it was solid in Q3 and is expected to grow in Q4, as we ramp the new platform. Now, let me provide more color by end market. Starting with networking. Networking revenue was a record $2.3 billion and was up 30% year-on-year, representing 35% of our semiconductor revenue. As both cloud and enterprise data centers refresh, they continue to increase adoption of our Tomahawk, Trident and Jericho switching silicon platforms. Importantly, we expect these trends to continue. In mid-August, Broadcom announced the Tomahawk 5 switch series, providing 51.2 terabit per second of Ethernet switching capacity in a single monolithic device, double the bandwidth of any other switch silicon available in the market today. We also announced the industry's first silicon photonics co-packaged with the Tomahawk, which will enable a new benchmark for low power, and extend our leadership and innovation in hyperscale data centers. Networking remains strong, given these drivers. And in Q4, we expect this segment to be up 30% year-over-year. Next, server storage connectivity revenue was a record $1.1 billion or 17% of semiconductor sales, as growth of 70% year-on-year exceeded our expectations. A primary driver remained the growth of our next generation service storage connectivity where we benefited from high content and continued deployment of servers and storage in both cloud and enterprises. We anticipate this strong trend to actually continue. And in Q4, we expect server storage connectivity revenue to grow about 45% year-on-year. Moving on to broadband. Revenue of $1.1 billion grew 20% year-on-year, in line with our expectations and represented 17% of semiconductor sales. This steady growth was driven by major service provider continuing to deploy next generation broadband fiber to the home globally, with high attach rates of Wi-Fi 6 and 6E. We are the industry leader in investing in the next generation Wi-Fi 7 and unlocking amazing wireless experiences across home gateways, enterprise access points and smartphones, and we expect first deployments to occur in the second half 2023. In Q4, we expect our broadband business to grow above 20% year-on-year. Finally -- next moving to wireless. Q3 revenue of $1.6 billion, represented 25% of our revenue in semiconductors. Sustained demand from North American customer drove wireless revenue up 14% year-on-year, in line with our guidance. In Q4, we expect wireless revenue to be seasonally up 20% sequentially and grow 10% year-on-year. Finally, Q3 industrial resales of $244 million declined 4% year-over-year, reflecting weakness in China, partially offset by continued strength in the U.S. and Europe. Nonetheless, for Q4, we forecast industrial resales to rebound to high-single-digit growth year-on-year. In summary, Q3 semiconductor solution revenue was up 32% year-on-year. In Q4, we expect semiconductor revenue to remain strong at 25% year-on-year. Now, putting this in perspective, and if we look at it on a sequential basis, Q3 grew 6% as did Q2, and Q4 will grow another 6%, largely driven by the seasonality of wireless. Turning to software. In Q3, infrastructure software revenue of $1.8 billion grew 5% year-on-year and represented 22% of total revenue. In dollar terms, consolidated renewal rates averaged 128% over expiring contracts, and for strategic accounts, we averaged 140%. Within these strategic accounts, annual bookings of $461 million include $136 million of cross-selling of our portfolio products to these core customers. Now, 95% of our renewal value represented recurring subscription and maintenance. And just to put all this in context, over the past 12 months, consolidated renewal rates averaged 122% over expiring contracts. And within strategic accounts, we average -- we actually average 137%. Because of these trends, our ARR and the indicator of forward software revenue at the end of Q3 was $5.5 billion, which was up 5% from a year ago. And in Q4, we expect our infrastructure software revenue to sustain around mid-single-digit percentage growth year-over-year. In summary, therefore, we're guiding consolidated Q4 revenue of $8.9 billion, up 20% year-on-year or 5% sequentially. Now, before Kirsten tells you more about our financial performance for the quarter, let me provide a brief update on our pending acquisition of VMware. We're making good progress with our various regulatory filings around the world. We have an excellent team focused on this effort, and we are moving forward as very much as expected in this regard. We continue to expect the transaction to be completed in Broadcom's fiscal year 2023. We remain excited about our acquisition of VMware and continue to be impressed by the world-class engineering talent as well as strong customer and channel partnerships. We have tremendous respect for what VMware has built. And together, we will enable enterprises to accelerate innovation and expand choice by addressing the most complex technology challenges in this multi-cloud era. And with that, let me turn the call over to Kirsten. Kirsten Spears: Thank you, Hock. Let me now provide additional detail on our financial performance. Revenue was $8.5 billion for the quarter, up 25% from a year ago. Gross margins were 76% of revenue in the quarter and up 80 basis points year-on-year. Operating expenses were $1.2 billion, up 8% year-on-year, driven by investment in R&D. Operating income for the quarter was $5.2 billion and was 32% from a year ago -- was up 32% from a year ago. Operating margin was 61% of revenue, up approximately 320 basis points year-on-year. Adjusted EBITDA was $5.4 billion or 63.5% of revenue. Note that this figure excludes $129 million of depreciation. Now, a review of the P&L for our two segments. Revenue for our semiconductor solutions segment was $6.6 billion and represented 78% of total revenue in the quarter. This was up 32% year-on-year. Gross margins for our semiconductor solutions segment were approximately 72%, up 220 basis points year-on-year, driven by favorable product mix and content growth in next-generation products across our extensive product portfolio. Operating expenses were $853 million in Q3, up 9% year-on-year. R&D was $765 million in the quarter, up 10% year-on-year. Q3 semiconductor operating margins increased to 59%. So while semiconductor revenue was up 32%, operating profit grew 44%. Moving to the P&L for our infrastructure software segment. Revenue for infrastructure software was $1.8 billion and represented 22% of revenue. This was up 5% year-on-year. Gross margins for infrastructure software were 90% in the quarter and were stable year-over-year. Operating expenses were $375 million in the quarter, up 4% year-over-year. Infrastructure software operating margin was 70% in Q3, and operating profit grew 5%. Moving to cash flow. Free cash flow in the quarter was $4.3 billion, representing 51% of revenue. We spent $116 million on capital expenditures. Days sales outstanding were 29 days in the third quarter compared to 30 days a year ago. We ended the third quarter with inventory of $1.8 billion, up 10% from the end of the prior quarter, in large part due to higher material costs and the expected sequential revenue ramp. We ended the third quarter with $10 billion of cash and $39.5 billion of gross debt, of which $304 million is short term. Turning to capital allocation. In the quarter, we paid stockholders $1.7 billion of cash dividends. Consistent with our commitment to return excess cash to shareholders, we repurchased $1.5 billion in common stock and eliminated $292 million of common stock for taxes due on vesting of employee equity, resulting in the elimination of approximately 3.2 million AVGO shares. The non-GAAP diluted share count in Q3 was 436 million. In Q4, we expect the non-GAAP diluted share count to be 435 million, which excludes the potential impact of any share repurchases completed in the fourth quarter. We have not repurchased any of our shares since we announced the pending acquisition of VMware as repurchases are subject to regulatory rules. We maintain our commitment to return excess cash to shareholders, including buybacks, as soon as we can under SEC rules. Based on current business trends and conditions, our guidance for the fourth quarter of fiscal 2022 is for consolidated revenues of $8.9 billion and adjusted EBITDA of approximately 63% of projected revenue. That concludes my prepared remarks. Operator, please open up the call for questions. Operator: [Operator Instructions] Our first question will come from Ross Seymore with Deutsche Bank. Please go ahead. Ross Seymore: Hock, you started off your preamble talking about the disconnect between some of the macro data points on the consumer side versus the infrastructure side. Obviously, you have a limited exposure on the consumer side of things. But in the networking broadband server, the enterprise and cloud businesses in general, are you seeing any changes? Because it's really hard for, I think, investors and even myself to reconcile the fact that everything is fine for you despite the macro data points seemingly are worsening for many of your peers. Hock Tan: Well, no. The short answer is no. And by that -- this is what I mean, and this is something I've been talking about -- we've been talking about in the earnings call and in sell-side analyst calls about true demand. What we are mentioning, what we are reporting revenues is in our minds, and we've been looking at it that way the past eight quarters, particularly, as we told you. We scrub to our backlog thoughtfully, carefully before we deliver products to customers, end users, is that that's true end demand. And what we reported to you today, and you see the numbers that we're presenting and the strength of the numbers, if I could say so myself, it's true end demand what we're seeing with respect to the various end markets and the infrastructure products we sell to -- into those end markets. That's as far as we can scrub through true end demand. Now, we also have a ton of backlog, and our lead time continues unchanged at 50 weeks. Now, whether bookings that are placed today are running at somewhat different thoughts, different rates, it's more a function of perception, psychology of customers trying to think one year out. But as far as what we reported in Q3 and expect to see in Q4, we believe to be true -- we believe and we're pretty clear about that to be true end demand and consumption by our customers. Operator: Thank you. One moment for our next question, and that will come from the line of Stacy Rasgon with Bernstein. Please go ahead. Stacy Rasgon: I just wanted to follow up on that, I guess, Hock. So, I understand you guys are thinking you're shipping to true demand. But, it feels like if this was the actual true demand situation that everybody was facing, that everybody else would feel stronger than they seem to be. So, I guess -- I don't know what else you can say about trying to help us square that circle. But, I guess, what gives you confidence that what you actually are seeing is indeed true demand? I guess, the whole thing about trying to under ship and parse your orders and everything else, but you don't think it's possible that your customers could be gaming you even within -- all the actions that you're taking? I guess, just what kind of confidence, if anything, can investors get around that statement that you think you actually are shipping to true demand? Hock Tan: Well, I mean, we put in a lot of checks and balances hugely and before we put products out on aircraft or trucks to our customers. And we have been doing this now for two years. So, we're pretty good at doing it. And the question earlier answered -- asked by Ross was, have you seen any particular change and all that? In terms of consumption of our products, and I can only obviously talk about our products and I can’t talk beyond our products, no, we don't see that. Operator: Thank you. One moment for our next question. That will come from the line of Vivek Arya with Bank of America. Please go ahead. Vivek Arya: Thank you. I just wanted to clarify and then ask a question. Hock, I just wanted to clarify if any of your products are directly or indirectly exposed to any China restrictions that have been in the press over the last handful of days. And then, Hock, I wanted to ask the growth question in a different way, which is, in the past, you described a sustainable kind of mid-single-digit growth rate for Broadcom. Is that still a good framework to use as we are looking out at the next year or so, or if you could give us maybe by end market, hyperscaler versus enterprise versus telco or consumer, which markets just conceptually you would expect to kind of grow better or slower than that kind of broad growth rate for the Company? Hock Tan: That second question is a very interesting question, but let me take care of the first. No, we have not been notified. None of our products are affected by any actions that have occurred over the last week or a few days regarding restriction on shipments to China. We have not been affected, period. And we do not expect to be. Okay? Now, in terms of what you're saying, now that calls for some degree of speculation, but it's more than that. I've always said, the long-term sustainable demand in the semiconductor space is a mid-single-digit compounded growth rate, 5%, thereabout, maybe 6% -- 5%, 6%. And I still believe that, no matter what all the -- I mean hubris, that marketing hubris that has occurred over the past 12 months. It always has been. And I think we will revert to that norm, eventually. Now, obviously, it's very interesting what we're seeing because it depends on where you start that compounded growth because 5% is what I said to be a long-term growth rate. In the short term in this industry, and we've all experienced these cycles, you could have higher than 5% at the up cycle and clearly much lower in the down cycles to average that 5%. And -- but your point is at some point, we'll have to get back to the norm. And I believe we will, not in this year, '22. The rate '22 is growing, assuming our forecast, Q4 comes to play. We're talking about semiconductor growth rate for us of around 25% year-on-year. And that's way above the 5% norm. So, at some point, yes, things will turn around and revert back to that norm. Now, it may take a couple of years before I get there. Operator: One moment for our next question, and that will come from the line of Harlan Sur with JPMorgan. Please go ahead. Harlan Sur: Back in April, you guys did this really nice teaching of your customs look in ASIC business. And the business has been growing at a 20% CAGR over the past few years. You've got a pipeline of over 70 programs at 7, 5 and 3 nanometers. And then specifically, Hock, in your compute offload, right, you got some really nice programs like GPU, SmartNIC video transcode. Is the team still on track to drive $2 billion in compute offload ASIC revenues this year? And then, just given the strategic nature of these ASIC programs to your customers' future initiatives, like, will this segment hold up better in a weaker macro environment, let's say, next year? Hock Tan: Well, to answer your first question, yes, we're on track for this year to hit that $2 billion. We told you that, and we're getting there. As far as does this particular compute offload defy gravity, I don't know. I can't really answer that. I'd like to believe it's emerging, and it's a very emerging business. And so, like, all emerging business that have hit some level of critical mass as it appears to have in our case, it may pull up somewhat better than perhaps enterprise, as we are seeing. And so, you're not wrong in that regard. But that is actually calling for some level of speculation on our part because I mean in more than '23, right? I'm looking at '23, '24, '25, next three years, will it hold up better? That I don't know the answer. For '23, sure, it will hold up better. Operator: And one moment for our next question. That will come from the line of Timothy Arcuri with UBS. Please go ahead. Timothy Arcuri: Hi. Hock, I was wondering if you could update us on the semi's backlog number. I think it was $25 billion last call, which was a little bit more than a year. Can you update us on that backlog number? And then also within that, have you seen any movement in the backlog? I mean, I know probably, it's up. But have you seen any customers cancel or push out? I mean, obviously, that was more than offset by incoming bookings, it sounds like. But sort of what's the fluidity within that backlog? Thanks. Hock Tan: Well, as to clarify the first couple of points, our backlog and our terms are very clear. We do not allow cancellation on our backlog. We have not seen that and -- to answer your second question. And on the first part, keep in mind, our revenue continues to grow each quarter sequentially as our backlog continues to build up. And compared to the preceding quarter, our backlog at the end of Q3 increased to $31 billion. So. we are still shipping below our booking rate. Operator: And one moment for our next question. That will come from the line of William Stein with Truist Securities. Please go ahead. William Stein: Hock, sometimes we forget that historically, we've been at an ASP eroding sort of industry, at least on a like part-for-part basis. I know the mix changes over time, but I think that's changed significantly in the last 1.5-year or so. I'm wondering whether you're seeing that dynamic continue or revert and if you can comment as to how that influencing margins. You're getting such tremendous contribution margins in the semi business. I would have to think pricing is playing some part in that. Hock Tan: Actually, it isn't. I said that before in the previous earnings -- a couple of earnings calls. It’s worthwhile for me to repeat. We have been able to raise prices, obviously, over the last -- past 12 months, but only because our material cost has gone up. And so, we're talking -- if we're talking percentages, not absolute dollars, if our cost -- material cost -- cost of goods sold, so expect increase 10% in order to keep our margin in percentage terms from being diluted with the raise of price no less than 10%. And just doing that, it's just staying -- it's just keeping the gross margin in percentage term staying neutral. So, I would say price increases has very little impact on our margin improvement. What is -- what has enabled our margins to accelerate or improve, as I said in the last earnings call, is in this environment of -- in some degree in the last couple of years -- last 12 months, in particular, of basically a pent-up level of spending, particularly in enterprise, somewhat in cloud as well and broadband as well, is the adoption of new -- next-generation products and technology. And that always enhances, as I've said that before, our gross margin. And it's just -- it's the basic fundamental of this semiconductor cycle. New generation of products improves, expands our gross margin. And the accelerated adoption is what expands this gross margin. And that's pretty much what has been the case here, but not price increase per se. Operator: And one moment for our next question, and that will come from the line of Aaron Rakers with Wells Fargo. Please go ahead. Aaron Rakers: I wanted to ask about the wireless segment, solid results this last quarter. It sounds like you're guiding 20% sequential growth into this current quarter. But if I look back over the past couple of years, it's actually been solidly above the 20% sequential growth rate. So, I guess, how are you thinking about the demand profile there? And I guess, with that, your content expansion opportunity as we look at the next-generation product cycle going forward. Thank you. Hock Tan: Okay. It's -- on the wireless business, if I could try to clarify, when we take any particular three-month period like Q3 and going to be Q4 now and take a snapshot of it and compare it to the same period of time a year ago, it never quite replicates itself in all matters. In other words, it's not -- there's no normalization. So, it could be 20%. It could be 25%. It could even be 30% changes. And I consider that all kind of in the same ballpark, simply because all it takes is a slippage of a couple of weeks in shipments, in products being taken to make that particular difference. So, I would not put too much thinking behind that is 20% whereas it might have been closer to 30% two years ago or a year ago in the same period, if you don't mind, simply because nothing comes up -- to be so planned year-over-year. It changes. But in terms of overall volume, we do not see that much units dramatically different from a year ago. It's really the content increase that might give us that lift year upon year. And even on a lift year-on-year, quarter -- when you compare to any three-month period, take it with a grain of salt that some volume might have shifted forward not be within the these three months. But it's kind of in the ballpark. Operator: One moment for our next question, and that will come from the line of Harsh Kumar with Piper Sandler. Please go ahead. Harsh Kumar: First of all, congratulations for reporting very good guidance, very good results in such a turbulent market. Hock, I wanted to ask a quick one and then a main question. There's been a lot of concerning sort of news coming out of China reported by companies. So, I was curious, first of all, how much exposure do you have to China? And then, for my main question, it's a question of sustainability. Somebody asked about revenues, but I wanted to ask about gross margins. You've got 90% odd margins in software that I think is the norm, but then you've got 72% gross margins in semis, which are sort of honestly abnormal compared to other companies. So, when you think of sustainability of that semi business up in the 70s, what do you think are some of the drivers that keep it up there for you guys, longer term? Hock Tan: Okay. Let me answer the second question first since it's a little more complex. But it isn't. Our semiconductor gross margin, by the way, we talk about sustainability, I would say it keeps expanding. It doesn't stay still, as you probably know. If you look back to five years ago, we were more like 60% -- in the mid-60s or low-60s gross margin. Today, it's now over 70%. And it's simply the case that -- and that's the beauty of the semiconductor technology business. You always have new generation of products, whether it's wireless, running -- creating a generation every 12 to 24 months, whether it's switching, that's every 2, 3 years, or storage, every for 5 years, and every time you put in a new generation, you expand your margin, because you're delivering more value, you're delivering much more value usually, and you are able to extract from the higher value, a higher price and profitability. And that's the beauty of this industry. So, as we keep coming out with new generations, the margins of our portfolio keep expanding. So, we're now at 70s. And you asked where will we be five years from now in this phenomenon of constantly updating to next-generation products, I will see this gross margin expansion continuing. And empirically -- don't ask me for any mathematical formula behind -- physics behind it. But empirically, given our portfolio of about 16 semiconductor franchises, we have averaged close to 50 to 100 basis points expansion year-after-year. And that's pretty good, and we see that trend continuing. And as I responded to an earlier question, over the last two years, we've -- the rebound, you might almost -- feel by perhaps changes in IT spending based on, I guess, lockdowns, based on behavioral changes with COVID-19, we've seen accelerated adoption of next-generation products in many of our franchises. So, we have seen some level of accelerated expansion of our semiconductor gross margin. But things will revert back, my belief, to a more normalized 50 to 100 basis-point expansion, once all this excitement starts cooling off a bit. But we still see the sustainable expansion of our semiconductor gross margin. Software, you're right, we cannot stick there at 90%, and we're not going anywhere with it. But this -- but semiconductor will continue to expand. And last -- your first question, China, that's about 13% of our semiconductor revenue. That's our exposure to China. Operator: One moment for our next question. That will come from the line of Vijay Rakesh with Mizuho. Please go ahead. Vijay Rakesh: Just two questions here again. Sorry. On the enterprise storage side, I saw you guys had a pretty good quarter guide. Just wondering what your exposure was between consumer and enterprise. And what are you seeing in terms of that strength going forward? And also, just my second question on the VMware side. I know you said you're still expecting that to close in fiscal '23. Can you give us some color, have we gotten most of the approvals, are you waiting on some, where that stands? Thanks. Hock Tan: Okay. Well, in terms of a breakdown, you're basically asking me -- asking us on our semiconductor revenues, what's our breakdown of our revenues? We would classify three ways, three groups, non-end markets, but groups. It cuts across all our end markets, except probably wireless. Wireless is on consumer. And so no surprise, our consumer business within semiconductor represents about 23 -- just less than 25% of our revenues, just over -- between 20% to 25% is the best description. And on the balance, which could be anywhere from 75% to almost 80% is almost split evenly between enterprise -- traditional enterprise, as we call it, and the final grouping we call as service providers, which is related to the hyperscale guys and telcos, which we consider to be service provider. And that's -- and so between traditional enterprise and telcos, hyperscale, that's evenly split. Consumer, 20% to 25%. As far as the regulator process through VMware, right now, I would say, when you think of it, and we're thinking it across several -- a few -- a couple of jurisdictions. And we're moving -- it's making good progress. And just to reiterate, and we fully expect to close on this within fiscal '23. Operator: And one moment for our next question. That will come from the line of Joseph Moore with Morgan Stanley. Please go ahead. Joseph Moore: With regards to the 50-week lead times that you talked about, what is your goal there over the next, say, 12 months? Do you want to get that down? And to the extent if you do want to, kind of what has to happen from the standpoint of foundry, substrate, things like that, to get that number lower? Hock Tan: I don't know. We haven't thought that hard about it yet, seriously, Joe. No. I kind of like the 50-week lead time, to be frank, because it gives us great visibility. It also pushes politely, gently about their demand out one year. So, it gives us great visibility. Meanwhile, between now to the end of 50 weeks, we all know where we stand with each other and we know where we stand now, which is pretty good visibility. Operator: And one moment for our next question. That will come from the line of Toshiya Hari with Goldman Sachs. Please go ahead. Toshiya Hari: I wanted to follow up on Joe's question on the supply side. Hock, just based on the sequential revenue growth that you've been marking over the past couple of quarters, your guidance for the October quarter, it's pretty clear that supply continues to be kind of the key determinant of your revenue growth. Based on indications from your foundry supplier and key substrate suppliers, from a modeling perspective, should we expect mid-single-digit growth to be kind of the normal cadence over the next few or several quarters, or could there be a point in time where your rate of growth starts to accelerate, given easing in some of the other end markets? Thank you. Hock Tan: That's a hell of a good question. So, let me try to answer that and -- which is this. We've always said and we continue to say, it's not really supply that constrains our revenue. We look at -- as we said, we scrub through and trying to really get as closely as we can to what our customers truly need to consume. And we ship according to that. And that's as basic as all that. So, if you look at it that way, supply is not a true constraint. It's demand, a real demand and -- getting to the real demand. Just October quarter, Q4, you see us bump up to 8.9 from 8.4, 8.5. Believe me. This is all largely driven by the seasonal ramp of our North American handset manufacturer. That's really what drives that last increase. So, it's -- we're very, very tight to end consumption of products, and it's not really all about -- much about supply. And I've said that for the last four, five quarters, and we're still in that same behavior mode. Operator: And one moment for our next question. That will come from the line of Pierre Ferragu with New Street Research. Please go ahead. Pierre Ferragu: Hock, you mentioned in your prepared remarks like your first co-packaged optics product in networking. And so, I was wondering if you can give us a slightly deeper overview of where things stand on this front. And -- first on your product portfolio. So, are you going to have, like, in parallel products with co-packaged optics and traditional products that are meant to be used with regular optics in parallel in the next few years? And then, in terms of market adoption, can you give us a sense of how material co-packaged optics is going to become maybe in the next 3, 4, 5 years? And if it's going to be like a progressive adoption on specific use cases or it's going to be more like a hockey stick adoption from the certain bandwidths from which, like, co-package is going to make more sense than pluggable optics? Hock Tan: Okay. Let me try to talk through this. Basically, your question is about how is -- I mean, we constantly come out across all our product franchises in -- especially in semis, new generation of products. And they're pretty cool, even though I say it myself. And adoption is never as quickly as we all like it to be. It tends to be much slower than we think. So, for instance, take switching, Tomahawks, data -- top of the rank data center switching. I'm still selling Tomahawk 1, 2, Tomahawk 3, which was the generation before the current generation. And now, we are selling Tomahawk 4. And just to give you a sense, Tomahawk 4 as a percent of my total Tomahawk volume, as I would estimate to be less than 30% in total. So, you can see they coexist, and that tends to happen. So, by the time we launch Tomahawk 5, two years from now, we're probably maybe be getting our Tomahawk 1 to the point where it becomes de minimis. So, there is this constant coexistence of multiple generations. And apply it, by the way, to every product we have, server storage where we have 2, 3 -- we have 3 generations running simultaneously because it's the way the world adopts new technology. And we will keep having a mix, which is probably why when you boil down to it at the end of the day, it's -- we have -- there's no hockey stick in any product adoption. There's no such thing as winners take all, whether it's part of a new product or for that matter, a new player. That is always coexistence, a shared volume and a shared mix of technologies. And we see that very clearly across. Now, consumer perhaps is less -- is more of a hockey stick. And even then, we see 2 or 3 generations of our North American OEM running simultaneously. But of course, it's more of a hockey stick, I believe, than our infrastructure products. Infrastructure takes a while, and we would have -- not very uncommon to have three generations running simultaneously. And that means any expansion of gross margin coming back where it drains down to because it's a reflection of product mix of -- in terms of product generation. That's why our gross margin grows much more steadily, but more -- not as rapidly as we would like to, but it's okay because it gets more sustainable. And as each year passes and the newer generation products get adopted more in a measured manner, our gross margin grows that 50 to 100 basis points each particular year that passes. I hope that answers your question. Operator: Ladies and gentlemen, I would now like to turn the call back over to Ms. Ji Yoo for any closing remarks. Ji Yoo: Thank you, Sherri. Broadcom currently plans to report its earnings for the fourth quarter of fiscal '22 after close of market on Thursday, December 8, 2022. A public webcast of Broadcom's earnings conference call will follow at 2 p.m. Pacific. That will conclude our earnings call today. Thank you all for joining. Sherri, you may end the call. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

Operator: Welcome to Broadcom's Inc.'s VMware Transaction and Second Quarter Fiscal Year 2022 Financial Results Conference Call. At this time, for opening remarks and introductions, I would like to turn the call over to Ji Yoo, Director of Investor Relations of Broadcom Inc. Ji Yoo: Thank you, operator, and good morning, everyone. Joining me on today's call are Hock Tan, President and CEO; Kirsten Spears, Chief Financial Officer; Tom Krause, President, Broadcom Software Group; and Charlie Kawwas, Chief Operating Officer. This morning, Broadcom issued a press release and presentation regarding our announced agreement to acquire VMware. We also distributed our fiscal second quarter '22 results and financial tables. If you did not receive a copy, you may obtain the information from the Investors section of Broadcom's website at broadcom.com. This conference call is being webcast live, and a recording will be available via telephone playback for 1 week. It will also be archived in the Investors section of our website at broadcom.com. During the prepared remarks, Hock, Tom and Kirsten will be providing details regarding our announced acquisition of VMware and Broadcom's second quarter fiscal year '22 results, guidance for our third 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 and presentation today. and our recent filings with the SEC for information on the specific risk factors that could cause our actual results to differ materially from the forward-looking statements made on this call. In addition to U.S. GAAP reporting, Broadcom reports certain financial measures on a non-GAAP basis. A reconciliation between GAAP and non-GAAP measures is included in the tables attached to today's press release. Comments made during today's call will primarily refer to our non-GAAP financial results. I'll now turn the call over to Hock. Hock Tan: Thank you, Ji, and thank you everyone for joining today. If you could indulge me, let me start off by reviewing our fiscal Q2 results and our outlook for Q3, and the broader markets, of course, we play in. So in fiscal Q2 '22, consolidated net revenue was a record $8.1 billion, up 23% year-on-year. Semiconductor Solutions revenue growth accelerated to 29% year-on-year to $6.2 billion and infrastructure software revenue grew 5% year-on-year to $1.9 billion. Demand, as referenced by consolidated bookings continue to be strong, even as our lead times remain unchanged, but extended. In Hardware, backlog at the end of Q2 was over $29 billion compared to $25 billion in the preceding quarter, and $21 billion a year ago. In software, backlog grew as well and ended the quarter at over $15 billion compared to $14 billion a year ago. Let me provide more color by end markets. Starting with networking. Networking revenue was a record $2.2 billion with growth accelerating to 44% year-on-year. There were 2 major drivers. We saw substantial deployment by hyperscalers of their AI engines and networks using our Silicon during this quarter. More importantly, we saw adoption of our next-generation merchant switching and routing, continuing to accelerate in hyperscale, enterprises and service providers at the expense of proprietary solutions. This fundamental transition to merchant silicon based on Broadcom's platform will continue in Q3. And as a result, we expect in excess of 25% year-over-year growth in networking. Next, our server storage connectivity revenue was $939 million, and as we guided, accelerated to 66% year-on-year growth. While service storage spending in enterprise was strong, our content increase in next-generation mega rate drove a substantial portion of this growth. Additionally, hyperscalers are aggressively adopting our next-generation server storage solutions to scale their massive consumption of nearline hard disk drive arrays. So in Q3, we expect these same drivers to continue with revenue to grow over 60% year-on-year. Now moving on to broadband. Q2 revenue of $1.1 billion grew 24% year-on-year. Deployment during the quarter of next-generation PON and cable modem with high fetch rate of Wi-Fi 6 and 6E continue to be good among major service providers globally. Just as a reminder, however, expansion in broadband investments arising particularly from COVID-19 pandemic lockdowns is a multiyear phenomenon. Investments are measured, and we are still in the early innings. Accordingly, in Q3, we do expect Broadcom's broadband revenue to sustain a growth rate around 20% year-on-year. On wireless, Q2 revenue of $1.7 billion was up 6% from a year ago, and as guided declined the seasonal 14% quarter-on-quarter. In Q3, we expect wireless revenue to be flat to slightly down quarter-on-quarter, but our mid-teens percentage from a year ago, reflecting an increase in content. Finally, in Industrial, Q2 resales of $254 million grew 14% year-over-year, driven by strong demand from electric vehicles, renewable energy, factory automation and health care. Reflecting such strong resales, our inventory in the channel continued to be very lean at around 1 month. And in Q3, we expect industrial resales to remain stable and inventory levels to continue to be lean. So in summary, Q2 Semiconductor Solutions revenue was up 29% year-on-year, a step-up from the 20% year-on-year growth in the preceding quarter. As I highlighted above, content increase in server storage and a fundamental shift to merchant silicon in switching and routing drove this accelerated growth. This will continue in Q3 and accordingly, we expect semiconductor revenue in Q3 to grow 31% year-on-year. Now turning to software. In Q2, infrastructure software revenue of $1.9 billion grew 5% year-on-year and represented 23% of total revenue. Core software revenue grew 5% year-on-year. In dollar terms, consolidated renewal rates averaged 120% over expiring contracts. While in strategic accounts, we averaged 136%. Within our strategic accounts, $641 million of represented renewals and expiring contracts, of which $117 million represented cross-selling, including PLAs of our portfolio products to these same customers. Over 90% of the renewal value represented recurring subscription and maintenance. ARR at the end of Q2 was $5.4 billion, which was up 4% from a year ago. And in Q3, we expect our infrastructure software revenue to sustain at mid-single-digit percent growth year-over-year. In summary, our outlook for Q3 Semiconductor revenue growth will continue to be strong, up 31% year-on-year. Layering on our stable software business, we expect Q3 consolidated revenue growth of 24% year-on-year to $8.4 billion. Well, that concludes my discussion of our second quarter results. I will now turn to what perhaps you all have been waiting to hear more about. Now please refer to our accompanying slides regarding our agreement to acquire VMware. As you know, we never embarked on an acquisition unless we feel our core is very strong and solid. Irrespective of what you might think of where we are in the semiconductor cycle today, I do want to reassure you the fundamentals of our business, both in semiconductors and in software have never been stronger. We have just reviewed how solidly grounded these businesses are. So let me discuss now what we believe is a very unique opportunity to take our company and its business to the next level. Starting with Slide #4. By adding VMware, we will bring significant scale to Broadcom's software business and reinforce our position as a premier provider of mission-critical platform solutions to enterprises globally. VMware is an iconic company providing core cloud infrastructure that powers modern enterprises. The company began as the virtualization pioneer, bringing revolutionary levels of efficiency to on-premise data centers. VMware extended its platform to the private cloud, giving enterprise customers unmatched levels of security, performance and control over their applications and underlying infrastructure. The most exciting today, VMware is now powering solutions for multi-cloud, hybrid cloud future where -- one where it will be possible for enterprises to develop and run their apps anywhere, everywhere with known trade-offs in the truly cloud-neutral fashion. One of the reasons we became very interested in VMware was because of its world-class team, engineering-centric culture and strong customer and partner relationships. As shown in Slide 5, VMware importantly aligns incredibly well with the Broadcom strategy. And it has all the attributes we seek in the platforms we operate. VMware is the leader in big, growing and global markets. The company is an indispensable provider for mission critical platform technology with a blue-chip customer base and an incredible innovation engine. As Tom will discuss next in more detail, together with Broadcom's existing software portfolio, we are positioned to create a uniquely powerful value proposition for enterprises, enabling them to develop, deploy and manage their applications securely, seamlessly across every type of cloud and to accelerate the application life cycle for their workloads. And in addition to adding new dimensions of value for customers, VMware also has an ideal profile that will enable us, Broadcom, to create compelling value for our shareholders. As part of Broadcom, our target is for VMware to contribute approximately $8.5 billion of EBITDA once we have fully integrated the company onto our platform. Slide 6 shows that with more than $40 billion of pro forma revenue, and this is pro forma on fiscal '21, we are creating one of the world's largest infrastructure technology companies. Our semiconductor business is one of the largest semiconductor business globally with 17 key franchises. It is highly profitable. And as I just reviewed, continues to post very strong organic growth. Revenues have grown from $15.6 billion in 2017 following the acquisition of classic-Broadcom to $20.4 billion in fiscal '21, all this growth being organic. With the addition of VMware, our software business will now represent close to half of our total pro forma revenue with approximately $20 billion of software revenue for fiscal '21. With this type of scale and a continuing commitment to R&D and innovation, we will be able to significantly invest and fund new innovative solutions that will support our customer base. To now dive deeper into the VMware market opportunity and products, I'll hand the call over to Tom. Tom Krause: Thanks, Hock. Now turning to Slide 7. As Hock previewed, VMware sits at the nexus of the largest opportunity in enterprise infrastructure today. In essence, VMware is a foundational platform that enables enterprises to drive competitive advantage with technology by leveraging 2 operational modes to develop and run their applications. First, VMware serves many of the same types of customers that we have worked with at Broadcom, large multinational organizations with complex IT challenges. These enterprises want to move fast and innovate, but also mitigate risk by retaining control of their underlying infrastructure and data. To do this, enterprises are deploying applications in their own data centers, but need software to enable them to develop and run these applications in a flexible, agile and cost-effective fashion. This private cloud market is very large and workload growth in the private cloud continues to grow. Beyond the private cloud, as we all know, public cloud workloads are growing rapidly. The public cloud brings unprecedented scalability and cost benefits and also enables enterprises to leverage cutting-edge technologies to drive their business forward. So we think it is clear that both of these modes, private cloud and public cloud are going to be important for enterprises going forward. Turning to Slide 8. VMware is a truly foundational infrastructure software platform that is critical for enterprises to leverage the benefits of both the private and public cloud. We have tremendous respect for the leading platform VMware has built, supported by an incredible team of R&D talent. By bringing our teams together, we will deliver even more innovation to our customers. As we think about it, VMware's platform really consists of 3 pillars: First, within the core private cloud infrastructure pillar is the category defining vSphere server virtualization platform, vSAN data storage virtualization solution, vRealize cloud management platform that provides automation, analytics and life cycle management for private cloud workloads and NSX, which enables enterprises to manage their entire physical network as a single entity from a single pane of glass. Next, VMware's Tanzu platform provides an end-to-end modern application management platform for building, deploying, securing and operating applications in private, hybrid or public cloud environments. Finally, VMware has a robust portfolio of end user and security solutions that enable employees to securely work from anywhere, anytime and with seamless employee experiences. On Slide 9, let me double-click on the first pillar, as this makes the bulk of VMware's revenue contribution today and is positioned to continue to grow well going forward. VMware pioneered the concept of virtualization, and today this technology is foundational to the development and computing operations of basically all enterprises in the world. Over time, VMware has evolved its value proposition from core server virtualization to enabling one to virtualize the underlying compute resources of the entire data center, which is the private cloud. They further extended this value proposition with NSX and vSAN by enabling software-defined networks and storage. Then with vRealize, VMware made it extremely easy to manage and operate the entire data center infrastructure. With these products, VMware offers a complete platform that delivers the scalability, flexibility and cost benefits of virtualizing the underlying infrastructure across servers, networking and storage. In concert with this private cloud capability, VMware also offers a seamless way to evolve the enterprise infrastructure to embrace the benefits of the public cloud with VMware Cloud Foundation. VMware Cloud Foundation gives the same operating environment for developers, letting them write the code once and deploy it anywhere they want, whether it's in the private cloud, in AWS, Azure, GCP or even across clouds. This simplicity is unique to VMware in ushering in the coming age of mass cloud adoption. Stepping back on Slide 10 and thinking about our existing software portfolio, we are incredibly excited about the opportunity to marry our products with the VMware platform to deliver more end-to-end capabilities to our enterprise customers. As we all know, enterprises need to manage a constantly changing portfolio of thousands of applications that reside on a wide variety of underlying infrastructures; from mainframe to client server, to hybrid and public cloud. And all of these applications are operating in different stages of their life cycle. And we think together, Broadcom software assets for the distributed enterprise can seamlessly complement and augment VMware's multi-cloud offerings in the areas of operation management, value stream and DevOps management and security to address the entire application life cycle. Starting with application development. We bring significant value to help accelerate the development of applications through VMware's Tanzu products and our value stream management products like Rally and Clarity. Once developed, VMware's vSphere and Cloud Foundation can deploy these apps across a wide variety of environments. We can secure these applications with the combined capabilities of Symantec's leading security portfolio along with Carbon Black's cloud native endpoint security products. Now given the hybrid working environment we're all in today, it's critical for enterprise to be able to enable seamless, high performance and ubiquitous access to these applications. And VMware has a leading set of products to enable this. Finally, to optimize and monitor these apps, Broadcom's existing portfolio of AI Ops and Observability, Enterprise Automation and continuous delivery can ensure these applications are running well. Since these applications are constantly changing, it's exciting to be able to close the loop and feed any runtime operational issues right back into the application development step. So what's exciting is that when you put the 2 portfolios together, we're delivering an end-to-end solution that enables enterprises to support the 3 major types of application paradigms, including applications that run critical business functions that will remain in private cloud data centers, applications that are being ported to run in the public cloud and new generation applications that are written natively for one or several of the public cloud providers. We do this across the entire application life cycle, and we can support any underlying IT infrastructure. That's unique to us, and we think this adds massive value to enterprise customers. Moving to the next slide. When I think about this deal, it reminds me of when as Avago, we acquired classic Broadcom. This really transformed the time and modernized our semiconductor business. And ultimately, this is why we renamed ourselves Broadcom. As we come together with VMware, this represents the same level of transformation for our software business and we stand to benefit from VMware's unparalleled brand, trusted apps, a long-standing position as an iconic software platform within a robust vibrant ecosystem of hyperscalers, solutions and cloud providers and channel partners, among others. We're excited to announce that following the closing of the transaction, Broadcom Software Group, will rebrand and operate as VMware, incorporating Broadcom's existing infrastructure and security software solutions into the VMware platform. Together, we will deliver the broadest range of platforms and tools to accelerate our combined customers' digital transformation. Turning to Slide 12. Together, Broadcom and VMware cover all major industry verticals and sell to all enterprises globally. And with this transaction, we are focused on serving all customers via a combination of our collective direct sales organizations as well as through our important channel partners. When we look at the majority of our revenues, they are derived from the largest global multinationals, and they fit 6 key attributes. These customers are usually highly regulated and risk-averse with large and expanding IT budgets. They also have complex and heterogeneous environments that are built around hybrid and multi-cloud strategies. While many of these companies want to explore moving more workloads to the public cloud, they are held back by many factors, including the number of applications that they have, the unfavorable economics of the public cloud for certain workload types, the sensitive data they handle and/or regulation. As a result, these companies will have to keep complex operating environments containing a private cloud, and over time to increasingly leverage the benefits of the public cloud as well. The amount of operational complexity created here is a challenge that we are uniquely qualified to partner with our customers to solve. In summary, together with VMware, we are best positioned to help the world's largest enterprises to embrace a hybrid and multi-cloud environment. As shown on Slide 13, we have a proven track record of creating shareholder value by applying Broadcom's disciplined business model built on significant R&D investment and customer focus. Applying this same model to VMware, we are targeting to increase VMware's stand-alone EBITDA of approximately $4.7 billion to approximately $8.5 billion in pro forma run rate EBITDA within 3 years of closing. Driving this are some material tailwinds to revenue growth and multiple knobs that we can turn on profitability. Some of these opportunities include focusing on research and development, to support efforts where we can uniquely deliver customer value, driving sales and marketing efficiency gains by focusing on our installed base and eliminating duplicative general and administrative functions. We envision a long-term model for software, where we can grow our top line revenues at mid-single digits on a recurring basis, if not faster, while driving EBITDA margins in the mid-60s. Given our scale, this will allow us to reinvest very significant dollars back into the business, both via R&D as well as sales and marketing. Now on Slide 14, let's talk about the deal structure. We are acquiring all of VMware's outstanding shares for approximately $61 billion in a 50% cash, 50% stock transaction. Additionally, we are assuming VMware's $8 billion of net debt. VMware shareholders will have the option to elect between receiving $142.50 in cash or 0.252 shares of Broadcom common stock for each of their shares. We expect VMware shareholders to own approximately 12% of the pro forma company at close. The transaction will be financed with $32 billion in new fully committed debt financing from a consortium of banks. We are committed to a strong balance sheet, and we remain steadfastly committed to our investment-grade rating. The acquisition is subject to regulatory approvals and other customary closing conditions, including approval of VMware shareholders. Michael Dell and Silver Lake have agreed to vote in favor of the transaction, and we expect the transaction to close in our fiscal 2023. The merger agreement does include a 40-day "Go Shop" provision. I'll hand it over to Kirsten, who is going to go through the financial results of the quarter and provide an update on our capital allocation policy. Kirsten Spears: Thank you, Tom. Let me now provide additional detail on our financial performance. Revenue was $8.1 billion for the quarter, up 23% from a year ago. Gross margin was 76% of revenue in the quarter and up 145 basis points year-on-year. Operating expenses were $1.2 billion, up 8% year-on-year, driven by investment in R&D. Operating income for the quarter was $4.9 billion and was up 30% from a year ago. Operating margin was 61% of revenue, up approximately 345 basis points year-on-year. Adjusted EBITDA was $5.1 billion or 63.1% of revenue. This figure excludes $135 million of depreciation. Now a review of the P&L for our 2 segments. Revenue for our Semiconductor Solutions segment was $6.2 billion and represented 77% of total revenue. This was up 29% year-on-year. Gross margins for our semiconductor solutions segment was approximately 72%, up 290 basis points year-on-year, driven by favorable product mix and content growth in next-generation products across our extensive product portfolio. Operating expenses were $873 million in Q2, up 10% year-on-year. R&D was $772 million in the quarter, up 10% year-on-year. Q2 semiconductor operating margins increased to 58%. So while semiconductor revenue was up 29%, operating profit grew 42%. Moving to the P&L for our Infrastructure Software segment. Revenue for infrastructure software was $1.9 billion and represented 23% of revenue. This was up 5% year-on-year. Gross margin for infrastructure software was 90% in the quarter, up 10 basis points year-over-year. Operating expenses were $374 million in the quarter, up 5% year-over-year. Infrastructure Software operating margin was 70% in Q2 and operating profit grew 5%. Moving to cash flow. Free cash flow in the quarter was $4.2 billion, representing 51% of revenue, we spent $85 million on capital expenditures. Days sales outstanding were 35 days in the second quarter, and we ended the second quarter with inventory of $1.7 billion. We also ended the second quarter with $9 billion of cash and $39.5 billion of gross debt, of which $302 million is short term. With liability management activities during the quarter, we were able to extend our weighted average debt maturity from 10.4 to 10.9 years, with the weighted average interest rate relatively unchanged at 3.6%. Turning to capital allocation. In the quarter, we paid stockholders $1.8 billion of cash dividends. Consistent with our commitment to return excess cash to shareholders, we repurchased $2.8 billion in common stock and eliminated $514 million of common stock for taxes due on vesting of employee equity, resulting in the elimination of approximately 6 million AVGO shares. The non-GAAP diluted share count in Q2 was 441 million. Based on current business trends and conditions, our guidance for the third quarter of fiscal 2022 is for consolidated revenues of $8.4 billion, and adjusted EBITDA of approximately 63.5% of projected revenue. Note, that we expect Q3 non-GAAP diluted share count to be 439 million. With the acquisition of VMware, let me now share our thinking on capital allocation policy going forward. Historically, over the last 6 years, we have grown free cash flow to increase at a 41% CAGR organically and through acquisitions. With the acquisition of VMware, we expect to enhance our already strong organic earnings and free cash flow growth. The Board of Directors has approved a third quarter cash dividend on our common stock of $4.10 per share. Following the acquisition of VMware, we remain committed to our dividend policy of returning 50% of prior year's free cash flows as dividends. We are also committed to maintaining our investment-grade rating and plan to rapidly delever from approximately 3.5x gross debt-to-EBITDA at closing, to normalized leverage ratio of less than 2.5x gross debt to EBITDA within approximately 2 years post deal close. Between now and deal close, we expect to generate considerable free cash flow. As it relates to the buyback, we have $3 billion remaining under the current authorization to date. In addition, we are announcing today an incremental $10 billion authorization to buy back shares through the end of December of 2023. That concludes my prepared remarks. Operator, please open up the call for questions. Operator: And our first question comes from Ross Seymore from Deutsche Bank. Ross Seymore: Congratulations on the deal and the results. Tom, I wanted to ask a question on the VMware side of things. You gave a bit of a long-term model, mid-single-digit revenue growth and then mid-single or mid-60s EBITDA. Can you talk a little bit about the revenue growth side of that equation? It seems like the VMware asset according to -- the Street is growing a little bit faster than that. What are you doing and assuming as far as the growth rate of that piece? And then on the EBITDA side of things, out of the levers you showed on, I think it's Slide 13. Can you just give us an idea of how those all fall in to get you to that mid-60s level overall? Tom Krause: Sure, Ross, thanks for the question. Let me start and then I'll let Hock embellish. When we think about the top line, a number of things are going on. But fundamentally, and this is actually back on Slide 7 if everyone has the deck, it's all about workload growth. I mean if you think about private cloud growing mid- to high single digits, public cloud growing high double digits. That's what's really going to drive the top line fundamentally, and that's actually what it got us comfortable with the key business case here. I think in addition to that, we are going to focus on going through a transition and a rapid transition from perpetual licensing to subscription. As you know, with the software business, we've been totally focused on pretty much 100% recurring revenue. And we see ARR growth being able to sustain at 5%, if not faster, when we think about the combined business. When we think about EBITDA, they're in multiple knobs. We covered that. You can look at Slide 13. In terms of R&D, we're going to reinvest back in the core business, the core franchises. If you think about the 3 different pillars of this business, and I went through it. But it's really the core infrastructure business, vSAN, vSphere, vRealize. These are the businesses that are core to driving the bulk of the revenues, and that's where the reinvestment is going to occur. We are going to focus on our common customers. We have a significant go-to-market engine here at Broadcom software, obviously, so does VMware in their own regard, actually much more significant than ours. And so we have a direct sales force, and we're going to leverage the fact that we have common coverage in both of those areas and take advantage of getting synergies there. But beyond that, we also see a very valuable channel. I think there's some things we've learned relative to the CA and the Symantec acquisitions -- in terms of the value of the channel, and we want to continue to support that channel. And that's going to allow us to support a lot more revenues in a cost-effective way. So we see some real opportunity to leverage that. And then, of course, as you all know, we run G&A at 1% of revenue. We've been integrating companies for a long time. We have tremendous scale. This is going to give us even more significant scale going forward. And we think there's a lot of opportunity there to drive synergies from the redundancies we see. Hock, anything you want to add to that? Hock Tan: Thanks, Tom. No. Well done on explaining it. But Ross, to answer your question pointedly directly on the revenue side, and you can hear the 2 dynamics going on, one is how we make the investment, where do we do the spending. The other top line is you can see that VMware has a perpetual model a lot in -- a lot of their on-prem licenses, they have a substantial $3 billion perpetual. And we are converting them to over time -- over the next couple of years to subscription. And that will likely take from a reporting point of view, a slight dip, but within 3 years a recovery -- and a recovery back to a run rate that probably, as Tom indicated, is probably higher than mid-single digits, and we are structuring ourselves to go through that. From an economic point of view, whether it's perpetual or subscription, frankly, is the same. But we want to make it very consistent with the way we run the model. And based on this, we are, in a sense, restructuring the contracts, perpetual, the subscription. And you -- that's why you depending on where you see it, you'll see a slower growth at the beginning, if any, followed by a more rapid growth as we convert more to subscription. Operator: Our next question comes from Ambrish Srivastava from BMO. Ambrish Srivastava: Just getting back to following up on what Ross was asking. This asset is very different than the other two, in terms of growth rate, growth trajectory. It doesn't seem like you would need to divest pieces of the business like you had to -- the other two. Can you just talk us through the synergies that you see in combining these businesses -- and if these businesses in parts have had partnerships in the past? And how would you change that on a go-forward basis, getting back to the Hock's comment on longer term, this could be a faster-growing software business than what you're laying out today? Tom Krause: Yes. No, certainly. I mean if you think about it, from a go-to-market standpoint, that's where software companies spend the bulk of their dollars. The fact that we're going to go from $5-plus billion of software revenue to much closer to $20 billion is a big deal. And the fact that we can leverage the combined go-to-market engine at that scale gives us huge economies. I think what we're going to be able to do is marry effectively a direct sales force which covers the largest couple of thousand customers. These are large multinationals across all the key verticals, primarily focused in North America and Europe, but also in parts of Asia with a very significant channel partner arrangements. I think one thing we've learned is there's an opportunity to embrace the channel, the 2-tier distribution model, distribution partners and key value-added resellers. There's also a big GSI opportunity. We worked significantly with GSIs on our side, so does VMware. And so when I look at that in its totality, what we can't do today, given our scale, we can definitely take advantage of with the newfound scale between the 2 companies. Beyond that, when you think about the R&D side of the equation, to dig deeper into it and follow up when we talked about with Ross. When you think about what supports the development of software, there's a lot of what we refer to sometimes in the as central engineering. So software business operations, this is the continuous delivery, continuous testing capability, the ability to continuously develop applications on a consistent basis, that's expensive. It requires having your own private data centers or working with cloud providers, and having the scale to be able to drive that kind of R&D investment over a much larger portfolio is also going to drive significant benefits. So hopefully, that helps answer your question. Hock, you want to add anything that. Hock Tan: Well, again, we're dancing around the central issue, which is we will keep -- and we have seen us -- we invest in R&D and hardware we do a lot of that if we have to. And it's all at the end of the day, this is a great franchise. In terms of monetization, it's all about execution. And that's, in a nutshell, what we're seeing here. We believe we will execute much, much different, hopefully better, than what we have been seeing so far. Operator: Our next question comes from Stacy Rasgon from Bernstein Research. Stacy Rasgon: Tom, I found your comments on leveraging the new channel differently to be interesting because I guess I'm going to oversimplify, but your prior strategy was sort of to focus on the largest customers and kind of let the long tail sort of wither. Am I right in sort of thinking that you are sort of changing that now, you're going to be going after that long tail a little harder because now you actually have the channel to do it? And will that be like feeding into the other -- it sounds like it'd be feeding into the other businesses as well. I guess maybe could you talk a little bit more about how that business model is changing, especially in that like tail of smaller customers? What does that actually mean for the degree of cost synergies and everything that can come out of this relative to what you've seen before. And it doesn't sound like you're seeing that driving upside to the growth rate. You're still talking about mid-single digits, although, again, maybe there's some conservatism in that number. But anything you could give us on maybe some of that change in the business model, especially around the long tail of customers would be helpful. Tom Krause: Yes. No, you're picking up on it, Stacy. I think a lot of it is because of the portfolio and the fact that we . Yes, Stacy, a lot of it is based on the portfolio and the breadth of capability that VMware has relative to where we sit today. You're right. When we bought CA, mainframe made up at least half of the revenues. Today's mainframe is still about 50% of the overall software business at Broadcom. That's very much levered toward about 500 accounts in what we call our strategic account area, which is a direct sales motion. And that's also where we saw a lot of opportunity to drive customer synergy with Symantec, particularly around some of the Blue Coat and DLP activities that we were driving. So that was the business model that made sense. That, of course, meant we could drive operating margins, frankly, slightly north of 70% because we didn't have to invest as much in our go-to-market motion. I think with VMware, when we look at it and we look at the fact that vSphere, going back to the core, serves over 300,000 customers, and we look at the growth that the company is driving with their more modern applications, whether it be for private cloud or public cloud, we see a much bigger opportunity. And so to support that opportunity, we need to invest in sales and marketing. So when you think about the 60s EBITDA margins that I was discussing, I think I said mid-60s. That's on a much bigger scale, but at a lower EBITDA margin profile that we're running today. All of that variance is going back into the sales and marketing investment. And we think from learning about how we and Symantec, and frankly some of the revenues that we gave up, we think we can actually go back and reinvest in the channel and continue to drive revenue growth profitably. We don't want to walk away from the channel. We actually want to embrace it. Operator: Our next question comes from Vivek Arya from Bank of America Securities. Vivek Arya: I had a question on the process and then on the accretion side. So on the process side, which jurisdictions will you need approvals from? Do you see any product overlap that any regulator could push back against? And why is there a "Go Shop" provision? And then on the accretion side, will this be accretive in year 1. And I think, Tom, you said mid-60s EBITDA margin. Is that for VMware only? Or is that for your entire software business? Because the rest of the software business is running closer to 70%, I believe. So just any thoughts on the process and the accretion would be very helpful. Tom Krause: Yes, sure. So this will be accretive out of the gate, and it will get very accretive as we get through our integration process. As you look at the aggregate value here and then you look at the EBITDA expectations, we expect to drive double-digit cash-on-cash returns. That's always been our criteria, and we think that's going to create a lot of value for shareholders. In jurisdictions, we're going to file in a number of areas. You'll see that in the filings when -- around the merger agreement and everything else. But nothing out of ordinary there. And then I won't comment much on the "Go Shop", other than to say it was a highly negotiated deal and there is a "Go Shop" for 40 days. Hock Tan: To clarify, the mid-60s refer to VMware stand-alone where we're driving it. And just to make it clear on handling where the long tail is, I think our strategy of focusing, as Tom indicated very clearly, on selling new products, on supporting the largest enterprises in the world, create their private cloud. And beyond that, having a hybrid cloud structure, we'll probably extend -- as Tom indicated, today, core 600 strategic accounts to a larger group of 1,500 accounts. This is what is enabling us to do with VMware. And that will be direct focus and a lot of attention and support to get -- to drive revenue growth and adoption of the various new products and software stacks that VMware has, especially in the realm of private cloud and software-defined networks. In terms of the long tail of 300,000 customers, we do not -- as we perhaps had looked at before, we are looking at it very, very positively, too, in the sense that we will make sure these are well supported. This continues to be a business base that will grow, but we will go through it and we will handle these guys through partners, as Tom indicated. Distributors, resellers, GSI partners. These will be handled simplifying our business model. But we will now have a larger core group of global 1,500, and we call it that where VMware and its scale will now enable us to focus as we had focused on the last 600 before. Operator: Our next question comes from Harsh Kumar from Piper Sandler. Harsh Kumar: First of all, congratulations on the deal, it sounds like an amazing deal. Hock, for a change, I've got a question on some of your business commentary related to organic Broadcom. You mentioned that in the networking business, you're seeing proprietary solutions from your customers losing out to merchant solutions and silicon that you guys sell. I was curious, is there anything happened recently, which is driving the shift over to your solutions? Or was this just something in the making a long time and it's just now happening? And also, if you can talk about supply concerns, you don't seem to be seeing any supply issues, whereas the other guys are. I'd be curious about color on that. Hock Tan: Okay. Well, a very interesting question on networking side. It has been a trend, obviously, that has been happening for the last for over 5 years, which is in -- for us in networking, switching and routing, merchant silicon has been taking share over proprietary solutions, black boxes, so to speak. Merchant solutions enable disaggregation of hardware and software. And that always offers more resiliency, more flexibility for customers. It starts with hyperscale. We are now talking about service providers and enterprise. And what perhaps has -- may be triggering an acceleration, which I indicated maybe is probably related to the fact that we are all, enterprises in particular, are now all in reinvesting, upgrading after hiatus, probably from 2019 cutting through to the pandemic time frame. They are now investing in new data centers. And they are now investing in basically modernizing their data centers and they're going for next generation. And that we figure is what's triggering it. We are seeing acceleration in our Tomahawk 3's and 4's, we're seeing some of the leading-edge products, and the Trident versions correspondingly. We're seeing acceleration in Jericho2c and the latest one at the edge Qumran. All these are the big drivers. And it's almost a fast -- larger adoption than we would perceive under normal growth patterns. To put it bluntly, we're gaining market share in merchant silicon over proprietary solution. And it's an acceleration of a trend that has been going on over 5 years. And that is what is very clear. And in terms of supply chain question, I always get this question, and of course, I'll answer that point blank: Over the past 12 months or so, we are challenged on making sure we meet demand on a timely basis in just what they want. And if you look at it that way, we do not see a challenge necessary in supply. Rather we see it as a demand -- constant demand challenge in the sense that we have to pass through our backlog carefully. And as I indicated in the last three months, we just bumped up our backlog substantially. And it doesn't -- in spite of lead times being unchanged -- unextended and unchanged. So there is demand out there that keeps coming in for our products. And now it's particularly so in a couple of areas. It's not necessarily across the board, it is in a couple of areas. And we happen to be very lucky to be in those areas that are still strong, largely related to infrastructure. We are seeing in that networking, that includes both hyperscale, telcos, service providers as well as enterprise. And particularly in enterprise, we are seeing, embellish a lot I might add, by content increase in server storage, connectivity, where we are now selling in the new generation, as I indicated in the last earnings call, subsystems where our customers prefer buying subsystems from us rather than just a chip. And that step-up content dramatically and on top of that, we're still continuing strong demand in these 2 space, we are seeing -- continue to see not just revenue accelerating, but bookings accelerating. And these are real demand. And we have, of course, the supply to meet those critical needs as we see. Operator: And we'll take our last question from Toshiya Hari from Goldman Sachs. Toshiya Hari: Hock, so after the acquisition, your business is going to be roughly 50% semis and 50% software. I was hoping you could remind us some of the pros and cons for running these 2 businesses under 1 umbrella. And assuming the deal successfully closes, would you ever consider splitting up to 2 businesses, particularly if you feel like you're not getting the valuation that you deserve? Hock Tan: To answer right to the bottom line, we see a lot of benefits in putting all these various franchises we have, hardware and software under one umbrella. Think of it this way, Toshiya, it's like what merchant silicon is driving that trend. It's -- the old model is you sell a black box hardware and software system to a customer in the IT department -- to JPMorgan IT department. That's what you do in the past. If something goes wrong, you ask a support, you scream for help and because you don't know what's going on inside the thing. We are creating a model of disaggregation between hardware and software. We may still not know much about systems, but we sure know the technology that enables systems, whether they are switches, routers, compute, storage. And this is Broadcom -- it is a model of disaggregating hardware and software. And combined, I think we are stronger than divided. So I hope that answers your question. Operator: And that does conclude our question-and-answer session for today's conference. I'd now like to turn the call back over to Ji Yoo for any closing remarks. Ji Yoo: Thank you, operator. As we have released the results of Broadcom's second quarter of fiscal '22 today, we will no longer hold the conference call previously scheduled for Thursday, June 2. Broadcom currently plans to report its earnings for the third quarter of fiscal '22 after close of market on Thursday, September 1, 2022. A public webcast of Broadcom's earnings conference call will follow at 2:00 p.m. Pacific Time. That will conclude our earnings call and call today. Thank you all for joining. Operator, you may end the call. Operator: Thank you. This concludes today's conference call. Thank you for your participation, and you may now disconnect. Everyone, have a wonderful day.

Operator: Welcome to Broadcom Inc.’s First Quarter Fiscal Year 2022 Financial Results Conference Call. At this time, for opening remarks and introductions, I would like to turn the call over to Ji Yoo, Director of Investor Relations of Broadcom Inc. Ji Yoo: Thank you, Sheri, and good afternoon, everyone. Joining me on today’s call are Hock Tan, President and CEO; Kirsten Spears, Chief Financial Officer; Tom Krause, President, Broadcom Software Group; and Charlie Kawwas, Chief Operating Officer. Broadcom also distributed a press release and financial tables after the market close describing our financial performance for the first quarter fiscal year 2022. If you did not receive a copy, you may obtain the information from the Investors section of Broadcom’s website at broadcom.com. This conference call is being webcast live, and a recording will be available via telephone playback for one week. It will also be archived in the Investors section of our website at broadcom.com. During the prepared comments, Hock and Kirsten will be providing details of our first quarter fiscal year 2022 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 U.S. GAAP reporting, Broadcom reports certain financial measures on a non-GAAP basis. A reconciliation between GAAP and non-GAAP measures is included in the tables attached to today’s press release. Comments made during today’s call will primarily refer to our non-GAAP financial results. I’ll now turn the call over to Hock. Hock Tan: Right. Thank you, Ji. Thank you, everyone, for joining us today. So in our fiscal Q1 2022, consolidated net revenue was a record $7.7 billion, up 16% year-on-year. Semiconductor solutions revenue grew 20% year-on-year to $5.9 billion and infrastructure software revenue grew 5% year-on-year to $1.8 billion. Now enterprise demand grew very robustly from the trough we saw in Q1 last year as the recovery in enterprise IT spending continued to accelerate. Meanwhile, hyper clouds are upgrading their data centers, and service providers, telcos continue to deploy next-generation fiber-to-the-home. As expected, against the peak of a year ago, wireless grew single digits, and our core software business remains very stable and steady. On the supply front, lead times remain extended and unchanged as inventory of our products in the channel and in our customers remains lean. Our semiconductor backlog at the close of Q1 continued to grow double digits from that of the prior quarter. Let me now provide more color by end markets, starting with networking. Networking revenue of $1.9 billion was up 33% year-on-year and represented 32% of our semiconductor revenue. This strong growth was driven by deployment at scale of Tomahawk 4 and compute off loan across several hyperscale customers, as they upgrade and scale out their data centers. In enterprises, campus switching upgrades continue to accelerate. Let me talk about routing in this space. Investments in 5G backhaul by telco operators worldwide continue to drive strong growth in our Qumran family of products. More than this, the opportunity in our routing silicon has expanded into hyperscale in a very significant way, moving Ethernet into the back-end network of large-scale AI/ML clusters. In particular, I’m referring to the Arista’s 7800 AI platform, which scales Ethernet to connect many tens of thousands of CPUs and GPUs in hyperscale. This platform is built on our Jericho router. Our devices provide the most cost-effective fabric for AI/ML scaler with an end-to-end congestion managed lossless network and highest efficiency load balancing across the links. Now in contrast to proprietary protocols such as InfiniBand used typically in high-performance computing, we see low-latency Ethernet as the way forward for large-scale AI/ML networks as a widely adopted open architecture. Our unique ability to network these complex AI workloads in hyperscale is extending our customized training and inference SoC footprint at several cloud guys. In Q2, we expect networking to continue to be strong across the board and revenue growth to be in excess of 30% year-over-year. Next, our server storage connectivity revenue was $801 million, and growth accelerated to 32% year-on-year, representing 14% of semiconductor revenue. This was driven in large part by the continuing recovery of enterprise IT spending, much of which was deployed towards upgrading compute service. And most of these compute service use either our MegaRAID or SAN for server storage connectivity. We are also benefiting from increased content as enterprises upgrade to next-generation storage connectivity solutions to support deployment of leading-edge service. Beyond enterprise, with proliferation of video content in social media, we see our cloud customers increasingly adopting Nearline hard disk drives as the primary storage of choice. And to manage this much arrays of hard disk drives, they deploy storage service and expanders, which utilize very much our next-generation storage connectivity, silicon and software, creating another driver for revenue growth. Interestingly, we are also a critical supply of preamplifiers and re-channels in Nearline hard disk drives, with our revenue growing at over 20% CAGR over the last five years. Our Nearline revenue represented over two-thirds of our hard drive business this quarter. With the adoption of next-generation technology here, we’re selling more bots than just silicon, resulting in much higher dollar content. This dynamic, coupled with continuing strong demand from both enterprise and hyperscale, is expected to accelerate Q2 server storage connectivity revenue to over 55% year-on-year. Now moving on to broadband. Revenue of $911 million grew 23% year-on-year and represented 16% of semiconductor revenue. This was driven largely by increased deployment of next-generation PON and DOCSIS, our cable modem, with high attach rates of Wi-Fi 6 and 6E in home gateways. Examples of this about, last quarter, Charter announced trials of DOCSIS 4.0 running at speeds of 8.5 gigabit downstream and 6 gigabit upstream, both in CPE and remote node. Comcast start the deployment of their Wi-Fi 6E DOCSIS 3.1 gateway, and AT&T announced a multi-gig PON service on their gateways. All of these are using Broadcom SoCs. We remain the market leader in delivering Wi-Fi 6 and 6E chips to leading phones as well as routers, enterprise access point and carrier gateways. Through the first quarter of 2022, we have cumulatively shipped over 1 billion Wi-Fi 6 and 6E radios in just around three years since our launch. Our OEM customers and carrier partners are now ramping Wi-Fi 6E, the current generation of Wi-Fi making use of the 6 gigahertz band, which has increasingly been made available for unlicensed access across the globe. And as we look ahead, we are the industry leader, heavily investing in Wi-Fi 7 as the strategic complement to 10G PON and cable modem – we see – both broadband. We see this as the next step in broadband development and deployment globally. In the U.S. alone, the pending infrastructure access to site $65 billion over the next five years to connect more homes to high-speed broadband. Across the world, the same is happening as next-generation wide broadband is seen as the better alternative to 5G for home connectivity. As far as Q2 is concerned, we expect our broadband business to continue to grow 20% year-on-year. Moving on to wireless. Q1 revenue of $2 billion represented 34% of semiconductor revenue. Demand from our North American customer for our products continued to be strong during the quarter, driving wireless revenue up 10% sequentially and up 4% year-on-year from the peak quarter in fiscal 2021. As expected in Q2, wireless revenue will be seasonally down, about mid-teens quarter-on-quarter, but will still be up mid-single digits from a year ago. Finally, industrial revenue of $243 million represented approximately 4% of Q1 semiconductor revenue. Q1 resales of $239 million grew 37% year-over-year driven by robust demand from electric vehicles, renewable energy, factory automation and health care. Reflecting such strong resales, our inventory in the channel remain around one month, and we expect resales to continue to be strong in Q2. Accordingly, in summary, Q1 semiconductor solution revenue was up 20% year-on-year. Q2, we expect semiconductor revenue to accelerate to 25% year-on-year. Turning to software. In Q1, infrastructure software revenue of $1.8 billion grew 5% year-on-year and represented 24% of total revenue. Core software revenue grew 6% year-on-year. In dollar terms, consolidated renewal rates averaged 121% over expiring contracts, while in our strategic accounts, we averaged 136%. Within this strategic account, $656 million represented renewals on expiring contracts, of which $164 million represented cross-selling, including PLAs, of our portfolio products to the same customers. Over 90% of the renewal value represented recurring subscription and maintenance. Okay. ARR, annual recurring revenue, at the end of Q1 was $5.3 billion, which was up 5% from a year ago. In Q2, we expect our infrastructure software revenue to sustain around mid-single-digit percentage growth year-upon-year. In summary, in Q1, semiconductor revenue grew a strong 20%. In fact, excluding wireless, it grew – actually grew over 30%. Combined with our stable software business, consolidated revenue grew 16% year-on-year to $7.7 billion. Now turning to Q2 guidance. We expect semiconductor revenue growth will accelerate to 25% year-upon-year. And excluding wireless, it will be 35% year-on-year. Layering on our stable software business, we expect Q2 consolidated revenue growth of 20% year-on-year to $7.9 billion. And before I turn this call over to Kirsten, I just want to add, Broadcom recently published its second annual ESG report available on the company’s corporate citizenship site, which discusses the company’s ESG initiatives. As a global technology leader, we recognized the company’s responsibility to have a positive impact on our communities through our product and technology innovation and operational excellence, we remain very committed to this mission. With that, let me turn the call over to Kirsten. Kirsten Spears: Thank you, Hock. Let me now provide additional detail on our financial performance. Revenue was $7.7 billion for the quarter, up 16% from a year ago. Gross margins were 76% of revenue in the quarter and up 227 basis points year-on-year. Operating expenses were $1.2 billion, up 6% year-on-year, driven by investment in research and development. Operating income for the quarter was $4.7 billion and was up 23% from a year ago. Operating margin was 60% of revenue, up approximately 362 basis points year-on-year. Adjusted EBITDA was $4.8 billion or 62.5% of revenue. Note that this figure excludes $136 million of depreciation. Now a review of the P& L for our two segments. Revenue for our semiconductor solutions segment was $5.9 billion and represented 76% of total revenue in the quarter. This was up 20% year-on-year. Gross margins for our semiconductor solutions segment were approximately 71%, up 347 basis points year-on-year, driven by favorable product mix and content growth in next-generation products across our extensive product portfolio. Operating expenses were $817 million in Q1, up 9% year-on-year. R&D was $725 million in the quarter, up 10% year-on-year. Q1 semiconductor operating margins increased to 57%. So while semiconductor revenue was up 20%, operating profit grew 31%. Moving to the P&L for our infrastructure software segment. Revenue for infrastructure software was $1.8 billion and represented 24% of revenue. This was up 5% year-on-year. Gross margins for infrastructure software were 90% in the quarter, up 71 basis points year-over-year. Operating expenses were $348 million in the quarter, up 1% year-over-year. Infrastructure software operating margin was 71% in Q1, and operating profit grew 7%. Moving to cash flow. Free cash flow in the quarter was $3.4 billion, representing 44% of revenue. We spent $101 million on capital expenditures. Days sales outstanding were 30 days in the first quarter compared to 35 days a year ago. We ended the first quarter with inventory of $1.5 billion, up 17% from the end of the prior quarter, in large part due to higher material costs. Our hardware backlog at the end of the quarter was over $25 billion compared to $22 billion the preceding quarter. And our lead times remain steady at 50 weeks. Our software backlog continued to grow as well and ended the quarter at over $15 billion. As a point of reference, software backlog was $13 billion a year ago. We ended the quarter with $10.2 billion of cash and $39.5 billion of gross debt, of which $300 million is short term. Turning to capital allocation. In the quarter, we paid stockholders $1.8 billion of cash dividends. Consistent with our commitment to return excess cash to shareholders, we repurchased $2.7 billion in common stock and eliminated $375 million of common stock for taxes due on vesting of employee equity, resulting in the elimination of approximately 5 million AVGO shares. The non-GAAP diluted share count in Q1 was $446 million. Based on current business trends and conditions, our guidance for the second quarter of fiscal 2022 is for consolidated revenues of $7.9 billion and adjusted EBITDA of approximately 62.5% of projected revenue. Note that we expect Q2 non-GAAP diluted share count to be 442 million. This excludes the potential impact of any share repurchases completed in the second quarter. That concludes my prepared remarks. Operator, please open up the call for questions. Operator: Thank you. [Operator Instructions] Our first question will come from Harlan Sur with JPMorgan. Please go ahead. Harlan Sur: Good afternoon, and congratulations on the strong results and execution. Hock, given your backlog and extended lead times, you’ve got pretty good visibility into this year. Your end markets are strong, right? Cloud and hyperscale CapEx spending is looking to grow about 30%. You’re driving the 200 and 400 gig networking upgrade cycle. Enterprise spending is still expanding. As you mentioned, Broadcom continues strong, whether it’s DOCSIS, Wi-Fi, fiber upgrades. And then on your compute acceleration ASIC pipeline, you’ve got Google, Facebook, Microsoft, all of these guys ramping. So it seems like the demand, your product leadership, seasonality can sustain a sort of low to mid-20% plus type year-over-year revenue growth profile through this year. So I guess the question for you is, do you have line of sight and confidence on sustaining this type of growth through the year? And then more importantly, do you have the supply commitments to support this type of growth? Hock Tan: I’m not providing annual guidance, Harlan, if that’s what you’re angling for. But what you’re saying makes a lot of sense. And to answer your question directly, yes, we have line of sight through end of 2022, both, we believe, in demand and in supply. Harlan Sur: Thanks, Hock. Sure. Operator: Thank you. Our next question will come from Vivek Arya with Bank of America. Please go ahead. Vivek Arya: Thank you for taking my question. Hock, I was hoping if you could just revisit what’s driving the acceleration in growth. And then the more important question is that there is a perception that semiconductor companies are benefiting abnormally because of a pricing lever because of the tight supply conditions. And as the foundry capacity eases, that your costs will go down and the pricing advantage will disappear. And I was hoping you could give us some more color, how much of a role is pricing playing in the expected sales growth this year on a like-to-like basis versus what you saw last year? Hock Tan: That’s a very good question. And I mean, and true, the rail demand that we’re seeing underlying – if you talk about underlying trend that is sustainable, at least in this typical upcycle, you’re right, it’s – while we’re showing 30% in networking, in server storage, a part of it is driven by ASP increases simply because we are passing on our material cost increases, wafer, substrates, assembly to our customers, inevitably. But it’s much less than you probably think it is. What is really sustainable is what Harlan said in the previous question. We think the trend demand increase is more like closer to 20% year-on-year than what perhaps in dollar terms you’re represented. And how long would it last? Who knows? It’s hard for me to figure out, because I’ve been wrong so many times, and this is now going on into the almost – 2022 is done and is strong. We’re now booking, given our lead times I indicated, in 2023. And 2023, I think, will be – at least the first half of 2023 will still be pretty close to the same. And it’s the latter part of 2023 and 2024 that we have to figure out whether there’s enough supply that will start coming in to basically address what is today and what we’re seeing, an extremely strong demand environment, whether it’s from enterprise, telcos and service providers and hyperscale, all three are strong. Vivek Arya: Got it. So price stickiness perhaps can continue into 2023. I just wanted to clarify that. Hock Tan: At least the first part of 2023, yes. Vivek Arya: Thank you, Hock. Operator: Thank you. Our next question will come from Stacy Rasgon with Bernstein Research. Please go ahead. Stacy Rasgon: Hi, guys. Thanks for taking my questions. Hock, I wanted to ask about gross margins. So you did like 75.5% in the quarter, 71% for semis. And if I sort of like squint at your guidance, it implies gross margins into Q2 at least at that level, if not even probably higher. And this is amid cost increases and everything else. So I mean how do we think about like the limited – I know you always talked about margins kind of going up 100 basis points a year, and they seem to be doing even better than that. Do we just keep modeling them going up from here? Or do you think they take a pause? Are there are any other drivers like into the back of this year mix or anything else that would sit on that? Just how do we think about it just given the levels that they’re sitting at right now? Hock Tan: Well, I could tread on my usual statement because it happens to be true, which is year-upon-year under normal situations, yes, we see this 100 – around 100 basis points expansion of gross margin on our semiconductor front. You get that. Now Kirsten just indicated, we did better than that in semiconductor. And I guess the – and the reason why we did better than that this season, so to speak, if you come back to my remarks, there’s a lot of deployment – launch and deployment of new generation products that I mentioned. We’re talking about in networking, Tomahawk 4, and much more, Trident 4, which is more towards some data centers that use in enterprises, come out for use in hyper cloud, that new generation. Then we talk about Jericho being deployed – the latest Jericho being deployed in the bank site networks of machine learning, AI, GPU in the connectivity. That’s a whole new application. Then we talk - in service storage, I’ve talked about a whole slew of new generation solutions, which we put in place towards, basically, for new generation, leading-edge servers out there from the guys who do those servers. And with those new generation, we get that better margin. So in all, I guess the additional input I put in is a lot more new generation products coming out now, happen to be in 2022 – we’re seeing happen. And of course, we are, in this environment, thankfully, able to pass on our cost increases to supply – to customers. And that all adds up to a fairly decent gross margin set of results. But do not let that be an indicator, please, that it is something that will be a 200, 300 basis points expansion year-on-year. We still believe normal situation is still be just on average, 100 basis point expansion. Stacy Rasgon: Got it. But as long as you can keep the new products coming, we should still be able to see that 100 basis points even from here? Hock Tan: Yes. And by the way, it’s not just me having to come on new products. There’s a pool. The customers, the applications of our markets require us – and that’s the beautiful thing about the semiconductors and technology, is always – there always is a need for next-generation better products. Whether it’s performance power, whatever, is always, there’s a pool. And that product life cycle is what enables us to develop these new products, and our margins will keep expanding. Stacy Rasgon: Got it. That’s helpful. Thank you so much. Operator: Thank you. Our next question will come from Ross Seymore with Deutsche Bank. Please go ahead. Ross Seymore: Hi, thanks for let me ask a question. Hock, thanks for the information on the backlog for the semi business. It’s good to see that rising as much as it did sequentially, especially considering the lead times stayed flat. While the magnitude is impressive, I really want to ask about the profile of that and how it may or may not be changing. So as that additional backlog comes in, given all the moving parts between enterprise and cloud and broadband and wireless, et cetera, any sort of changes in the profile of that backlog that you find to be interesting, either in a positive or negative sense that will give us a clue about the future growth drivers for your company? Hock Tan: That’s a good question. And I employed in some of my point – some of my remarks, but let me take you directly. Yes, enterprise, enterprise demand, spending is the strongest driver that we’re seeing today. And it should be no surprise, because something we have said since last quarter and the quarter before, enterprise has recovered more – than recovered – is going – it’s on fire, is the best way to describe it. Enterprise spending on IT is, as we perceive it, on fire. And we are seeing a big part of that. And that’s not to say that hyper cloud and telcos are not adding to it, but not as strong as enterprise recovery. Ross Seymore: Any negative surprises in that? You talked about the positive side. Is there anything that’s been surprising on the negative side? Hock Tan: No. Not really. It’s just – that’s – I think there’s a lot of pent-up spending. There’s a lot of need for a lot of enterprises to upgrade. And that’s also what’s driving, as I indicated in my remarks, a lot of on-prem campus switching investment going in. I mean look at even Broadcom. We’ve been using Wi-Fi in our hot spots, in our excess gateways, in – through the campus. A key part of it is wireless connectivity, Wi-Fi, so to speak way. I mean we’ve been running Wi-Fi 5 for many years. Now is the time to move to Wi-Fi 6, 6E. And we’re not the only one we’re seeing across the board, very strong demand from lots of enterprises wanting to upgrade connectivity as offices start to slowly open up. Ross Seymore: Thank you. Operator: Thank you. Our next question will come from John Pitzer with Credit Suisse. Please go ahead. John Pitzer: Yes, guys. Thanks for let me ask the question. Hock, usually at this point in the cycle with lead times extended as much as they are and you guys getting pricing power, the big concern on Wall Street is to what extent is the demand you’re seeing real demand versus perhaps your customers building inventory. And I know you’re less consumer focused than most. And so maybe inventory builds are less relevant in some of these infrastructure markets. But I’m wondering if you could give us your perspective on – or at least what you guys try to do to scrub the backlog to make sure it’s good demand. And if you think it’s good demand, I’m kind of curious, you’ve always had a very realistic view of what the long-term growth rate for your semi should be – semi business should be. Is that beginning to change? And like many of your peers who have put up a higher kind of new CAGR, are you willing to go there right now? Hock Tan: Let’s answer the first question first, and let me go to the last one and the best at the end. But on the first part, yes, as I’ve stated in previous earnings calls, I’m more than happy to reiterate it here, which is we are very, very concerned, obviously, that you could – we could easily build up inventory in various parts of our demand environment, just because we ship according to what customer sending in orders as their customer requested. So we don’t – we actually spend a huge amount of bandwidth of our operations and salespeople in this environment to make sure we get products to any particular customer just when they need it. Not any earlier and hopefully not too late either because we like to address customer a real need in that regard. But what’s very, very important to us is not to ship excessively. And inventory, whether it’s in the customer inventory, in distribution, the nice thing about our business in semiconductor is this, 75% of our revenue comes from just about 100 customers, and they’re direct. The last 25% go through distribution. 75% direct to 100 customers. We have enough salespeople. We have enough visibility on these customers to know exactly pretty closely, we’d like to think, what they need and ship to what exactly they need. And when we do all that, I said it before in last earnings call, true in demand growth – true growth as we have been seeing in 2021, it was about 20% year-on-year improvement. Now we now take on the fact that material costs have gone up in 2022. So there’s an addition beyond 20%. I still believe it’s about 20% in response to earlier in this environment because the last up cycle we saw in 2017, it was 20% year-on-year improvement. It wasn’t stronger than that. And by the way, we sell mostly those big core system on a chip into any platform that our customer builds and sells. We do – and generally, we get very good visibility. If we were to sell more of the peripheral chips, the secondary chips, that adds up to the total platform, and that cause a fraction of what our system on a chip cost. Then perhaps you will not have that visibility, and we believe there are a lot of pockets of those inventory in the wrong places because of unbalanced chipsets sitting out there. But if you – for example, if you’re building a data center and you need 1,000 Tomahawk 4s, believe me, you will not buy more than 1,050 Tomahawk 4s. But if you buying voltage regulator, you probably buy 2,000, 3,000 of those voltage regulators just in case. And that’s the difference in what we’re seeing. So we think we get a good sense of what’s out there. And the kicker here is the price increase that was passed on because of wafer cost and substrate cost increases, which makes it go over perhaps what we think is a sustainable level. Now to answer your longer-term question, no, I don’t think on a long-term, say, next 10 years, would the CAGR change, I think people will say that CAGR change, frankly, are probably dreaming because there’s no evidence on our side to show why this industry, which is relatively mature semiconductor industry, should suddenly spiral into a different trend growth rate. We have seen in the last 10 years, compounded roughly 5% annual growth rate. And there’s nothing to indicate, frankly, why you would not be that way for the next long-term, 10 years. Now it won’t be 5% every year, obviously, we’re not at 5% this year. But on the long-term, I still think that trend has not changed. John Pitzer: Perfect. Thank you very much. Hock Tan: Sure. Operator: Thank you. Our next question will come from Toshiya Hari with Goldman Sachs. Please go ahead. Toshiya Hari: Great. Thank you so much for taking the question. Hock, I wanted to ask for your thoughts on capital allocation. It’s been a while since your last meaningful acquisition. A lot of things are going on from a macro perspective. Rates are going up. And obviously, the economy is a little bit squishy. You just spent $2.7 billion on buybacks. Just curious how you’re thinking about allocation of capital. Any changes to how you think about M&A and your appetite for M&A going forward? Thank you so much. Hock Tan: Thank you. Well, really, in last quarter, we are very clear about our capital allocation plan, at least for 2022, and which is, frankly, at – we’re still looking for acquisitions. We’ve just been very, very – as we usually do, being very thoughtful and selective about the assets we would acquire. But very much so, we’re still in the market to look for good – great assets to acquire, and we have the capacity to handle it. And in the meantime, given two years, 2020 and 2022 when we haven’t done anything on acquisitions and have been earning and generating lots of cash, we have taken on – other than paying dividends and maintaining the policy on dividends that we have outlined for the long-term, we have decided for fiscal 2022 – for actually calendar 2022 to put out that buyback program of $10 billion. We spent $2.7 billion of it so far, and we have probably most of the year to go. And we’ll probably use – we will likely use all of it up evenly over the next nine months of the remaining year. And that nothing has changed. But – and we believe we still have the capacity to do a good-sized acquisition. Toshiya Hari: Thank you so much. Operator: Thank you. Our next question will come from Pierre Ferragu with New Street Research. Please go ahead. Pierre Ferragu: Hi, thank you for taking my question. I’d love to hear whatever debt you can give us, Hock, on your I think ASIC business in semiconductors. And what I’m wondering is how is business trending compared to your other segments in semiconductors. And do you see your ASICs taking share overall with your hyperscale clients? Or is that just growing in line with the rest of the market or actually below the rest of the market? Hock Tan: Okay. Let me paraphrase my – your question the way I would probably be able to answer it and see if it’s the right thing. What you’re saying is, see, we have a product division that does ASIC custom chips essentially for usually large customers. And that’s a good-sized business for us. And a big part of that business to address what you’re saying here, is address has been used is now currently, though not in the past, but more recently in the last few years, it was the hyperscale players who are starting to develop – wanting to develop their customized and dedicated accelerators for specific functions and workloads mostly related to, for instance, machine learning, AI, also to do with video transcoding and also gradually increasing virtualization and orchestration of data centers. All those have customized silicon accelerators to enable these hyper cloud guys to run their workloads better and more effectively. I believe that was your question. And the best way to answer your question is year-on-year this quarter, Q1, we grew revenue in this offload computing sector, which all ASIC north of 50% revenue year-upon-year. All right? I hope that answers your question. Pierre Ferragu: Yes. Thank you. That’s perfect. Thank you so much. Operator: Thank you. Our next question will come from Tim Arcuri with UBS. Please go ahead. Tim Arcuri: Hi, thanks a lot. Hock, I had a question on your wireless business. It’s been very strong, but you’ve been recently talking about some trade-offs that one of your customers making is – making on the FBAR side, and maybe making it a little even more concentrated on a single customer. And I know that you consider selling this business some time back, but does even – your further revenue concentration, does it make you rethink maybe how committed you want to be to that segment? And maybe whether you could redeploy this capital into another market, especially as things might be changing on the modem side. Thank you. Hock Tan: Okay. Good question. And my answer would be very simple and direct. We have always indicated our wireless business is one customer largely, our North American OEM. And you know what, they’re a very good customer. They’re very strategic. And we are not only selling one product but selling multiple products, which are very strategic to us and I believe also very important and strategic to them, which will – which is what makes a partnership very sustaining. I see this as a very long-term sustaining partnership in the sense of the products we do develop we collectively call wireless because it goes into mobile – a lot of mobile devices, though not entirely, but most of it goes into phones. It goes into wearables. It goes into pads or tablets. And it goes into not so mobile, but many of them are into even notebooks. It goes into all the stuff, and we sell – we develop and provide something like about five different critical engine technology products to this same customer. So it is – it has over 10 years now developed into an extremely sustainable and strategic relationship. Clearly, from our side, yes. I’d like to believe from their side, the same thing. Tim Arcuri: Thanks, Hock. Operator: Thank you. Our next question will come from Edward Snyder with Charter Equity Research. Please go ahead. Edward Snyder: Thank you. Well, since we are talking about wireless, I wanted to follow-up with that. Thanks for your answer, Hock, but I want to step back and maybe look at the longer-term on this. You – when you bought Brocade, it kind of shifted the narrative from we don’t really need revenue growth. We’re mostly looking for cash flow and high margins, which worked out very well. In wireless, you get a little bit different animal with Samsung on the way out because they shifted their phone strategy to more cost-centric and less performance-wise. It made sense for Broadcom to participate there. And your large customer is doing fine. It looks like they will be for years. But as we’ve already seen on the high end, 5G, the growth in revenue – growth in content is slowing. And by all measures, it will likely stagnate in the next three years to four years. In that kind of environment, and especially if you’re not doing the custom designs anymore, given – it’s just given the revenue may not grow, if margins are affected, what do you do with it? I mean you’ve not ever embraced the business where both revenues flat to down and margins are in decline. I think the question a lot of folks have is, what could you possibly do? It’s so large, and there are so few suitors for it. It’s kind of puzzling in three years or four years what the strategy be with wireless. Maybe you could help shed a light on that. Thanks. Hock Tan: That’s an interesting thing, Ed. Here, all our businesses – I just want to remind you, in our view, as I said, in the view of all semiconductor segments itself, it’s not a high-growth business. You guys like to think because probably there are a few companies out there who are trying to grow in a business that doesn’t grow. 5% is what it is. And so it’s a business that does grow, but in dollar terms, overall, mid-single digits. I call it a slow growth industry. Within it, however, it still evolves new generation of products constantly. That’s the unusual unique thing about semiconductors. It keeps evolving. Not disruptive much as people like to say they are disruptive. My view is evolutionary, but that evolutionary creates new opportunities for basically selling a better product, a more valuable product to the same customer for the similar application, and it go – which the customer can then monetize back on their own. And that’s really all it is. And what we are doing here in wireless is no different. And there is something also very interesting. Every product we sell in wireless is, in fact, a non-standard product. It is customized. It is customized for the needs – for the unique needs and particular requirements of that particular customer. That’s what makes us so successful, and that’s what makes the partnership so sustainable. We developed technology in the form of products that we do, whether it’s an RF, with FBAR, front-end module or whether it’s pure silicon with some SDK – a lot of SDK software where some unique high performance mixed signal, analog product, all of which we do to this customer, we do it to meet their particular requirements, which allow their products to be at a level that’s very differentiated from their own space – in the competitive space they are in. And that’s what makes it very unique, and that’s what makes this thing keep going. But we’re not looking for in any end market we are in, in any product line we are in, for high growth. High growth in semiconductor comes in spurts and do not last. If anybody tells you otherwise, please don’t believe it because it has never happened. Edward Snyder: Thank you. Operator: Thank you. We do have time for one final question from Vijay Rakesh with Mizuho. Please go ahead. Vijay Rakesh: Yes. Hey, Hock, just a question on the networking side. Obviously, very strong growth, up 33% with the Tomahawk and DPU, I guess. What do you see the long-term growth there, meaning if you look at the next 12 months to 24 months on the networking side? I had a follow-up. Thanks. Hock Tan: Okay. The next 12 months is pretty good. We have visibility, and we kind of indicated that in our answers. 24 months, harder for me to tell you. If you ask me what do you think over the next 10 years, I’ll tell you what it is, mid to high-single digits. And because that’s – it’s consistent. There is no segment – don’t believe anybody telling otherwise, that will have a sustainable growth rate in this space. It’s share changes maybe. So but next 12 months, very good growth rate is what I indicated. Vijay Rakesh: Thanks. And one last question on the software side, obviously, since December 8 when you announced the big buyback, obviously, software valuations have become much more attractive in the last might be down 30%, 40% there. But do you have a target in mind as to what you think that software business should be, like 24%, 25% of revenues now? Are you looking to build it up to half of your business? Or is there a long-term target that you’re putting out there? Thanks. Hock Tan: To tell you, I don’t have a strategic plan here. My plan are a numbers plan. It’s – our strategy in acquisitions and growing this entire Broadcom platform is more about locating, identifying very, very strong assets out there and – which are actionable, and then making a deal and buying them and integrating in our platform. They got to meet our requirements of quality of the assets of the product – of the business model, to some extent, the product characteristics being very mission-critical. And then after that comes the price. For us, after that is the price. Because you’ll recall, the way we run those software businesses tends to be different usually from the way the party we buy from Transit. And because of that, we are able to create the financial returns consistent with a business model that we put in place fairly different from what the existing business model is in most software companies out there. All right? Vijay Rakesh: Great. Thanks, Hock. Operator: Ladies and gentlemen, thank you for participating in today’s question-and-answer session. I would now like to turn the call back over to Ji Yoo, Director of Investor Relations, for any closing remarks. Ji Yoo: Thank you, Sheri. In closing, similar to our networking, broadband and storage teach-ins in fiscal 2021, Broadcom and Deutsche Bank will be hosting a teach-in of our custom silicon business on Tuesday, April 19, at 12:00 p.m. Eastern, 9:00 a.m. Pacific. Hock will be joined by Frank Ostojic, General Manager of our ASIC Products Division; and Vijay Janapaty, General Manager of our Physical Layer Products Division. Broadcom currently plans to report its earnings for the second quarter of fiscal 2022 after close of market on Thursday, June 2, 2022. A public webcast of Broadcom’s earnings conference call will follow at 2:00 p.m. Pacific. That will conclude our earnings call today. Thank you all for joining. Sheri, you may end the call. Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.

Operator: Hello and welcome to Broadcom’s Inc. Fourth Quarter and Fiscal Year 2021 Financial Results Conference call. At this time for opening remarks and introduction, I would turn the call over to Ji Yoo, Director of Investor Relations of Broadcom Inc. You may begin. Ji Yoo: Thank you, Operator, and good afternoon, everyone. Joining me on today's call are Hock Tan, President, and CEO; Kirsten Spears, Chief Financial Officer; Tom Croft, President, Broadcom Software Group; and Charlie Kawwas, Chief Operating Officer. Broadcom also distributed a press release and financial tables after the market closed, describing our financial performance for the fourth quarter and fiscal year 2021. If you did not receive a copy, you may obtain the information from the investor section of Broadcom's website at broadcom.com. This conference call is being webcast live, and a recording will be available via telephone playback for one week. It will also be archived in the Investors section of our website at broadcom.com. During the prepared comments, Hock and Kirsten will be providing details of our fourth quarter and fiscal year 2021 results, guidance for our first quarter, as well as commentary regarding the business environment. We'll take questions after the end of our prepared comments. Please refer to our press release today and our recent filings with the SEC for information on the specific risk factors that could cause our actual results to differ materially from the forward-looking statements made on this call. In addition to U.S. GAAP reporting, Broadcom reports certain financial measures on a non-GAAP basis. A reconciliation between GAAP and non-GAAP measures is included in the tables attached to today's press release. Comments made during today's call will primarily refer to our non-GAAP financial results. I will now turn the call over to Hock. Hock Tan: Thank you, Ji, and thank you, everyone, for joining us today. So in the environment we have today enterprise demand rebounded sharply over 30% year-on-year. HyperCloud and Service Provider demand continued to be strong and strong wireless growth in Q4 was driven by the seasonal launch of next generation smartphones by our North American OEM. Meanwhile, our core software business continues to be steady with a focus on strategic customers. On the supply side, only times remain extended and stable, inventory in our channels and our customers remains very lean. Accordingly in Q4 semiconductor solutions revenue grew 17% year-on-year to 5.6 billion and with infrastructure software revenue growing 8% year-on-year to $1.8 billion. Consolidated net revenue was a record $7.4 billion up 15% year-on-year. Let me now provide more color by end markets. Let's start with networking. Networking revenue of 1.9 billion was up 13% year-on-year in line with our forecasts for low double-digit growth and represented 34% of our semiconductor revenue. Double-digit year-on-year growth was primarily driven by strong demand from campus switching both from our merchant silicon as well as ASICs solutions through OEMs, like Cisco and HP. We also experienced similar double-digit growth with the deployment of Jericho routers within large scale AI networks in the cloud, as well as Qumran in 5G infrastructure and DCI. Our unique capability here to deliver ultra-low latency ethernet networks enables large scale deployment of AI compute for the cloud. Meanwhile, in the core of these large data centers, we have begun to run Trident 4 and Tomahawk 4, the world's first 25.6 terabit per second switch to several hyperscale cloud customers as they address their ever-growing need for bandwidth demand in scaling out their massive data centers. Now within hyperscale cloud, we continue to lead in delivering A6 silicon for multiple compute offload accelerators, which has manifested into being 20% of our networking revenue. Expect continued growth in the next fiscal years here to over $2 billion. The key to our success here lies with our robust design methodology, which integrates a broad and substantial silicon IP and rapidly delivers world-class customized silicon SOCs to enable AI virtualization, orchestration, video transcoding and security. We have now extended our footprint here, beyond TPUs at multiple cloud customers. In Q1, networking is firing on all cylinders. And we expect networking revenue growth to accelerate to close to 30% year-on-year. Next, our server storage connectivity revenue was $815 million, up 21% year-on-year, in sharp contrast to the first half of 2021 and represented 15% of semiconductor revenue. The better than expected results were driven by robust demand for storage controllers, and host bus adapters from renewed spend by enterprises, upgrading their compute and storage infrastructure. Additionally, hypercloud storage we saw accelerated migration to eight terabytes, and the start of 20 terabyte hard disk drives, which drove our nearline storage revenue. To put things in perspective, today, our Nearline storage business is close to a billion dollars on an annualized basis. We continue to gain share in server storage connectivity as we expand our leadership in next generation SAS 4, PCI Express Gen 5 and NVMe. Spending for enterprise continues to recover and we expect this will accelerate growth in our server storage connectivity revenue in Q1 to approximately 30% year-on-year growth. Moving on to Broadband. Revenue of 872 million grew 29% year-on-year and represented 16% of semiconductor revenue. This was driven by the continued strong growth in deployment by service providers globally of next generation PON with Wi-Fi 6 and 6C access gateways. We continue to lead the industry with a portfolio of end-to-end integrated solutions across access protocols. PON, cable modem and DSL, all SOC controllers, each with integrated Wi-Fi managed through our software stacks to reliably deliver more bandwidth, faster data speeds from the call service provider networks to the homes. And the critical element in our broadband platform is leading edge Wi-Fi; Wi-Fi 6 and 6c today and Wi-Fi 7 tomorrow. Having leading edge while wireless is important for service provider customers to reach digital homes from their networks. By the same token in campus switching in enterprises, it's also critical that our OEMs can connect enterprise data centers through campus switches to the access points with leading edge Wi-Fi. In both markets are our platforms, which encompass wired and wireless, silicon and software uniquely differentiate Broadcom and sustain our market leadership. So in Q1, we expect this double-digit percent year-on-year growth rate in broadband to continue, as we have seen for the last few years. Moving on to wireless, consistent with the launch of our customers next generation phone during the quarter, Q4 revenue of $1.8 billion represented 32% of semiconductor revenue and was up 21% against a softer Q4 quarter a year ago. Nevertheless, we expect continuing strong demand into Q1 and which will drive wireless revenue to be up sequentially single-digit, and be flat to up low single digit percentage year-on-year from the peak of a year ago. Finally, industrial revenue up 197 million represented approximately 3% of our Q4 semiconductor solutions revenue. Having said this, resales of industrial up $232 million grew 36% year-over-year in Q4, driven by strong demand from OEMs for electric vehicles, robotics, factory automation and healthcare. As a result, our inventory in the channel declined further to below a month. And turning to Q1, we expect resales to continue to be strong at the levels we saw in Q4. In summary, Q4 semiconductor solutions revenue was up 17% year-on-year. And in Q1, we expect the momentum to continue and revenue growth to be up double digits again year-on-year. This implies that Q1 semiconductor revenue will be up low single digits sequentially. Turning to software Q4, infrastructure software revenue of 1.8 billion grew 8% year-on-year represented 24% of total revenue within this brocade showed strong growth of 19% year-on-year, consistent with strong enterprise recovery during the quarter, and deployment of our next Generation 7 fiber channel stem products. Now excluding brocade our core software revenue grew 6% year-on-year in dollar terms, consolidated renewal rates averaged 116% over expiring contracts. While within our strategic accounts, we actually averaged 127% consistent with prior quarters. Over 90% of the value represented recurring subscription and maintenance. Stepping back and following the Software Investor Day last month, let me provide an update on the entire fiscal '21 for core software. Total backlog at the end of the year, totaled $14.9 billion up 15% from a year ago, with average duration of contracts extending from 2.6 to 2.9 years. These backlog translates into an ARR or annual recurring revenue of 5.2 billion, which was up 5% from a year ago. 74% of this ARR comes from our approximately 600 strategic accounts, which in fiscal '21 we renewed at 129% or $2.4 billion of annualized booking value. 1.9 billion of this represented renewal on expiring contracts and roughly $500 million represented cross-selling including PLAs of our portfolio products to these strategic customers. For the year, we booked over 300 contracts generating greater than a million dollars of revenue annually with over 30 contracts generating over $10 million annually. With such stability in Q1, we expect our infrastructure software revenue to continue to sustain around mid-single digit percentage growth year-over-year. So, let me summarize, with the continued strength in our semiconductor segment and steady growth in our software segment, total Q4 net revenue grew 15% year-on-year. Turning to Q1, semiconductor revenue excluding wireless is expected to be up 28% year-on-year. Wireless is expected to grow flat to low single digit percentage compared to the peak of a year ago. So semiconductor revenue in total is expected to grow 17% year-on-year again, and consolidated revenue is expected to grow 14% year-on-year. Sequentially, this will drive revenue to grow from $7.4 billion in Q4 to $7.6 billion in Q1. We are very well positioned in every one of our franchise markets in fiscal '22 and beyond. We continue to significantly out invest anyone else across our platforms in switching and routing, offload compute, silicon photonics and wireless connectivity to accelerate our next generation roadmaps as we continue to gain market share. With that, let me turn the call over to Kirsten. Kirsten Spears: Thank you Hock. Let me now provide additional detail on our financial performance. Revenue was 7.4 billion for the quarter up 15% from a year ago. Gross margins were 75% of revenue in the quarter and up approximately 105 basis points year-on-year. Operating expenses were 1.1 billion up 3% year-on-year driven by investment in R&D. Operating income for the quarter was 4.4 billion and was up 20% from a year ago. Operating margin was 59% of revenue up approximately 286 basis points year-on-year. Adjusted EBITDA was 4.5 billion or 61% of revenue. This figure excludes 134 million of depreciation. Now overview of the P&L for our two segments. Revenue for our semiconductor solutions segment was 5.6 billion and represented 76% of total revenue in the quarter. This was up 17% year-on-year. Gross margins for our semiconductor solutions segment were approximately 70% up 170 basis points year-on-year driven by favorable product mix and content growth in next generation products across our extensive product portfolio. Note that we have been able to continue to expand our semiconductor gross margin despite higher wireless revenue mix. Operating expenses were 790 million in Q4 up 3% year-on-year. R&D was 701 million in the quarter up 6% year-on-year. As a side note for fiscal '22, we are planning to increase R&D spend in semiconductors by mid-to-high single digit percent year-on-year. As Hock indicated in his remarks, we are committed to investing heavily in our next generation products to maintain and even increase our leadership across all our franchises. Q4 operating margins increased to 56% up 350 basis points year-on-year. So while semiconductor revenue was up 17%, operating profit grew 24%. Moving to the P&L for our infrastructure software segment, revenue for infrastructure software was 1.8 billion and represented 24% of revenue. This was at 8% year-on-year. Gross margins for infrastructure software were 90% in the quarter up 19 basis points year-over-year. Operating expenses were 353 million in the quarter up 1% year-over-year, R&D spending at 220 million is up 9% year-over-year and SG&A of 133 million is down 10% year-over-year. Operating margin was 70% in Q4 up 166 basis points year-over-year and operating profit grew 11%. Moving to cash flow, free cash flow in the quarter was 3.5 billion representing 47% of revenue. We spent 88 million on capital expenditures. Day sales outstanding were 25 days in the fourth quarter, compared to 32 days a year ago. We ended the fourth quarter with inventory of 1.3 billion, an increase of 137 million or 12% from the end of the prior quarter in preparation to meet customer demand in Q1. We ended the fourth quarter with 12.2 billion of cash and 39.7 billion of total debt, of which 290 million is short-term. Turning to capital allocation. In the quarter, we paid stockholders 1.2 billion of cash dividends. We also paid 266 million in withholding taxes due on vesting of employee equity, resulting in the elimination of 525,000 AVGO shares. We ended the quarter with 413 million outstanding common shares and 448 million diluted shares. Based on current business trends and conditions, our guidance for the first quarter of fiscal 2022 is for consolidated revenues up 7.6 billion and adjusted EBITDA of approximately 61.5% of projected revenue. Let me recap our financial performance for fiscal year 2021. Our revenue hit a new record of 27.5 billion growing 15% year-on-year, semiconductor solutions revenue was 20.4 billion up 18% year-over-year. Infrastructure software revenue was 7.1 billion up 7% year-on-year. Gross margin for the year was 75% up 100 basis points from a year ago. Operating expenses were 4.5 billion down 2% year-on-year as we completed the integration of Symantec. Operating income from continuing operations was 15.9 billion up 23% year-over-year and represented 58% of net revenue. Adjusted EBITDA was 16.6 billion, up 21% year-over-year, and represented 60% of net revenue. This figure excludes 539 million of depreciation. We spent 443 million on capital expenditures, and free cash flow represented 49% of revenue, or 13.3 billion, free cash flow grew 15% year-over-year. For the year, we returned 7.5 billion to our stockholders, consisting of 6.2 billion in the form of cash dividends and 1.3 billion for the elimination of 2.8 million AVGO shares. We have extended our weighted average debt maturity to approximately 10.6 years, with a weighted average interest rate of approximately 3.6%. Looking ahead to fiscal 2022, we remain committed to returning approximately 50% of our prior year free cash flow to stockholders in the form of cash dividends. Consistent with that, we are increasing our quarterly common stock cash dividend in Q1 fiscal '22 to $4.10 per share, an increase of 14% from the prior quarter. We intend to maintain this target quarterly dividend throughout this year, subject to quarterly board approval. Today, as part of our commitment to return capital to shareholders, we announced that the company's Board of Directors has authorized the repurchase about 10 billion of our common stock under Broadcom's new share repurchase program. The authorization is effective until December 31, 2022. This new share repurchase program reflects our confidence in the company's ability to generate strong and sustainable cash flow. Note that we expect the diluted share count to be 448 million in Q1. This excludes the potential impact of any share repurchase. That concludes my prepared remarks. Operator, please open up the call for questions. Operator: Thank you. [Operator Instructions] Our first question comes from Toshiya Hari with Goldman Sachs. The line is open. Toshiya Hari: Hi, thank you so much for taking the question. And congrats on the very solid results. Hock, I know you guys don't guide for the full year, but I was hoping you could kind of walk us through how you're thinking about fiscal year '22 on the semiconductor side. Obviously, bookings have been strong, continued to be strong across most of your buckets, or end markets within semis. But if you can talk about, bookings trends in the quarter, what you're seeing there, that would be super helpful. And then as you sort of answer the fiscal '22 question, if you can touch on supply, and to what extent supply could be a gating factor over the next 12 months? That'll be helpful. Thank you. Hock Tan: That's a very good, a hell of a question. So let me try to address in its various component parts. What we continue to see, we've the recovery -- I made a point of saying that, we're now in a midst of a very strong spending recovery in enterprise, particularly, so we're continuing to see strong demand bookings in the semiconductors side. But a big part of that and demand and increasing part of that demand is now coming from enterprise spending, which translates to end markets, tends to drive a lot of our broadband continue to drive the broadband, which has been strong in most of '21 continuing to drive the enterprise part of our networking business. And, of course, server storage and industrial is just very, very strong. Having said that, on the hypercloud spending side, a lot of it resides in, obviously, in our networking business. Things are still fairly, very elevated, Demand continues to be strong. And so when you combine all this together, we continue to see booking rates been at a fairly and continue to be at a very elevated level week-after-week so far. And as of right now, we're pretty much booked all the way through '22 and even beyond '22 into '23. If you're thinking about 50 week lead time, no surprise, it goes too late '22. But we're going even -- in many cases now gone beyond '22 into '23. And that's partly because one timing of our customers planning very far ahead. And two, as I said, our continuing discipline approach to ensuring that we deliver products at the right time to the right place. And we see that going on. And I hate to disappoint you, we're still not ready or prepared to give you guidance on a whole fiscal year. Operator: Thank you. Our next question comes from the line of Stacy Rasgon with Bernstein Research. Your line is open. Stacy Rasgon: Hi, guys. Thanks for taking my question. Hock, I wanted to follow up on those lead times. You said obviously, on the industrial space, your channels lean it sounds like your bookings overall is very strong. At the same time, we know you've been taking efforts to limit like worries around stockpiling and over shipping, whether it's parsing orders, expedite these. I was wondering if you could just talk a little bit about what you are doing in that space. How are you feeling right now in terms of your shipments versus where end demand is? And how meaningful those like long with 50 plus week lead time actually are? Do they actually represent demand even if it's that far out? Like if you could just talk about your efforts there? That'd be that'd be helpful. Hock Tan: Yes. Well, we've been doing this 50 weeks now for just since the beginning of '21. And we've been delivering very much as much as we can to those lead times. So in some ways, I like to believe it's giving some method or some method to this booking madness, I guess is one, I would call it in terms of our ability and in terms of where we -- how we are shipping the products. And but by keeping lead times very stable and predictable as we're doing now. We're also clearly communicating to our end users, the way they should be planning their business and I like to think all this is working out in terms of allowing us to making sure we don't overshoot and build up x buffer inventory to our ecosystem out there that means distributors, channels and customers. And all that is been done purposefully and the truth be told that the day will come when things have to land, unknown, and we'd like to make sure it lands very gently and softly. I would like to think that it's working very well. And, but so what we are reporting in some sectors now, what we're guiding in some sectors are reporting, where you see growth of some 20%, 30%. I know even from our perspective, it seems very hot, excessively hot. And in those areas, in particular, we take strong particular attempts -- to make those attempts to ensure this product, we shape our four programs they get deployed, rather than sit on a shelf for a future need. And so I like to believe that growth in networking, broadband service storage lately, of some 20% to 30%, year-on-year, rail through end demand. Stacy Rasgon: Got it. That's helpful. Just a quick follow up along those lines on enterprise, you gave some numbers for year-over-year growth for things like networking and storage and those year-over-year numbers, does that imply a sequential decline? Especially for networking and storage or just I'm not sure if my year ago numbers are trending or not? But do you expect those businesses to decline sequentially within the comp guidance within the guidance? Hock Tan: It may, depending then we're talking mathematical numbers now and how we shipped because some the shipments are lumpy. And you may see them from quarter-to-quarter, when you talk about sequential quarter, you may sometimes see them and what I'm trying to say. And we may also chose to deploy supplying to one market versus another as you go quarter-by-quarter. So looking at it sequentially in specific verticals might sometimes for our case, our point of view be rather misleading, unintentionally, I may add, simply because we may chose to deploy our ship more to sponsors sometimes to server storage, because there is a hotter need there versus to networking. And you may see them because of that networking, see some sequential weakness in one particular quarter, which is why we report as much as we can on a year-on-year basis, where then you take out the effects of this short term, lumpiness, and short-term discontinuities. Stacy Rasgon: That's helpful. Thank you so much. Operator: Thank you. Our next question comes from the line of Harlan Sur with JPMorgan. Your line is open. Harlan Sur: Good afternoon. And congratulations on the strong results and execution. Hock, in your networking business, you've been somewhat conservative on your view on the sustainability of the strong cloud and hyperscale growth, but yet, in cloud, I mean, you guys are ramping 7-nanometer Tomahawk 4 and Trident 4. They're in the early innings as they ramp. Demand is strong. You talked about Jericho and Qumran being strong in routing. Your cloud ASIC customers ramping their 7-nanometer TPU. And you have more programs firing next year, as you mentioned. And then on the enterprise side, your large enterprise OEM customers are benefiting from the strong recovery. So you're starting off the fiscal year in networking with strong double-digit growth. But do you see your networking business continuing to drive double-digits year-over-year growth for the full year? And will the growth be driven by all three of your end markets cloud, enterprise, and service provider? Hock Tan: Harlan that's hell of a question. And the only way I can answer that is, this is a weird time for me to bad to ask me to guide you on networking for the year in working, I'm not doing that. But you're right though. There are a lot of levels. And I articulate quite a few of them and maybe I'm oversee in some cases. And they seem to be as I use the expression as we sit here today and going into '22, firing on all cylinders. And by that, I mean more than just forecasting. We actually seen the backlog, we have the backlog and they keep building up. And you're right hypercloud guys, if you have asked me six months ago, I would not believe the level of spending they're embarking on in right now in '22 but they appear to be. So you are right, enterprise been strong. And you've seen the rate of growth of enterprise year-on-year of 30% across broadly. And cloud at their current elevated levels, we are seeing in networking has not suffered, has not weakened. We are still sustaining. Now, it's not recovering, obviously, year-on-year basis as fast as enterprise is showing simply because enterprise starting from a lower point. But Cloud is still growing, we are seeing hypercloud growing. And it's growing from not just network switching and routing that's our traditional strength is growing now for us on, for one of a better expression collectively called offload computing applications from virtualization orchestration to add more and more AI beyond just a single lead customer we have in TPUs today. So we're seeing multiple, as I said, multiple levels all moving in the right direction for fiscal '22. And good possibilities, what we've seen today in Q1, would run for a large part of fiscal '22. Harlan Sur: Great, thank you for the insight, Hock. Operator: Thank you. Our next question comes from the line of Vivek Arya with Bank of America Securities. Your line is open. Vivek Arya: Thank you for taking my question. And congratulations on the strong results and the guidance. So Hock, I find two things interesting. One is you didn't use the word metaphors in your commentary. But that's not my question. The question is on the buyback announcement. What changed your view? Because for some time, you were not as favorable towards buybacks. So the 10 billion announcement, is that more a statement about business trend? Is it lack of M&A targets, are you going to be more consistent in buybacks? So that's part A of the question. And part B is that if I take that, 6 billion or 7 billion in dividends that you will pay next year and add the 10 billion in buybacks and apply the free cash flow range you have. It suggests sales of somewhere in the low to mid 30 billion, right, using that math? And I know you're not giving a guidance, but does that math makes sense. Thank you. Hock Tan: Hey, you're very good at these numbers. I shall just bow to those better judgment and wisdom. Yes. Thank you. Next question. You have another follow through? Please. Vivek Arya: Yes. Thank you. Yes. So wireless, is your most seasonal business. Is there a way you're thinking about wireless? So you said it could be up somewhat right in the January quarter? How are you thinking about seasonality for that business going into the April quarter? Hock Tan: Oh, April quarter quota is hard to forecast. I mean, this is consumer. So it's very -- I can't even begin to forecast much less than I think my customer would be better at it. And even then, I suspect they're very challenged. But what we do see, interestingly enough, is demand for our components for the January quarter is good. And then and hence you see, the fact that even as we measure year-on-year to an all-time peak a year ago, we are still flattish to slightly up and sequentially from Q4, which in this current round, you're correct in this regard. Q4 is supposed to be back to normality and seasonality has been the big quarter. Our Q1 will exceed our Q4 shipments as we forecast today. So yes, it sounds like even that part is doing quite well, just that year-on-year compare in percentage terms may not be as exciting as the rest of the semiconductor verticals that we're in, but it's still holding up very nicely. Vivek Arya: Thank you. Operator: Thank you. Our next question comes from the line of Ross Seymore with Deutsche Bank. Your line is open. Ross Seymore: Hi, thanks for letting me ask the question. I guess I'll ask the two questions and then I'll listen to the answers for both the question and the follow-up. So, first, Hock, I want to revisit kind of the quality of demand and may be ask it a different way. You've talked about under-shipping what the actual demand or what your bookings are because you believe you can ship to actual demand. So that delta between what you're shipping and what is being booked, is that changing, is it shrinking, growing, basically trying to get at any change in customer behavior? And then the second question would be a separated one for Kirsten, you mentioned about the OpEx in the semiconductor side rising going forward, any more color about the linearity of OpEx as we go throughout the year and any color on kind of the areas that would be focuses of that investment? Hock Tan: On the first, Ross, that's a very, very clever question I might add. Has anything changed between what we're booking versus what we're shipping, I'm trying to answer it not because -- I'm not trying to answer it is because the demand by verticals has rotated somewhat and you can probably understand it. So what I'm saying is, one clear example is what I'm saying now, enterprise is actually waking up big time and they are asking for products, they asking for products in a very, very urgent manner. And so we're seeing more ship -- a lot more shipments to OEMs who support those enterprises. And by verticals, we're seeing strength in basically in server storage in particular and also the enterprise portion all for networking, hence the strength in, as I mentioned campus switching and Wi-Fi in many ways, because enterprise, you know campus switching now for enterprise switching needs a wireless strategy component. And so we're seeing our Wi-Fi business for access gateways in enterprise really take off now. Having said that, our classification of cloud includes telcos, service providers, they have been steady. It's interesting cloud and telcos have been steady. And -- but they have been steady in different manner. The cloud guys are now pushing more and more into compute offload, I mean the programs we're working on starting to happen -- starting to manifest as deployment, so we're seeing that, and that is really driving some more growth than just normal switching and routing that we have seen super strong in 2021. We have seen areas like in some of their very massive scale out of machine learning or AI networks, here you need a different kind of performance of those networks. So we've seen a different kind of products going into that areas. And I highlighted in my remarks about Jericho being going into many of those AI networks in hypercloud and, of course, 5G continues to be -- goes through cycles and happen to be a [Technical Difficulty] 5G deployment and backhaul is strong and we ship a lot of Qumrans. So it varies. But if you take it from a macro point of view, not -- hasn't changed from six months ago, Ross, which is the under-shipment from the level of bookings we're seeing. Ross Seymore: For the OpEx, Kirsten? Kirsten Spears: Hi, Ross. Sure. Hi, Ross. So what I would expect, the way I'd look at OpEx, I'll comment on our consolidated view for the company. You're going to see a step-up in Q1 definitely. And then, remember in Q2, we have the payroll taxes that we pay in Q2. So we have another step-up in Q2 and then for the rest of the year, I'd look at that continuing out, how I would model that. Ross Seymore: Great. Thank you. Operator: Thank you. Our next question comes from the line of John Pitzer with Credit Suisse. Your line is open. John Pitzer: Yes. Good afternoon, guys. Thanks for letting me ask the question and congratulations on the strong results. Hock, maybe just a follow-on to Ross's question about the R&D commentary that Kirsten had in the prepared comments. With the growth that you're expecting in the semi R&D, do you think that, that will outstrip the semiconductor revenue growth for the year or not? And not having had the time yet to go back and look, is this an unusual spend year, and if so, what's driving it? Is it concern about increased competition, is it the opportunity set getting a lot bigger and kind of what areas are you focused on? And then I have a follow-up. Hock Tan: I think we have continued to be -- to have been spending on R&D in the silicon side on a fairly consistent basis, and so we have. And, but in some other areas and it's not so much about worry about competition as -- see the underlying part of our business model across our various franchises is simply that we always out-invest, out-engineer anybody else in the verticals we -- in those franchise verticals we are in. And so what -- from our point of view, hey, now is a great, because during COVID-19 in '20 and in part of '21, things were not as moving as fast as perhaps we believe a normal cadence of product cycle turnovers should be, product life cycle. So we are now jumping in '22 to basically bring it back up to where it should be in terms of a normal product cycle cadences. And that -- in that sense, you're right, it's not because of competition, it's because we believe we need to deliver this new generation products with better features, better bandwidth, low latency to our customers who are now ready and willing to take it on. And with having said that, may invest now, you don't see the impact of that probably until '23, '24. So, but we feel that there is some hiatus of new technology been absorbed in 2021. So now is the time to really accelerate new technology, new generation of products for its absorption as much as we could in '22 and definitely in '23. So it's logical that spending would go up and we are stepping up for that. John Pitzer: And Hock, is the message that R&D could grow faster than semi revenue growth this year or you're not ready to make that statement yet? Hock Tan: I don't think so. We never tend to do that. We are very well behaved, very disciplined. John Pitzer: That's helpful. And then as my follow-up Hock, you guys have set up a really consistent track record around the dividend, but buybacks have been a little bit more episodic, especially given the M&A strategy. Just with the authorization today, is the intent to do all of that within the next 12 months, why not an ASR component around that authorization today just to give investors confidence that, that you will follow through on the buyback? Hock Tan: Good point. But we intend to follow through on -- we intend to do the $10 billion, and the reason we're doing it, as you guys can gather is, we haven't done a deal in -- we did not do a deal in '20, did not do a deal in '21 and got tons of cash, we have piled up a ton of cash and debt has actually -- somewhat the growth there has actually declined somewhat and while our cash position is building out. And while we may still do a deal in '22, it says that we will still be generating a lot more cash in '22. So when we you add up this whole thing, it's just a very logical conclusion for us to not just sit on the cash, hoarded in some ways you may call it, but just return it to you guys as we continue to accumulate cash. And keep in mind, we still have a lot of debt and grow expanding debt capacity as our EBITDA expense and still be within investment grade of course. John Pitzer: Perfect. Kirsten Spears: And this is Kirsten. We have consistently said that we would return capital to shareholders if we didn't announce an M&A by December. And so this is in line with what we've been saying and we plan to follow through on it. The $10 billion authorization will be executed pursuant to a trading plan and it will be thoughtful and it's in line with what we said we'd do. John Pitzer: Perfect. Thanks, Kristen. Great color. Operator: Thank you. Our next question comes from the line of Srini Pajjuri with SMBC Nikko. Your line is open. Srini Pajjuri: Thank you. And let me also echo my congrats on the solid numbers. Hock, you called out your ASIC business, I think you said it's roughly 20% of the networking business and also said, it's going to be about $2 billion. I'm just curious if you could maybe provide us some additional color as to what's going on with that business. I mean you've been a leader in this market historically. And are you seeing more interest given what's going on with the hyperscale customers and their interest in developing in-house silicon or is this a continuation of a trend or any additional color you could provide, I think that would be helpful? Hock Tan: Right. Thank you for that. And by the way, our ASIC business is actually larger than the $2 billion we indicated. It's only that part of the ASIC business sitting in networking that we highlighted is actually there are a couple of other areas where we do ASIC and it's done on a platform under one and a particular franchise business that we run fairly separately as one of the product divisions. But you are right though, the larger part of it sits in networking and a big -- and is half of it roughly, I would say maybe grown more than half now is to the hypercloud [Technical Difficulty] is the OEMs still remain very much OEM related business as well. And you're right, but it's a -- but your point is well taken. This is a steady stable business and growing over time that we've had for many, many years. And it has, as I said long time ago 20, 15 years ago, 10 years ago, been very much on networking merchant silicon showed them in networking, and in -- which is switching and routing, and it has not grown as much in networking. But in its place having said that, other opportunities, and most of it -- a lot of it is, what I call collectively offload computing, which is very much tied to hypercloud. And that's a businesses that is -- that has been slowly, but steadily growing, but it's slow. And it's not something that shoots up exponentially overnight because lot of the hypercloud guys much as they have ambition to do their own designs, I'd like to make that point very clear, it's a very difficult thing for them to do, because know they can go out in the highest silicon architect and designers. It doesn't mean you can define a chip, SLC silicon chip on a system on a chip that addresses what they're looking for whether it's in transcoding, whether it's in security or even in virtualization or even in AI, it's hard when you don't do it on a full-time basis. So we have been working with these hypercloud guys for the last five years and there has been fits and starts in many, many situations among these hypercloud guys. But the message I want to say is, we've never given up, we continue to work with them and more slowly more and more of the many tries, some of them become successful, more and more successful and to see the trend of growth in our ASIC business for offload computing. I mean if those of you have followed me consistently for the last three, four, five years, you have heard me talk about with three, four, five years ago, then two years ago, I just shut up, because thanks long to get it going and is starting to translate into revenues and ramps now, and it will be a nice driver to growth, but I believe for us over the next year, two years I would say, so I'm bringing it back up again, but it's always been there. Srini Pajjuri: Got it. And then just to follow up on wireless, Hock, obviously the current demand looks pretty healthy and supply is very tight. But I guess, if you take maybe a couple of year view out there, it looks like there is somewhat of a concern about 5G cycle peaking. So I'm just curious about how you think about wireless, especially in terms of your content opportunities for the next couple of years? Thank you. Hock Tan: Wireless is a great franchise and it continues to chug along very well, and that's probably I'm being -- I'm definitely wearing, roasting the glasses in this environment, because demand is good and it's holding up still very well. Beyond that I really don't know the answer to what you're saying. I do see content increasing over the next several years, because we have various products, multiple products, not just one particular product, we have multiple, we have various products into every one of those very high-end smartphones. And that gives us opportunity to expand [Technical Difficulty] and to strengthen and increase our content. And, but, and we never really plan for unit increases actually in all our plan, which is a plan on some content increase year-after-year, but never on any unit increase. So I guess, I don't -- I stop thinking worrying about whether the number of phones is going to decline in 5G in the next one or two years as much as will the content decline from up, and we have not really seen it on the current in any fashion that will make us worry. Srini Pajjuri: Thank you. Very helpful. Operator: Thank you. Our last question comes from the line of Timothy Arcuri with UBS. Your line is open. Timothy Arcuri: Thanks a lot. Hock, I had two. The first is on customer behavior, and I'm wondering if you've seen any change there? So, I guess the question really is around, are you seeing any change in the portion of customers that want product inside of lead time and are willing to pay you expedite fees, and I guess does that sort of inform you to the degree to which your shipments or the orders are sort of matching underlying consumption? And then I had a second question too. Hock Tan: Not really. It's because I think we have done -- we've gone through it now for one year, and I think our customers ask, half, most of them anyway, I kind of say all of them have started to plan their needs accordingly. Now it doesn't mean they're perfect in their planning and so occasionally it happens, they come running in and ask for all the expedite deliveries within lead times and we see that and we worked through that. But by and large, our customers are planning better and better because they have practice at doing that. I mean, it's perfect. And in many in some cases where we can do in, they probably will look for if they can find alternatives and to the extent there are alternatives, my competition get some benefit on those spot situations and that will happen, because we -- I love to be perfect, but we cannot be, and sometimes like customer misses, we miss and that happens in situations and because of previous commitments we cannot obviously pull in their demand. But those are getting -- those are still happening. Is there a change since then, no, not for all months. I think as I said, customers are much better at doing it now at least when it comes to dealing with us. Timothy Arcuri: Got it, Hock. Thank you. And then I guess the last question really is around wireless, and now that you ended December, you should, I think you have a pretty good handle on how much your content is going to grow for fiscal '22. So I was just wondering if you can sort of give us a sense of maybe how much content is growing, is it growing say, let's say 10% this year type of thing? Thank you. Hock Tan: About 5%, 10%, very consistently what we thought it would be six months ago. Timothy Arcuri: Perfect. Okay, Hock, thank you so much. Hock Tan: Thanks. Operator: Thank you. I would now like to turn the call back over to Ji Yoo for closing remarks. Ji Yoo: Thank you, operator. That will conclude our earnings call today. Thank you all for joining. Operator, you may end the call. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Operator: Welcome to Broadcom Inc. Third Quarter Fiscal Year 2021 Financial Results Conference call. At this time for opening remarks and introduction. I would like to turn the call over to Ji Yoo, Director of Investor Relations of Broadcom Inc. Ji Yoo: Thank you, Operator, and good afternoon, everyone. Joining me on today's call are Hock Tan, President, and CEO; Kirsten Spears, Chief Financial Officer; Tom Croft, President, Broadcom Software Group; and Charlie Kawwas, Chief Operating Officer. Broadcom also distributes a press release and financial tables after the market closed, describing our financial performance for the third quarter of the fiscal year 2021. If you did not receive a copy, you may obtain the information from the investor section of Broadcom's website at broadcom.com. This conference call is being webcast live, and a recording will be available via telephone playback for one week. It will also be archived in the Investors section of our website at broadcom.com. During the prepared remarks, Hock and Kirsten will be providing details of our third quarter of the fiscal year 2021 results, guidance for our fourth 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 factor that could cause our actual results to differ materially from the forward-looking statements made on this call. In addition to U.S. GAAP reporting, Broadcom reports certain financial measures on a non-GAAP basis. A reconciliation between GAAP and non-GAAP measures is included in the tables attached to today's press release. Comments made during today's call will primarily refer to our non-GAAP financial results. I will now turn the call over to Hock. Hock Tan: Thank you, Ji, and thank you, everyone, for joining us today. In Q3, semiconductor solutions revenue grew 19% year-on-year to $5 billion. With infrastructure software revenue growing 10% year-on-year to $1.8 billion, consolidated net revenue was $6.8 billion or up 16% year-on-year. In Q3, demand continued to be strong from HyperCloud and Service provider customers. Wireless continued to have a strong year-on-year comparison. And while our enterprise has been on a trajectory of recovery, we believe Q3 is still early in that cycle and that enterprise was down year-on-year. On the supply side, we continue to keep our lead times stable. With that as context, let me provide more color by end markets. Starting with networking. Networking revenue of $1.8 billion grew stronger than we had forecasted, up 19% year-on-year versus low double-digit growth and represented 36% of our semiconductor revenue. The better-than-expected growth was driven by routing from service providers in the expansion of 5G networks for backhaul, metro, and call, as well as major share gains in Internet, Ethernet network interface controllers within data centers. While we experienced strong orders from OEMs, consistent with our recovering environment for enterprise spending, we believe the actual deployment of networking in the enterprise is still lagging from a year ago. Our shipments and revenue appropriately reflect this. In Q4, however, we expect a different set of demand dynamics. We see Cloud customers upgrading to our next-generation 800 gigabit-based Tomahawk 4 and Trident switchers. We're the first and only provider of 25.6 terabit switchers. And we are shipping 2 versions, 1 with 512 lanes at 50g [Indiscernible] and the 256 lanes at 100G [Indiscernible]. I would like to highlight that we are the only Company today shipping 100 G [Indiscernible]. In data center switching, as in, service provider routing. We continue to lead next-generation product transitions, as our engineers continue to out-execute what's out there. And in Q4, against a very strong year-on-year comparison, we expect networking revenue growth to be below double-digit year-on-year. Next, our server storage connectivity business was $673 million in Q3, down 9% year-on-year in line with our guidance, and represented approximately 13% of semiconductor revenue. As you know, our products here supply mission-critical applications largely to enterprises, which as I said earlier, was in a state of recovery. That been said, we have seen a very strong booking trajectory from traditional enterprise customers within this segment. We expect such enterprise recovery in-service storage and the same is happening in networking to be one of the [Indiscernible] of growth in Q4 and into 2022. In this particular segment, customer transition to our next-generation says NVMe connectivity at the server [Indiscernible] fund this growth. The aggressive migration in the cloud to 18 terabytes hard disk drive, will also provide a strong tailwind to demand external storage connectivity products in this segment. In sharp contrast to the neg -- and to the 9% decline in Q3, we forecast in Q4 server storage connectivity revenue to be up low double-digits percentage year-on-year. Moving onto broadband. Revenue of $910 million in Q3 grew 23% year-on-year and represented 18% of semiconductor revenue. This was primarily driven by the 2x growth in deployments of Wi-Fi 6 excess gateways, as well as, double-digit growth in next-generation fiber and DOCSIS 3.1 cable modem deployments. For Q4, we continue to expect double-digit year-on-year revenue growth in broadband -- have been seeing for the last few quarters. So, looking ahead, we see service providers like AT&T, British Telecom, and even Deucth Telekom, deploying in increasing volumes, next-generation last-mile fiber connectivity to homes in the U.S. and globally. These multiyear and multi-billion-dollar investments by these operators. And attach to every one of these fiber notes, unique WIFI connectivity for the last 100 feet within the homes. And we lead the global transition to Wi-Fi 6 today. We expect our strong design to win momentum for Wi-Fi 6E as U.S. and European operators will sustain our market position into the next generation. Now, moving to wireless. Q3 revenue of $1.4 billion was up 35% year-on-year, in line with expectations, and represented 29% of the semiconductor revenue mix. In Q4, we expect wireless revenue to ramp approximately 33% sequentially in support of the launch of next-generation smartphones, and to be up 25% year-on-year. Finally, industrial revenue of $205 million in Q3 represented approximately 4% of Q3 semiconductor solutions revenue. Resales here grew what we consider an unsustainable 55% year-over-year driven by aggressive buying from OEMs in automotive, robotics, and renewable energy. As a result, inventory in our channels declined significantly to below 2 months. And turning to Q4, we do expect resales to come down to a more rational 20% year upon year growth. And so, in summary, Q3 semiconductor solutions revenue was on 19% year-on-year, and in Q4, we expect the momentum to continue and revenue growth to be up double-digits percentage year-on-year. Turning to software. In Q3, infrastructure software revenue of $1.8 billion grew 10% year-on-year and represented 26% of total revenue. Within this, Brocade grew 27% year-on-year, driven by the launch of new generation, Gen 7 Fiber Channel stem products. Excluding Brocade, Broadcom Software revenue grew 6% year on year. In dollar terms, bookings average 116% over expiring contracts While in our call accounts, we average 129%. Over 9% of these bookings represented recurring subscription and maintenance revenues. Reflecting these renewals, we expect our infrastructure software revenue to be on track, to grow around mid-single-digit percentage year-over-year, which is again, what we expect to see in Q4. So, in summary, combining a strongly growing semiconductor segment, with our more stable software segment, totaled Q3 net revenue grew 16% year-on-year, and we expect this double-digit growth to sustain in Q4. And total revenue to be 7.35 billion or up 14% year-on-year. And with that, let me turn the call to Kirsten. Kirsten Spears: Thank you, Hock. Let me now provide additional detail on our financial performance. Revenue was 6.8 billion for the quarter, up 16% from a year ago. Gross margins were 75% of revenue in the quarter, and up approximately 85 basis points year-on-year. Operating expenses were 1.1 billion, flat year-on-year driven by lower SG&A and continued investment in R&D. Operating income for the quarter was 3.9 billion and was up 24% from a year ago. The operating margin was 58% of revenue up approximately 360 basis points year-on-year. Adjusted EBITDA was 4.1 billion or 61% of revenue. This figure excludes 134 million of depreciation. Now a review of the P&L for our two segments. Revenue for our Semiconductor Solutions segment was 5 billion and represented 74% of total revenue in the quarter, this was up 19% year-on-year. Gross margins for our semiconductor solutions segment were approximately 70%, up 110 basis points year-on-year, driven primarily by favorable product mix and content growth as we deploy more next-generation products and broaden in networking. Operating expenses were 783 million in Q3, flat year-on-year. R&D was 693 million in Q3, up 1% year-on-year. Q3 operating margins increased to 54%, up 410 basis points year-on-year. While semiconductor revenue was up 19%, operating profit grew 29%. Moving to the P&L for our infrastructure software segment. Revenue for infrastructure software was 1.8 billion and represented 26% of revenue. This was up 10% year on year. Gross margins for infrastructure software were 90% in the quarter, up 125 basis points year-over-year. Operating expenses were 359 million in the quarter, up 1% year-over-year, R&D spending at 226 million is up 9% year-over-year, and SG&A of 133 million is down 11% year-over-year. The operating margin was 70% in Q3, up 305 basis points year-over-year, and operating profits grew 15%. Moving to cash flow, free cash flow in the third quarter was 3.4 billion, representing 51% of revenue. We spent 115 million on capital expenditures. Day sales outstanding were 30 days in the third quarter compared to 42 days a year ago. We ended the third quarter with an inventory of 1.2 billion, an increase of 156 or 16% from the end of the prior quarter in preparation to meet customer demand in Q4. We ended the third quarter with 11.1 billion of cash and 40.5 billion of total debt, of which 279 million is short-term. Turning to capital allocation. In the quarter, we paid stockholders 1.6 billion of cash dividends. We also paid 347 million in withholding taxes due to vesting of employee equity, resulting in the elimination of approximately 739,000 AVGO shares. We ended the quarter with 412 million outstanding common shares and 449 million diluted shares. Note that we expect the diluted share count to be 448 million in Q4. Our Board of Directors has approved a quarterly cash dividend on our common stock of 360 per share in Q4. Based on current business trends and conditions, and to reiterate what Hock has said, our guidance for the fourth quarter of fiscal 2021 is for consolidated revenues of 7.35 billion, and adjusted EBITDA of approximately 61% of projected revenue. That concludes my prepared remarks. Operator, please open up the call for questions. Operator: [Operator Instructions]. Please limit yourselves to one question. Please stand by while we compile the Q&A roster. Our first question comes from the line of John Pitzer from Credit Suisse. Your line is now open. John Pitzer: Yeah. Good afternoon, guys. Thanks for letting me ask a question. Hock, I'm just kind of curious. You kind of did what you said you were going to do 90 days ago. But this is usually the part of the cycle, especially on the semi-business, where I would have expected more upside. And clearly, when you look across the sector, most companies are putting up an upside that you guys didn't see in the July quarter. So, I'm curious if you can help us better understand what happened. Do you think that this was mostly a supply issue? And given that inventory grew 15% sequentially in the quarter, to what extent do you think now that your kind of got that under control and going forward, you'll have a better supply environment to fulfill this demand. Hock Tan: Well, I mean supply is always something that is very much an issue of constrain in this environment as you well know. But the other side of the picture is we are really shipping as we have said, in previous calls several times. We are -- to put it directly, we are shipping to exactly, we believe to what demand requires. By then, I mean end-user and demand requirements. We are trying very hard not to overshoot enough building pockets of excess inventory within our ecosystem. So, I think we're managing very much to what we see out there. John Pitzer: Great. Thank you. Operator: Thank you. Our next question comes from the line of Harsh Kumar from Piper Sandler. Your line is now open. Harsh Kumar: Yeah. Hey, Hock. First of all, congratulations on solid results guidance. The question for you is, everybody's favorite foundry TSMC is talking about price increases. In some cases, they're substantial. Do you feel that you can pass us along and also at this point in time, companies are probably securing capacity for next year? Can you talk about your capacity, you know, your ability to get some extra capacity to be able to grow next year? Thank you. Hock Tan: Okay. Very interesting questions, Harsh. First and foremost, -- from outside, we try not to talk about customers specifically. And the same applies very much too strategic suppliers too. So, I wouldn't comment at all on what you alluded to here, but as far as our capacity for 2022, I think we have gotten a pretty good supply availability lineup for 2022, and we feel pretty okay about then. I won't say great but, in this environment, all things considered, we're feeling quite good. Thank you. Operator: Thank you. Our next question comes from the line of Ross Seymore from Deutsche Bank. Your line is now open. Ross Seymore: Hi guys, thanks for letting me ask a question. Hock, I want to touch on the enterprise business. You mentioned it a couple of different times when you were talking about both networking and your server storage connectivity segments. So, I guess a two-part question. 1, how much of your semiconductor business do you believe is enterprise exposed? And 2, when do you believe that will return to year-over-year growth? And is that a specific thing to Broadcom with your product cycles or is it just the end-markets returning to year-over-year growth at that time? Hock Tan: Okay. Well, enterprise -- traditional enterprise, as we define it, and I think I made a point of purposely demarcating the fact that in semiconductor, which focusing in semiconductor segment by itself. Well, you can literally look at our data of revenue selling into three distinct elements. One is cloud and service providers, which we come together as one. And then there is consumer, which is very much our wireless business. And then [Indiscernible] companies out there, enterprises, we call traditional enterprise. We do put Telco’s service providers, to make clear, as part of Cloud in that category, so we bring into three categories. And under that measure -- and the [Indiscernible] represents about half -- just around half of the total semiconductor revenues. And to basically answer your question, which I did indicate in my remarks on service storage and markets for our semiconductor business. We have seen an improvement year-on-year of revenues in this set -- in server’s storage, which is 80%, at least 90% driven by the traditional enterprise. So, they are very good an indicator of what traditional enterprise is showing. We have seen it show of improving year-on-year compares and ending in the latest Q3, still high -- mid to high-single-digit decline from a year ago. But we did also guide that, because of strong bookings that we have been seeing now for the last three months, at least from Enterprise, which is going through largely in the -- on the large OEMs, who in particular -- who integrate the products and sell it to end-users. We going to likely expand the enterprise to grow double-digits year on year in Q4. So, we see the point of crossover probably now Q4. Ross Seymore: Thank you. Operator: Thank you. Our next question comes from the line of Edward Snyder from Charter Equity Research. Your line is now open. Edward Snyder: Thanks a lot. Following up on that same question. Last quarter you were predicting, or you thought that the excellent growth you've seen in Cloud server providers and Telco’s might lighten up next year as the day, just that as enterprise started to grow and they'd be kind of a mix shift there, but it sounds like that isn't lining up and enterprise is coming back a bit sooner. Did you think any differently now about Telco’s and service providers in the Cloud, will that last longer? Do you still expect to maybe lighten up in 2022? And how long do you expect the enterprise, has been down for quite a while now, the enterprise upward trend to last? I'm just trying to get a feeling with the profile of demand looks like in your core business next year. Thanks. Hock Tan: Sure, happy to do that. What we are seeing now, what do we expect to see in 2022 in terms of [Indiscernible] direction, is we've seen -- you know in -- a Telco’s, service providers are running, well, quite hot. And it looks like they are sustaining as opposed to perhaps rolling over. They seem to be sustaining where we are right now. Regarding enterprise, it's pretty much what we had indicated before and continue to see, which is a continuing trajectory of improving demand, spending, and demand. And we see that continuing to improve and grow this coming quarter, Q4, and beyond. In fact, I would say that the engine for growth for our semiconductor business in 2022 will likely be enterprise spending, whether it's coming from networking, one sector for us, or from -- and/or server storage, which is a large enterprise. We see both this showing strong growth as we go into 2022. A while, just to repeat me, we see Telco’s and service providers, not rolling over, just hanging up there at a very elevated level. Edward Snyder: Does that imply you expect the Cloud to lighten up a bit then too, because you just called out service providers and Telco’s, but your kind of [Indiscernible] did talk about it -- Hock Tan: No. I say service providers sometimes to say cloud as well. No, we say cloud also hanging out -- together with service provider -- together with the Telco’s. Edward Snyder: Great, thank you. Hock Tan: Sure. Operator: Thank you. Our next question comes from the line of Stacy Rasgon from Bernstein Research. Your line is now open. Stacy Rasgon: Hi guys, thanks for taking my question. I wanted to ask you about capital allocation. Obviously, well half of the cash flow goes to the dividend, the other half goes, I mean, ideally to M&A or buybacks. And it's been a while since obviously you executed M&A and were kind of getting towards the end of the year. At what point do you kind of make the decision to give up on M&A this year and start buying back stock or do you save the cash for a potential deal next year? Just how do we think about your mindset around the M&A environment versus just using the cash for buybacks, and then maybe starting to cycle over again at some point as we get into the next year? Hock Tan: Well, you know, it's not the first time I got this question, I got it last quarter and the quarter before, and I told you guys, and I stick by that, and so as you know, we're running it until the end of this fiscal year, which is October, November. And we'll make that call at that time, whether we use the cash to buy, or we use the cash either to buy -- to do an M&A or to buy back our shares. Stacy Rasgon: Does that mean you would have to have a deal in mind in October, November, or could the call be to save the cash for something in the future? Or like if you don't have a deal on the books in October, November, do we see a buyback? Hock Tan: More probably blade that was simple ways as far as saying that as you correctly say, we're accumulating cash at a fairly dramatic rate. And so, by the end of October, our fiscal year, we'll probably see the cash net of dividends, our cash pool to be up to close to $13 billion, which is something like 678 billion above what we would otherwise like to carry on our books. So, we have to make a decision at that point. Stacy Rasgon: Got it. That's helpful. Thank you. Operator: Thank you. Our next question comes from the line of Harlan Sur from J.P. Morgan. Your line is now open. Harlan Sur: Good afternoon. Congratulations on the strong quarterly execution and results. Strong free cash flow generation in Q3, you gave us the EBITDA profile for Q4. And if I use normalized assumptions on cash interest payments -- cash taxes in CaPex, looks like the team is going to generate about 13.7 billion - ish roughly in free cash flow this fiscal year, which roughly translates into dividends increase to at least $16.70, maybe a bit more of the team continue to return 50% of the free cash flow. I guess my question is, on Q4 are there any one-time cash events timing-related dynamics, CaPex increases, or tax-related events which we should be considering, or are my free cash flow and dividend math roughly correct? And then just a quick follow-up, the team has a fairly large footprint of logistics, warehousing, and key suppliers for assembly and tests in Malaysia. Just given the significant uptick in COVID-19 cases there. Is the team being impacted by potential facilities closures, or how was the team mitigating this impact? Kirsten Spears: I'll take that first question that you asked and then I'll have Hock take the second one. Essentially, we, either or our policy isn't changing, we're going to return 50% of our free cash flows to our, you know our stockholders and I would say your math's pretty good. Hock Tan: You're spot on, on your math. Almost. Harlan Sur: Yeah. Thank you. Hock Tan: Right. In terms of concern that you expressed about the resurgence of COVID-19 infections in Malaysia where we have [Indiscernible], we have a large supply chain team located. You're right. It's challenging, but we're managing very well, I think, our teams there. I would say practically 99% of our people in Malaysia have been vaccinated. We made arrangements with the Malaysian government and ensured that this was done. And this has been done, so we are able to manage through this resurgence in Malaysia. And we will continue to keep our eye very closely on conditions over there. But for now, I think we are okay. Harlan Sur: Thank you, Hock. Thanks, Kirsten. Kirsten Spears: Welcome. Operator: Thank you. Our next question comes from the line of Vivek Arya from Bank of America. Your line is now open. Vivek Arya: Thanks for taking my question. Actually, I just wanted to clarify something and then have the question. On the clarification, I think, Hock, you mentioned you're shipping to demand? Does it mean you're not seeing any supply shortages? Then that would be very different than what we are hearing from every other semiconductor Company. So just wanted to make sure I have the right interpretation. And then my question is just kind of the long-term growth rate for Broadcom? In the past year, I mentioned this mid-single-digit growth rate. I understand that this year's compares make it easier to grow faster than that. But as you look at Broadcom over the next handful of years, do you think you are in a situation to grow better than the mid-single-digit growth rate? What is missing to make you upgrade that mid-single-digit growth rate, the conceptual forecast that you have provided in the past? Hock Tan: Okay. Let me take the first question first. Because -- the first part of the question first, because I think it's very important and very interesting, it ties into the first question by John Pitzer, it's "hey, why you are guys not shipping like crazy? Are you supply-constrained? " That's always overhanging our care about making every waiver count in this environment and we do that very carefully. And we do that, I believe very well, given in looking at how well our margins are performing in this environment. But we also are always, as I said before, a few times, the way we manage our supply chain, we pretty much liked to carefully scrutinize and demand as defined -- as defined by ourselves, which is one -- the -- the end-user who need those products. What we also see, and I mentioned that in the industrial segment in 2000 in Q3, where resale from a distributor to know industrial generally goes through -- pretty much go through distributors. The end-users just go to our distributors and wipe out our inventory -- both our inventory there. So, we'd show a resale growth of 55% and we all know that's not real demand. People are building up a buffer that's at a certain level of panic buying. Take that across all segments of semiconductor markets today, you see that kind of behavior unless you call key suppliers. We put in careful discipline to manage supply to where demand is really needed, as opposed to where OEMs or even end-users are just building up buffers -- a bucket of buffers everywhere. And that's pretty much what we spend a lot of our time doing. I cannot necessarily say the same of many other semiconductor companies out there, which is probably why John Pitzer is saying, why are people showing bigger numbers? We can show bigger numbers. But that means we will build up inventory in the wrong places and we need every one of those wafers in this environment, not just this quarter or next quarter and the quarter after that, to ensure that our strategic customers are able to get what they need to launch, to deploying programs, right? Vivek Arya: And on the long-term growth rate? Hock Tan: On the long -- sorry, missed that. I get the [Indiscernible]. Well, we like -- I like to believe, like some of you do. That with this recent event and with this thing happening, especially COVID-19, creating a change of work habits in our ecosystem. That there is a reset upwards towards higher consumption of technology. And by extension, semiconductor chips in the long-term. I agree that has been an accelerated adoption of certain technologies under these lockdown conditions in our economy -- in a lifestyle economy over the last 12 -- in the last 18 months. That this has accelerated the adoption of technology, has created a strong growing demand for semiconductor products over these last 12 months. I agree, and we report those results, which we believe are true in demand, as I indicated in my -- early part on my answer to your question, that is now up to high -- mid to high double-digit teams, so to speak, year-on-year. That's good, that's very strong. That's a far cry from my model that says semiconductor gross long-term mid-single-digits. But this accelerated consumption does not necessarily create a fundamental shift in our people's ability to consume technology. And when things revert back towards a more normal lifestyle, maybe not this year, maybe next year, or the year after. I would expect this accelerated consumption would reset itself. And then you ask yourself, fundamentally over the next 10 years, 5, 10 years. Is semiconductor consumption usage going to increase any higher? I find it hard to imagine why it should? If fundamentally, we have an industry that's relatively matured, still evolving, still changing, which makes it exciting for us? But pretty much been around fairly much a long time. I may be wrong; I still think you will revert over the next 5-10 years back to a norm. And the question your view is, will that norm be high-single-digits perhaps rather than mid-single-digits, and you may be right. I don't know the answer to that. But right now, you're right. We are seeing 15% to 20% year-on-year demand usage of our semiconductor chips. And by the way, we are pretty broad across multiple end markets in the application of semiconductors. So, we kind of represent a large part of the overall semiconductor growth. Now they may be particular [Indiscernible] that could grow faster than that mid-single-digits, and I do accept that, but given how broadly broad-based we are, I tend to think we revert to what will be the norm. And I cannot disagree with you that the norm might be higher than the mid-single-digits I've said before. Vivek Arya: Thank you. Operator: Thank you. Our next question comes from the line of Blayne Curtis from Barclays. Your line is now open. Blayne Curtis: Hey, good afternoon. Thanks for taking the question and I want to ask about broadband, been running kind of in the '20s, year-over-year. You said up double-digits for Q4. I think last year is easy to compare, so I just want to know how literally to take that. I know you said maybe over time that would be the one segment that could moderate. It's enough you're signaling anything for October. Hock Tan: Okay. No, broadband is hard to cut to the chase. It's hard, it's hard to drive by 2 things and I articulated that in my remark. WiFi, Wi-Fi 6, and WiFi is a big area now that operates to our service providers, basically, operator Telco’s and cable operators are using as part of connectivity to households globally. And we have literally won again, a huge part of that market [Indiscernible] and we're seeing that trend continuing into next-generation Wi-Fi 6E. But what's also driving WiFi -- broadband, I should say, Blayne, and I mentioned that is fiber. Fiber is mounted on several large Telco’s. Europe, U.S. is investing very big in putting fiber out there to households, particularly driven, I guess to some extent, by political considerations. They want to connect households very well. You hear about British Telecoms are openly saying they want to -- they are -- they have a program over the next 5-6 years to connect over 20 million British households. Deutsche account telecom is doing exactly the same thing and so is AT&T here in the U.S. where they're very large program and this [Indiscernible], as I indicated, multiyear programs where each of these operators will spend multiple billions of dollars of investment to put that fiber out to the home. And at the end of each node, the Fiber node, you have that wireless connectivity, Wi-Fi, within for the last 100 feet in the home. So, what I'm implying here is saying, this is not a one-shot thing. And the thinking in the past that fiber is a kind of boring single-digit, slow-growth business, might be changing from our perception -- from our perspective because we're seeing the program from those operators coming. And a big part of it is, both U.S. and Europe, putting in large broadband in the form of fiber, because it's the most effective way. In some ways, economic way to expand to households and hand-in-hand with 5G network, wireless networks out there. It's also very interesting for us, market share wise because you used to talk about China doing broadband fiber, today it's beyond that. It's Europe, the U.S. and the number of players fighting in this market on technology is much less now. Given the interesting political events between China and the rest of the world. Operator: Thank you. Our next question comes from the line of Matt Ramsay from Cowen. Your line is now open. Matt Ramsay: Good afternoon. Thank you very much. Hock, I noticed in your prepared script that you were a bit more specific about some of the leadership positions that Broadcom has in different levels of advanced [Indiscernible]. And you maybe call it out a bit more than you had in the past. It's an advantage to the Company's had in your own switching, routing products, but also in being the ASIC -- preferred ASIC shop for a few hyperscale folks. I wonder if you might -- Did you call that out on purpose? Was it -- is there something changing their competitively given the scale of your R&D? If you feel like that lead is expanding, shrinking, and staying the same? Any update there would be great. Thank you. Hock Tan: That's very perceptive of you. And the only reason I called that out is that it's true and it will be true for many years. And I just want to reemphasize this point that in terms of being probably the preferred vendor for specialized -- silicon engines to drive specialized workloads, and you-all have indicated to guess what some of those, especially in HyperCloud. We are -- we definitely are in the lead by far in these areas and for the reasons you mentioned. We have the scale. Do we have a lot of the IP calls and the capability to do all those chips for those multiple [Indiscernible] who can afford and are willing to push the envelope on specialized offload -- l used to call it to offload computing engines, video transcoding, machine learning, even what people call DPOs, smart [Indiscernible] otherwise, call, and various other specialized engines and security, a hot way that we've put in place in multiple Cloud guys? Just a point of I guess, reinforcement that we still very much are the leader. Operator: Thank you. Thank you, at this time, I would like to turn the call back over to Ms. Ji Yoo for closing remarks. Ji Yoo: Thank you, Operator. In closing, please note that Hock Tan will be presenting at the Deutsche Bank Technology Conference on Thursday, September 9th, and the Citi Technology Conference on Tuesday, September 14. Kirsten Spears will participate in the Piper Sandler Tech Conference on September 13. We will also be hosting a Broadcom Software investor meeting on Tuesday, November 9, in New York. Tom Krause from Broadcom Software Group will be leading the events, and senior leadership from our software business will present. We will be sending invitations to analysts and investors in the coming week. That will conclude our earnings call today. Thank you all for joining. Operator, you may end the call. Operator: This concludes today's Conference call. Thank you for participating. You may now disconnect.

Operator: Welcome to Broadcom Inc.'s Second Quarter Fiscal Year 2021 Financial Results Conference Call. At this time, for opening remarks and introductions, I'd like to turn the call over to Ji Yoo, Director of Investor Relations of Broadcom Inc. Please go ahead. Ji Yoo: Thank you, operator, and good afternoon, everyone. Joining me on today's call are Hock Tan, President and CEO; Kirsten Spears, Chief Financial Officer; Tom Krause, President, Infrastructure Software Group; and Charlie Kawwas, Chief Operating Officer. Broadcom also distributed a press release and financial tables after the market closed, describing our financial performance for the second quarter of fiscal year 2021. If you did not receive a copy, you may obtain the information from the Investors section of Broadcom's Web site at broadcom.com. This conference call is being webcast live, and a recording will be available via telephone playback for one week. It will also be archived in the Investors section of our Web site at broadcom.com. During the prepared comments, Hock and Kirsten will be providing details of our second quarter fiscal year 2021 results, guidance for our third 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 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 Hock. Hock Tan: Thank you, Ji, and thank you, everyone, for joining us today. In Q2, semiconductor solutions revenue grew a strong 20% year-on-year to $4.8 billion, with infrastructure software revenue growing an expected 4% year-on-year to $1.8 billion. Consolidated net revenue was $6.6 billion, up 15% year-on-year. Now on the last earnings call we had – we talked about how strong broadband and networking bookings were from hypercloud and service providers, even as wireless was declining seasonally. In Q2, just passed, not only do we see broadband and networking sustaining, we now see a recovery of bookings from enterprise. And on the supply side, our lead times have now stabilized, but the volume of bookings we are experiencing today continues to grow. Now, we intend to meet such demand and in doing so we maintain our discipline process of carefully reviewing our backlog, identifying real end user demand and delivering products accordingly. With that as context, let me provide you more color. Starting with broadband, which interestingly enough is going through somewhat of a renaissance. Revenue grew 28% year-on-year and represented 18% of semiconductor revenue. As discussed during our broadband teaching, the work, learn and play from home environment is driving global service providers to expand connectivity to the home. In our broadband carrier access business, PON fiber, or otherwise known as PON, grew over 40% year-on-year, mostly with existing generation 2.5G, but with next-generation 10G PON representing only 30% today. There is significant room for content growth as 10G PON deploys over the next few years. Not to be outdone by fiber, cable operators in the U.S. are driving deployments of DOCSIS 3.1 cable modems, we see – we saw an 80% year-on-year growth and planning to accelerate the upgrade to next-generation DOCSIS 4.0. Our broadband technologies, in fact, are enabling service providers to complement the 5G they delivered to deliver best experience for consumers. Now overlaying all this last-mile broadband upgrades, we see a demand search for the latest Wi-Fi 6 and 6E technology to enable the last 100 feet of connectivity in homes. Broadcom has emerged as the clear market and technology leader in Wi-Fi for access gateways to the home into enterprises, with over 15 million parts shipped in Q2 alone, or a year-on-year revenue growth of some 30%. On the other hand, as we might expect, with a push into higher performance fiber, copper DSL, digital subscriber line deployments for wireline broadband declined 30% year-on-year, and with a lack of live events during the pandemic, video declined 20%. But with the onset of 5G, service providers are competing for subscribers, leading to technology upgrades globally in fiber, cable and Wi-Fi connectivity. We're seeing this investment cycle in broadband extending into 2022. And so for Q3, we expect to sustain double-digit year-on-year revenue growth in this segment. Moving on to networking. Networking grew 10% year-on-year and represented 32% of our semiconductor revenue. We experienced tailwind from hypercloud and telcos, partially offset by headwinds from enterprise. Revenue for switching was up 30% year-on-year, primarily driven by the strong ramp of our Trident and Tomahawk 3 for over 400G platforms and hypercloud data centers. In the networks, service providers have been investing in 5G infrastructure worldwide, where the demand for Jericho 2 at the metro core and Qumran at the edge have been robust with revenue up 35% year-on-year. On the other hand, enterprise demand in networking has not yet recovered, still down double digits from a year ago. And as we go into the back-half of the year, we expect to see hypercloud upgrading to a next-generation Trident Tomahawk 4 or over 800G switching platforms and sustained strength by service providers in network routing. And accordingly in Q3, we expect networking revenue to maintain the trend of low double-digit growth year-on-year, we found the complete recovery of enterprise demand. Speaking of enterprise, let's talk about service storage connectivity, which represented approximately 12% of semiconductor revenue. This end market is largely driven by enterprise and in line with our guidance, revenue was down 16% year-on-year. You may recall, however, in Q1, this was down 22%. And as the economy starts to recover, we have seen an improving demand trajectory. And so in Q3, we expect service storage connectivity revenue to be down high single-digit percentage year-on-year. With the launch of Intel's Ice Lake, AMD's Milan as well as future arm-based servers, this space is turning quite exciting and innovative for us, both in the hardware and software. And we will provide obviously more color during our next teach-in in July on our server storage business. Moving on to wireless, Q2 revenue was down 16% sequentially, reflecting seasonality with wireless representing 34% of semiconductor revenue mix. Nonetheless, on a year-over-year basis, wireless revenue was up 48%, reflecting a very favorable compare year-on-year, as well as content increases in FBAR and Wi-Fi. In Q2, we were able to ship more than we had originally planned. And accordingly in Q3, we expect the growth trend in wireless revenue to sustain, but at over 30% year-on-year. Finally, industrial and other represented approximately 4% of Q2 semiconductor solutions revenue. Resales grew 34% year-over-year in Q2, driven by recovering in automotive and China. Inventory in the channel continues to deplete as what we shipped in the distributors grew only 23%. Turning to Q3, we expect resales to continue to grow double digit percentage on a year-on-year basis. Summary, Q2 semiconductor solutions segment was up 20% year-on-year, and in Q3, we expect revenue growth year-over-year to be of a similar amount. Turning to software, in Q2 infrastructure software produced another quarter of steady and predictable results, as revenue grew 4% year-on-year and represented 27% of total revenue. Now, if we exclude professional services, our enterprise software revenue grew 7%, actually year-over-year, and as further indicator of the quality and sustainability of our products, over 90% of our software bookings represented recurring subscription and maintenance with an average contract lifespan from core customers pretty much close to three years. We continue to believe our infrastructure software business is on track to grow at a better than mid-single digit percentage year-over-year, which is again, what we expect to see in Q3. Summarizing this, demand continues to be robust and so our Q2 consolidated net revenue grew 15% year-over-year. We expect the momentum to sustain in Q3 and total revenue to be at $6.75 billion or up 16% year-on-year. With that, let me now turn the call over to Kirsten. Kirsten Spears: Thank you, Hock. Let me now provide additional detail on our financial performance. Revenue was $6.6 billion for the quarter, up 15% from a year ago. Gross margins were a record 75% of revenue in the quarter, and up approximately 180 basis points year-on-year. Operating expenses were $1.2 billion down 1% year-on-year, driven by lower SG&A offset in part by increased investment in R&D. Operating income for the quarter was $3.8 billion and was up 25% from a year ago. Operating margin was 58% of revenue, up approximately 470 basis points year-on-year. Adjusted EBITDA was $4 billion or 60% of revenue. This figure excludes $133 million of depreciation. Now, a review of the P&L for our two segments. Revenue for our semiconductor solution segment was $4.8 billion and represented 73% of total revenue in the quarter. This was up 20% year-on-year. Gross margins for our semiconductor solution segment were approximately 69% up 290 basis points year-on-year, driven primarily by higher product margins. This margin improvement comes from content growth, as we deploy more next generation products in broadband and networking end markets. Operating expenses were $795 million in Q2, up approximately 2% year-on-year as we invested in R&D and streamlined SG&A. R&D was $702 million in Q2, up approximately 6% year-on-year. Q2 operating margins increased to 53%, up 580 basis points year-on-year. So while semiconductor revenue was up 20%, operating profit grew 35%. Moving to the P&L for our infrastructure software segment, revenue for infrastructure software was $1.8 billion and represented 27% of revenue. This was up 4% year-on-year. Gross margins for infrastructure software were 90% in the quarter, up 100 basis points year-over-year. Operating expenses were $355 million in the quarter, down 8% year-on-year, as we've completed the integration of Symantec. R&D spending at $228 million is up 1% year-over-year. Operating profit was up 10% year-on-year on top-line growth of 4%. Operating margin was 70% in Q2, up 360 basis points year-over-year. Moving to cash flow, free cash flow in the second quarter was $3.4 billion representing 52% of revenue. Day sales outstanding were 33-days in the second quarter compared to 51-days a year ago. We ended the second quarter with inventory of $1 billion, an increase of $52 million or 5% from the end of the prior quarter. We should also note, in Q2 we spent $126 million on capital expenditures. On the financing front, we extended our weighted average debt maturity to approximately 10-years from nine, by exchanging notes. Our weighted average coupon decreased about 5 basis points to 3.7%. During the quarter, we made $1.5 billion in payments on debt obligations, ending the quarter with $9.5 billion of cash and $40.4 billion of total debt, of which $278 million is short-term. Turning to capital allocation, in the quarter, we paid stockholders $1.6 billion of cash dividends. We also paid $461 million in withholding taxes due on vesting of employee equity, resulting in the elimination of approximately 1 million AVGO shares. We ended the quarter with $410 million outstanding common shares and $450 million diluted shares. Note, that we expect the diluted share count to be $449 million in Q3. The Board of Directors has approved a quarterly cash dividend on our common stock of $3.60 per share in Q3. Based on current trends and conditions, our guidance for the third quarter of fiscal 2021 is for consolidated revenues to be $6.75 billion and adjusted EBITDA of approximately 60% of projected revenue. That concludes my prepared remarks. Operator, please open up the call for questions. Operator: Thank you. [Operator Instructions] Our first question comes from the line of John Pitzer of Credit Suisse. Your line is open. John Pitzer: Yeah. Good afternoon, guys. Thanks for letting me ask a question. Hock, I've got two quick ones. First, within your wireless business, you've been able to sign long-term contracts with your key customer. And I'd argue that's benefited both you and them. It's given you the confidence to invest in the business properly, and then the confidence that you'll have supply for them when they need it. I'm just kind of curious, given how tight things are elsewhere in the semi business, have you been able to parlay this into any longer-term customer contracts? And what implication might that have as we all start to worry about the 'end of cycle?' And then secondly, just on your comments about enterprise recovery. Can you elaborate on that? Was that specifically a storage comment? Or is that also a networking comment? Hock Tan: Okay. Let me take the question one at a time. On arrangements with long-term agreements, John, this is something we have been thoughtfully carefully putting in place with our core strategic customers. We just don't go do it as if it's commoditized. We're very thoughtful about doing it. And we do it in very specific areas where technology -- where we know for sure that the technology is fairly, fairly difficult complex to manage, and which requires a substantial amount of R&D spending. And we've been doing it for a while now. We've got strategic customers in core businesses. So we just don't do it across the board. And what you pointed out is very, very correct. It's a mutual, then it’s a structure, it’s an agreement with mutual benefit. We have the confidence to invest in R&D to make CapEx capacity investments. And in return, we offer the best leading-edge technology in specific areas in a timely manner to our critical customers. So yes, we have been doing it, and we will continue to thoughtfully do it in a very appropriate manner. On the second part, okay, which is if you could repeat the question, John, let me be sure I capture everything. John Pitzer: Yes. Can you just elaborate a little bit on your comments about an enterprise recovering brewing? Was that mostly within storage? Or was it networking? So I'm a little bit surprised, given some of Cisco's comments that you're not a little bit more positive on the enterprise network space. Hock Tan: It is across -- it is for enterprise spending. It is I wouldn't say across the board necessarily and trying to define enterprise very appropriately. As you know, as you notice in my comments, we classified service providers, telcos as a separate animal, different from traditional enterprise. And so as I pointed out, based on broadband, telcos have been investing, big time service provider, telcos have been investing in a huge manner over the past 12 months. But traditional enterprise, the companies, whether it's the banks, the manufacturing sector, various retail customers and airlines examples, no, these guys are in a recovery mode. And not surprising, we are seeing pandemic easing, like, say, in North America. And as it eases, we see a step up in spending, but we do not see spending spiking up. Now, obviously, if you look at some businesses that require - like warehouses that require Wi-Fi networks, campus networking environment, you do see that improving. But to say across the board, all enterprises are just spending money, not we are still seeing and as I showed that in servers, storage connectivity, we still see a year-on-year things are not up to what it was a year ago. And that applies not just on data centers, namely compute, it also applies to data centers in enterprise, campus environment. We see less of that, but across the board. John Pitzer: Helpful. Thank you very much. Operator: Thank you. Our next question comes from line of Harlan Sur of JPMorgan. Your line is open. Harlan Sur: Good afternoon. Great job on the quarterly execution, strong margins and free cash flow generations. Hock, I think as you mentioned, we're still in the early phases of the 400-gig networking upgrade cycle with your hyperscale and telco customers. I know two of your big cloud piping customers have already started the upgrade. Looks like there are another two more that are going to start the upgrade cycle here in the second-half of this year, and quite a bit more next year. And then as you mentioned, you still have Tomahawk 4 ahead of you. So given the extended visibility that the team has with a strong backlog, do you see the cloud and telco upgrade cycle an inevitable recovery in enterprise, driving continued year-over-year growth in networking into next year? Hock Tan: I don’t – I - we don't really try to guide more than one quarter at a time, first of all, because we're not that smart to be able to do that. But on a broader trajectory, it does appear fairly much the trend, as we said which is, the hypercloud guys will go will push out in the second-half as indicated on the data center sign on Tomahawk 4, the 800G platform. They have substantial backlog for delivery in the back-half of the year for Tomahawk 4. So we see that going on. But - and you're right, we see the recovery step-by-step of their enterprise, though I do not see that really taking off enormous in terms of reaching the level it was a year ago, probably until 2022. But what we do not know for sure is would that give pause to hypercloud in their spending. And that part, I'm just putting everything on the table. We're not sure whether hypercloud spending will necessarily continue into 2022. We sense it would, we see some of the backlog. But as enterprise steps up, one really never knows if the economy starts to rebalance in that side. But what we do see in broadband is service providers, the telcos in particular, are for sure upgrading. And here, this is a longer cycle of upgrade, and we see them upgrade. And we see the backlog associated with it through 2022. Harlan Sur: Great. Thank you. Operator: Thank you. Our next question comes from Ross Seymore of Deutsche Bank. Your question, please. Ross Seymore: Hi, guys. Thanks for having me ask a question. Congrats on the strong results. Hock, I wanted to dive a little bit into the lead time commentary that you had with that stabilizing. Two quarters ago, you talked about the size of the book, the backlog you had. Last quarter, you talked about the year-over-year, and even in some instances, the sequential growth being so large in bookings. And now we're hearing that the lead times are stabilizing. People could interpret that a bunch of different ways as far as the implication on the demand side of the equation or that supply is catching up to it. Or frankly, people are just ordering so far out that they're not willing to extend that any further. So, I was hoping to double click on that lead time commentary and get your feelings as to why it's stabilizing. And do you take that as a positive a negative? Hock Tan: Oh, I just made a comment to say we have stretched our lead time so far, Ross. Good point you bring up, and I'm glad you bring it up to give me a chance to clarify a set of quick comments I made in my opening remarks. We are comfortable at the lead times we are on. And so what it is, is customer, our customers are comfortable seeing our lead time now. But what we have found rather remarkable over the last quarter is that even if our lead times remain stable, consistent, the volume of bookings we receive every week continues to grow. I made that comment and I'm thankful for the opportunity to make that -- to reiterate that point. Sanely time stable for last three months, but the booking rate we are seeing every week continues to step up. Ross Seymore: Great. Thank you. Operator: Thank you. Our next question comes from Vivek Arya of Bank of America Securities. Your line is open. Vivek Arya: Thanks for taking my question. Hock, I had another one on the supply situation. If there were no supply constraints, how fast would your semiconductor business be growing? And kind of part B of that is, what is driving the shortages for you right now? And what are you doing to resolve it? And do you have any kind of gut feel on when the supply situation will become normal? Thank you. Hock Tan: Great. I'll answer the first and the last, and in between I'm not sure. But on the first, it's we will not put ourselves in the situation nor should anyone do it, because there's also a certain amount you don't know we do not want our customers and I don't think any of our peers want to do that either to buy too hot to create buffers, to buy ahead of what they mean. So, we try to match identify, as I said and go through a process of rigorously understanding through end demand. In other words, we look for drop date quantities as the term is used in industry. And we ship to those drop date quantities and maybe a little more. And what you see today is the true growth rate we are representing. We are not hiding what could have been. There's no what could have been. We're shipping to what we believe with the customers consider is their true real demand. Now having said that, we may be delivering during JIT, just in time, but nonetheless, we do try to fulfill what customer truly want just in the timely basis. And that still continues today, regardless of the size of the backlog we have, where this really in that regard. And from our perspective, the challenges we have in the supply chain is a constant side challenges is to ensure that we get components, whether it's wafers, substrates, getting our products assembled, tested, and any other small components on a timely basis to make sure that we can keep this thing running. And we look at the size of our inventory versus the size of our cost of goods sold, or revenue quarterly, you can see that we run pretty close to just in time through our entire supply chain. And we've been able to do it and sustain that. And so what we're reporting to you like 20% year-on-year growth on semiconductor components is, in our view, a pretty decent reflection what is truly end demand needs out there. All right. Nice question. Operator: Our next question comes from Timothy Arcuri of UBS. Your line is open. Timothy Arcuri: Thanks a lot. Hock, I guess I wanted to ask you what you think the long-term growth rate is of your semiconductor business. You're sort of trending to the high teens this year. But that's kind of due to easy comps, and you have the compressed iPhone launch and the pull forward of some of these technologies due to the pandemic. So, once this all sort of normalizes, what do you think is the right long-term growth rate for the business? Are you still thinking 5%? Or do you think maybe just given the strength of the bookings recently that it could be better than that? Thanks. Hock Tan: That's a hell of a question. And I'll tell you this, right now, we're in the midst of a very strong demand. And that's also created, perhaps, as we all know about a severe imbalance within demand and supply, as demand as supply works to catch up. But if you look at it long enough, I think the dynamics underlying the fundamental dynamics underlying the semiconductor industry hasn't yet changed. At least I haven't seen it to change. So Tim, that's my best, and that's the best answer I can give you, which is I haven't changed my thinking, even look over the next 10-years, how this industry will behave. Because it is a relatively matured industry, it's evolutionary. Technology is still evolving, which is great for us and it keeps getting better and better. But it's evolving. Disruption, as people like to say, in this industry is less of an event. It's evolutionary, and I have not seen anything that tells me there's a fundamental change. Timothy Arcuri: Thanks, Hock. Operator: Thank you. Our next question comes from Craig Hettenbach of Morgan Stanley. Your line is open. Craig Hettenbach: Thanks. Hock, just given the ongoing strength in the free cash flow and improved balance sheet, can you just talked about your thoughts on the M&A environment? And also, and/or buybacks, how you're thinking about cash deployment as you go forward? Kirsten Spears: Yeah, I'll take that one. This is Kirsten. Relative to capital allocation, first and foremost, we're dedicated to paying 50% of our free cash flows to our shareholders. And so that would be first. Secondly, M&A, if we can -- creative M&A, it would be the second objective. Then thirdly, stock buybacks and at the end, there would be debt repayments. So I think that's how we're looking at capital allocation in that order. There isn't anything yet on the M&A front that I can talk about. But if anything does come up, we'll let you know. Operator: Thank you. Our next question comes from Blayne Curtis of Barclays. Please go ahead. Blayne Curtis: Hey, good afternoon. Thanks for taking my question. Just curious, a little more detail on the gross margin, it's the record gross margin. Any color on product or segment? And then I guess as you look forward here, if you could describe what you're still dealing with in terms of excess costs due to COVID? And then how to think about it as enterprise comes back? Should that be added to the gross margin? Kirsten Spears: I expect gross margin next quarter to be about the same as it was this quarter. And then as you know, at the end of the year, we're expecting wireless to come back in for the normal ramp that we have, and so the margins will come down a bit towards the end of the year. But at this point, I see us being able to sustain the margins that we experienced this quarter, mostly coming from networking and broadband. Hock Tan: Blayne, and the result perhaps repeating ourselves to myself too much from past conversations that I had with you, with all you guys. Our gross margin has this natural trend of continuing to keep expanding year-on-year, not necessary quarter-on-quarter, but sequentially as much as year-on-year, simply because we tend to have a chance to go to a new product, new next generation product across some of our franchise products. And it's a combination of all this. So the natural growth of expansion of gross margin for our business, especially in the semi side, particularly in the semi side, which I assume your question is related to Blayne is, as I've always said, we have a gross margin expansion range of 50 to 150 basis points year-by-year. And it's an average across our 24, 25 different well, I should take out software just hardware, about 20 or so different product lines, each with a different product lifecycle. And each going with new generation product each time, because as you know, each time we come to a new generation product, we get a lift in margins on product margins, which translates to gross margin. So it's not unusual to see us go to the higher end of the range. And in this particular case, year-on-year is a bit more than a higher end range. And that's probably related to perhaps a separate mix of products in this environment because there are still puts and takes across our product range, not everything is on fire. And based on that we end up with higher than the normal 50 to 150 basis point range. But, I don't think this is something that will go on forever. But you should expect that year-after-year, you will see that 50 to 150 basis point improvement in gross margin on a semiconductor side. Blayne Curtis: Thanks so much. Operator: Thank you. Our next question comes from Toshiya Hari of Goldman Sachs. Your line is open. Toshiya Hari: Hi, guys. Thank you so much for taking my questions. I had two actually, one on wireless and one on the cost side. Hock, in terms of wireless, I guess, in Q2 revenue came in better than expected. I just wanted to understand was that primarily supply being better? Or were there dynamics on the demand side that came in better than expected? And then sticking to wireless, as you think about the next generation product cycle your largest customer, how are you thinking about the content opportunity at this point? You pretty much know what's locked in. If you can comment on RF and Wi-Fi, and touch, maybe compare and contrast this uplift, in this cycle vis-à-vis past cycles that would be super helpful? And then on the cost side, based on the comments you just made about gross margin expansion and some of Kirsten's comments, I doubt cost inflation is having an impact on your business. But if you can speak to wafer pricing and substrates and what you're seeing from a cost perspective over the next year or so that would be super helpful? Thank you. Hock Tan: Alright, let's start with the first one. And if I lost track of the last two you better remind me, Toshiya. But on wireless, you're right. What indicated was Q2 wireless was kind of higher than we had originally planned. And it's all analog related to demand. Of course, it's demand. We will never ship just because we have the product. It is based on demand one thing, and we are happy to fulfill it. And part of the demand may actually come a bit from Q3. Not sure 100% yet, because this demand comes in short cycles and in May, and perhaps that's why I'm a bit careful about telling you Q3 year-on-year improvement is still 30% plus year-on-year growth. I'm not saying 40 plus, but we don't know for sure, except we know that we do pull in some from Q3 to Q2 not much. And that allows Q2 to perform 48% year-on-year growth which is great, but Q3 will still be pretty good year-on-year as we fully expect. And related to content and all that, I prefer at this point in this sensitive arena with a highly sensitive situation to not answer that question at all. No offense, please. But I can't answer that question. But I'll be happy to take the third question, which is, yeah, we have cost inflation in this environment, where as we all know, the semiconductor supply chain is under severe constraints on its ability to provide. Now whether we are very large, we are very, very large customer and a very loyal customer to many of our suppliers of our key components. And so we believe we are treated very well. Having said that, where prices are concerned, of course, not. We see cost inflation. And in this environment, we are very, very open to talking to our customers who are in turn very open to being able to address costs, inflationary costs, cost pressure in a higher purchase price on your site. So we're good, which is why our margin have been stable. Toshiya Hari: Thank you. Operator: Thank you. Our next question comes from CJ Muse of Evercore. Your line is open. CJ Muse: Yeah. Good afternoon. Thank you for taking the question. I guess another question on the supply chain and I guess a bigger picture question, Hock. If you think about, your increased lead times, you talked earlier to John's question about selective strategic agreements with key customers. At the same time we're taking multiyear kind of take or pay contracts with foundries. Curious if you see any structural changes to the semi-industry as we kind of emerge post-pandemic? Hock Tan: Okay. My frank opinion, I don't know, they shouldn't be. Sane question that was asked is, do I think the semiconductor industry over the next 10, 20-years will grow any faster or slower. And my view is, no, I don't think, I don't see any fundamental things that have changed. See, while we're in the flick of this storm, so to speak, of course, all hell breaks loose as the expression goes. But these are cycles we all have seen many times in the semiconductor industry. And maybe this is a bit extreme in the context of the pandemic, over the course of 2020, now extending partly into 2021. But, the supply will stable at some point. And demand is always there, because people need technology, people need the performance, need the technology that we all offer in the products we provide. And we'll be competing the same way we have been competing. And it's not necessarily related to creating long-term agreements or any such thing. It's about being able to provide the best technology, the best product in a timely manner for your customers. And it doesn't matter that you do any agreements. If at the end of the day, you like the technology or you like the products that customers need to make themselves successful, or to be able to deploy in a very well in a good manner. And that has always been the semiconductor industry. And then there I do not see anything that changes that. Now, putting long-term agreements might make life easier, but I think it's just a myth. We still have to establish ourselves that we can outperform our engineer the competition. CJ Muse: Thank you. Operator: Thank you. Our next question comes from Chris Danely of Citi. Your line is open. Chris Danely: Hey, thanks, gang. There's a lot of talk worries, speculation I don’t know of old wives’ tales, whatever, about this big inventory build of handsets in China. Any thoughts there Hock and team And, what will be the potential impact for Broadcom? Hock Tan: Well, not directly, if there's such a big overhang sitting out there, not directly because, our wireless business, our wireless product, as we have fully articulated pretty much sells to two large customers largely. We're talking about handset. We do not sell much, if any, to the handset guys, OEMs that is in China. And we sell to two big customers, one in North America, one in Korea, and these are very high-end flagship status phones. And now there could be indirect blowback and then I do recognize in certain markets, if there is an excess of inventory that needs to be just thrown out there. But on the other side on a direct basis, we do not expect to see anything. Chris Danely: Thanks, Hock. Operator: Thank you. At this time, I'd like to turn the call over to Ji Yoo for closing remarks. Ji Yoo: Thank you, operator. In closing, please note that Hock will be presenting at the BOFA Securities Technology Conference on Tuesday, June 8. Following our networking and broadband teachings earlier this year, Broadcom and Bernstein will be hosting a teaching on our storage businesses on Wednesday, July 21, at 12pm Eastern 9am Pacific. Hock will be joined by Jas Tremblay, General Manager of our Server Storage Connectivity business, Jack Rondoni, General Manager of our thin business [ph] and Dan Dolan, marketing head of our hard disk drive business. That will conclude our earnings call today. Thank you all for joining. Operator, you may end the call. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

Operator: Welcome to Broadcom Inc.'s First Quarter Fiscal Year 2021 Financial Results Conference Call. At this time, for opening remarks and introductions, I'd like to turn the call over to Ji Yoo, Director of Investor Relations of Broadcom Inc. Please go ahead, ma'am. Ji Yoo: Thank you, operator, and good afternoon, everyone. Joining me on today's call are Hock Tan, President and CEO; Kirsten Spears, Chief Financial Officer; Tom Krause, President, Infrastructure Software Group; and Charlie Kawwas, Chief Operating Officer. Broadcom also distributed a press release and financial tables after the market closed, describing our financial performance for the first quarter of fiscal year '21. If you did not receive a copy, you may obtain the information from the Investors section of Broadcom's Web site at broadcom.com. This conference call is being webcast live, and a recording will be available via telephone playback for one week. It will also be archived in the Investors section of our Web site at broadcom.com. During the prepared comments, Hock and Kirsten will be providing details of our first quarter fiscal year '21 results, guidance for our second 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 today's press release. Comments made today -- during today's call will primarily refer to our non-GAAP financial results. I'll now turn the call over to Hock. Hock Tan: Thank you, Ji, and thank you, everyone, for joining us today. Well, we delivered net revenue of $6.7 billion, up 14% year-on-year. Semiconductor Solutions revenue was $4.9 billion, increasing 17% year-on-year. Infrastructure Software revenue was $1.7 billion, up 5% year-on-year. Let me turn first to Semiconductor Solutions. But before I get into the numbers, perhaps it would be very constructive for me to give you my perspective on the situation today. And in fact, what has actually evolved over the past nine months. You may recall in our earnings call Q2 fiscal 2020, around middle of last year, that we highlighted supply chain challenges. Since then, we have started extending lead times across our product portfolio, which we stretch these lead times further over the past nine months as we saw demand within end markets continue to increase. So fast forward to today, we see customers accelerating their bookings for early deliveries and attempting to build buffers and creating the demand supply imbalance, you all hear out there. In anticipation of this phenomenon, we put in place in May 2020m, a very rigorous, disciplined process of carefully reviewing our backlog, identifying real end user demand and aligning our supply chain to more closely match end user consumption. Of course, not all end markets are behaving the same way, but we believe we have done a very good job of balancing demand and supply in our end markets. And what I'm reporting today does reasonably reflect what's been consumed by our end users. With that, let me get into the numbers. In Semiconductors, we grew 17% year-on-year organically. Starting with wireless, we hit the seasonal peak in Q1 where wireless was up 52% year-on-year and reached 40% of semiconductor revenue mix. These sharp increase was in large part due to a higher content – FBAR content was up and we shipped in high volume Wi-Fi 6 and Wi-Fi 6E, the next generation of Wi-Fi 6. As expected, Q2 wireless revenue will now show a typical seasonal decline sequentially even as anticipated revenues will be up 30% to 40% year-on-year. And as we look into the second-half of the year, we're planning for typical revenue ramp in this space and structuring our in-house FBAR fab capacity appropriately. These should result in sustaining the year-on-year growth trend we now see in Q2 through the second-half of the year. Moving on, networking represented approximately 29% of our Semiconductor Solution revenue in the quarter and grew 15% year-on-year. Demand is strong, driven largely by data center span in the cloud and global telcos, who continue to upgrade their infrastructure and network. Sustainability of this strength is evidenced by bookings as they jump 80% year-on-year and 62%, sequentially. Demand for switch and routing platforms, both of the current and as well as next generation is robust. But as anticipated, our AI TPU business was seasonally down this quarter. Moving on to Q2, we expect networking to be up sequentially and continue the trend of being up year-on-year, driven by continued strength we see in cloud and telcos offset partially by continued weakness in enterprise. Turning to broadband, which represented approximately 15% of Semiconductor Solutions, revenue was up 8% year-on-year, driven by the work-from-home environment. Multiple telcos, Europe -- in Europe and the U.S continue to roll out PON and cable DOCSIS. Embedded in this wireline gateways are our next generation Wi-Fi 6 access points. Softness in enterprise was more than offset by the strong demand from retail home routers, even as telcos continue to spend. Looking at Q2, we are enabling the launch of new Wi-Fi 6 enabled platforms with higher value content for North American and European telcos. As a result, we do see demand accelerating consumption -- and consumption increasing and we expect to generate double-digit year-on-year revenue growth in broadband. Server storage connectivity represented approximately 12% of Q1 semiconductor revenue. This segment is largely driven by enterprise demand as we know, and not surprisingly, server storage revenue was down 22% year-on-year, reflecting continued softness in end user demand as well as OEMs, original equipment manufacturers depleting their inventory in this space. While bookings have improved, these are largely for demand in the second-half. And accordingly, we expect revenue in Q2 to continue to be down year-over-year by double-digit percentage. However, we do expect some recovery based on our bookings received in the second-half. And finally, industrial represented approximately 4% of Q1 Semiconductor Solution revenue. Resales grew 13% year-over-year in Q1, driven by a recovery of multiple economic sectors in China. Turning to Q2, we expect resales to grow at roughly the same level as we see recovery now occurring as well in Japan and Europe. Inventory in the channel for us continues to deplete, and we may have to increase shipments and revenues to replenish channel inventory this quarter. So in summary, Semiconductor Solution revenue -- segment revenue was up 17% year-on-year in Q1. Q2, we expect this year-over-year percentage revenue to continue at a similar -- around a similar amount, in spite of a seasonal decline in wireless. The way it looks now is relatively strong trend appears to be sustaining through most of 2021. However, in our view, this very high and unusual secular growth rate, merely highlights an accelerated adoption of our connectivity platforms during this pandemic. Turning to our other segment, software. Q1, 2021 was our first quarter that on a year-on-year basis provides an organic comparison following the Symantec acquisition. In Q1, infrastructure software revenue growth was 5% year-on-year. In dollar terms, bookings average 122% over expiring contracts, while core accounts are averaged 137%. Now over 90% of these bookings represented recurring subscription and maintenance. Our strategy of focusing on core accounts continues to perform well as we cross sell our portfolio of software too. In other words, our software portfolio continues to perform as we have planned and continues to be on track with our long-term financial model for organic software revenue growth of around mid single-digit percentage year-over-year. And that's something we expect to continue to see in Q2. So, in summary, our Q1 consolidated revenue -- net revenue grew 14% year-on-year. We expect a similar growth trajectory in Q2, which could bring revenue to $6.5 billion or a 13% year-on-year growth. So with that, I'll now turn the call over to Kirsten. Kirsten Spears: Thank you, Hock. Let me now provide additional detail on our financial performance. Net revenue was a record $6.7 billion for the quarter, up 14% from a year ago. Gross margins were 73% of revenue in the quarter and up approximately 30 basis points year-on-year. Operating expenses were $1.1 billion, down 8% year-on-year, reflective of the full benefit of the completed Symantec integration. Operating income from continuing operations for the quarter was $3.8 billion and is up 23% from a year ago. Operating margin was 57% of revenue, up 420 basis points year-on-year. Adjusted EBITDA was $3.9 billion or 59% of revenue. This figure excludes $138 million of depreciation. Now a review of the P&L for our two segments. Revenue for Semiconductor Solutions was $4.9 billion and represented 74% of total revenue in the quarter. This was up 17% year-on-year. Gross margins for Semiconductor Solutions were approximately 67% in the quarter, up to 20 basis points year-on-year. Notwithstanding the higher mix of lower margin wireless revenue. Operating expenses were $750 million in Q1, down 3% year-on-year as we invested in R&D and streamlined SG&A. Because of this operating margins increased to 52% in Q1, up 350 basis points year-on-year. So while semiconductor revenue was up 17%, operating profit grew 25% all organic. Moving to the P&L for our infrastructure software segment. Revenue for infrastructure software was $1.7 billion and represented 26% of revenue. This was up 5% year-on-year. Gross margins for infrastructure software were 90% in the quarter, up 190 basis points year-over-year. Operating expenses were $346 million in the quarter, down 18%. year-on-year as we've completed the integration of Symantec. Operating profit was up 17% year-on-year on top line growth of 5%. Operating margin was 70% in Q1, up 740 basis points year-over-year. Moving to cash flow. Free cash flow in the first quarter was approximately $3 billion representing 45% of revenue. This is up 35% year-over-year as we carefully manage working capital. Day sales outstanding were 35 days in the first quarter compared to 57 days a year-ago. We ended the quarter with inventory of $952 million, a decrease of $51 million or 5% from the end of the prior quarter. We should also know in Q1, we spent $114 million on capital expenditures. On the financing front, we extended our weighted average debt maturity to approximately 9 years from 6 by issuing new notes that we use to refinance and redeem existing debt. Our weighted average coupon increased about 23 basis points to 3.8%. We ended the quarter with $9.6 billion of cash and $41.9 billion of debt, of which $843 million is short term. Turning to capital allocation. In the quarter, we paid our common stockholders $1.5 billion of cash dividends. We also paid $225 million in withholding taxes due on vesting of employee equity, resulting in the elimination of approximately 521,000 AVGO shares. We ended the quarter with $408 million outstanding common shares and $450 million diluted shares. Note that we expect the diluted share count to be $450 million in Q2. Based on current business trends and conditions, our guidance for the second quarter of fiscal '21 is for consolidated net revenues of $6.5 billion and adjusted EBITDA of approximately 59% of projected revenue. That concludes my prepared remarks. Operator, please open up the call for questions. Operator: Thank you. [Operator Instructions] Our first question will come from Ross Seymore with Deutsche Bank. Please go ahead. Ross Seymore: Hi, guys. Thanks for letting me ask the question. Hock, some good color on the supply side of the equation and a little bit about your lead times extending. I wanted to dive a little bit into that. Last quarter, you talked about a backlog? I think the number was $14 billion. Can you talk a little bit about the composition of your backlog today? How it is on an absolute level and the sustainability of it as investors are wondering if this demand is just too good to be sustainable? And what does it mean to excess bookings, double ordering that sort of inventory digestion that will inevitably follow thereafter? Hock Tan: Well, it's a very interesting question, a very, very appropriate question at this time. And as I say, we have had, as I indicated, we started this process nine -- almost nine months ago, because we’ve seen demand that are quite strong. And we started the process of thinking how we best ensure very, very good use of our supply chain capacity. And basically, as I said, we went through this process rigorously scrubbing our backlog. And by the way, our entire backlog virtually and backlog follow a set of terms -- of key set of terms we mentioned before, which is non-cancelable for any of our customers who booked us, and they still apply, more so than ever. So double bookings from our point of view, is not -- it's never been an issue. And as we stretch our lead times, we are seeing customers obviously booked for delivery dates for customer requests they set further out. So that makes sense, too. And that's why it makes the process of create or being able to match customer consumption close -- as close as we could do it against what we supply to be something that makes sense, and we've done that. And I think we are fairly -- we could always do better, but we feel pretty good that we have a reasonable process in place that ensures then our customers get the products and maybe just in time, but they do get the products when they need it. And we believe we have managed this process of supply, demand and imbalance fairly very, very well, as I indicated. And, in fact, as I made to repeat the point I highlighted, our revenue year-on-year in Q1 was up 17%, but as I also indicated, our bookings was up 63% that by itself proves there's a lot of demand and people are booking out very far. We are virtually 90% booked for 2021 and if you laid out what they need. And we believe this is real because they can’t cancel it. And obviously, in order to do reach that point to one of your points, has our backlog as we begin Q2 increase from when we began Q1, yes, it has. We have and quite significantly, as we start to see lead times even stretch out more. And the strength, we believe of our products, not only products that are incumbent and used today, but what is coming down the pipe as next generation products, which have already released, but await launching is proven by the fact that we have customers, many of them and reflecting our backlog while willing to book out for delivery of those products out through the rest of 2021. Operator: Thank you. Our next question will come from Harlan Sur with JPMorgan. Please go ahead. Harlan Sur: Good afternoon. Thanks for taking my question. Hock, the biggest concern by investors right now is your ability to drive growth in the seasonally stronger second-half of your fiscal year, your July and October quarters, when you start to ramp into your flagship smartphone customers. If I just apply normal seasonal trends in wireless, combined with, let's say, sustained networking strength and, as you mentioned, recovery and storage, that would get me revenues in the second-half in that sort of $6.77 billion range. And now I'm not asking you to endorse those numbers, but I guess the question is, from a supply chain perspective, has the team secured enough capacity to drive higher revenues in July and October quarter, if your backlog supported that profile? Hock Tan: If you are really asking me to guide you until and I'm not guiding you. But I do understand your question. And you've seen in my prepared remarks just earlier of where we see ourselves planning and the trend to go. We have -- I've also specifically mentioned where we are manufacturing, like FBAR in-house, which is a big part of what is the upcycle in – the seasonal upcycle in the back half on the wireless side that we have put in place the capacity to handle it. The simple answer to your question is, yes, we have done a decent job, as I said, over the last six months and we continue to do a decent job of being able to meet our -- the critical needs of all our customers. Operator: Thank you. Our next question will come from Vivek Arya with Bank of America Securities. Go ahead, please. Vivek Arya: Thanks for taking my question. Hock, you mentioned you expected this 30%, 40% kind of year-on-year growth rates in wireless to sustain in the back half, I was hoping if you could give us some color on what kind of content growth you are expecting this year. And then looking forward, how much does Broadcom benefit from all these C band spectrum auctions that were conducted recently. I assume that's more of an outer year benefit. Hock Tan: Yes, on the latter part, yes, it is an outer year. This thing don’t get implemented so fast. And on the formal part of your question, I can answer that, I'm sorry. For obvious reasons it's too early. We will tell you about it when the time is appropriate. Thank you. Operator: Thank you. Our next question will come from John Pitzer with Credit Suisse. Please go ahead. John Pitzer: Yes, thanks for let me ask the question. Hock, I just want to get back to the supply demand imbalance. You did a very good job kind of explaining how you guys are trying to call your backlog. I'm kind of curious, as you look out over the next couple of quarters, when do you think supply will catch up to demand enough, such as your customers don't feel obligated to have to build that cushion? Hock Tan: Another way of answering that question, John, I think is when do you see lead time to reduce. Maybe do not reduce and perhaps normalize. That’s probably the other way of looking at that equation. And right now, I don't know the answer to that. What we do know is we have extended lead time. Today in place, and we've been extending the lead time over the past several months, as I indicated. And we have a fairly extended lead time today and we're getting the bookings from the customer. And when the bookings disappear is probably when you know you're headed to a situation of demand starting to disappear. We have not reached that point yet, far from it at this point. Operator: Thank you. Our next question will come from Stacy Rasgon with Bernstein Research. Please go ahead. Stacy Rasgon: Hi, guys. Thanks for taking my question. So Hock, you’re saying that you're stretching out lead times. I get it, but I think before you told us the lead times were 6 months. So if you're stretching them out, where are they actually sitting today? And how does that maybe vary by end market? And I guess to that end, you said, you're kind of convinced that what you’re shipping now sort of represents end user consumption. How do you actually have any visibility into that? And do you think the users, I mean, are the products actually going into end products? How do you know the users aren’t stockpiling them and order -- ordering them while they can? How do you have any visibility into what’s they're doing with them? Hock Tan: That's a hell of a good question by the way. And it cuts to the core of the work we've been doing. But never been working harder, simply because number one is, don't forget we supply -- we do supply -- I mean, we supply a range of products, and we do supply to a bunch of customers. But keep in mind, if I could remind you of the business model, we've built up the structure, we build up. We provide technology leadership product in multiple verticals, mostly connectivity into the IT space. Where we are with the leader, where we play, we tend to be leader and we play with leading customers worldwide. We know, who those guys are. We know the level of consumption. And in many areas where we go -- and we're talking end user demand. We're not talking about middle people, middlemen like distributors, for sure. We indicated that we don't -- for our leading customers, we don't go to distributors. And for OEMs, we track them because who they sell the end demand, that those -- our products to is where it counts at the end of the day. And in many cases of -- in one segment, in particular, server storage, but it also applies to some extent in part of our networking business and to a much lesser extent, in a broadband business, for sure. We actually see the difference between -- in terms of whether it's just inventory depletion at original equipment manufacturers or even buffer inventory sitting in end users versus actually using the products in the same quarter we ship them the product. We track that. And that’s really -- and for us, it’s not that complex when you think about our revenues. In semiconductors, 75% of our revenues really goes to just over 100 customers worldwide. We can track it. Operator: Thank you. Our next question will come from Craig Hettenbach with Morgan Stanley. Please go ahead. Craig Hettenbach: Yes. I appreciate the color on the software bookings relative to revenue. Now that you have Symantec for a year and CA for a couple of years, can you just talk about the confidence of the growth rates on a longer term basis that you're talking about? I know you touched on the 90% recurring, which is really how the global large accounts are kind of -- how that transition is playing out? Hock Tan: Yes. As I indicated in my prepared remarks on some of the key metrics we go by, we feel very, very good about those two. We feel very good that things are moving along and tracking along where we -- both the business and financial model where we expect them to go, which is about focusing on core customers and truly uplifting capacity, entitlements, products to those core customers across our portfolio. I mean -- and you’ve seen the metrics we indicated, they increased. And on noncore, you’ve also -- while we don’t say -- what I said previously is we do see a level of attrition, manageable, but it will and as the trade -- but is offset by improvement in core, we expect to be able to reach a stabilization, as I say, around mid single digits on a very consistent basis. And we have seen that 2 years now that we’ve gone through over 2 years now. And we’ve seen that happen. We have seen eight quarters -- nine quarters to be exact, of that level of performance and is a great line of sight. The other thing I might add that it’s also interesting and I know stating the obvious to some extent is most of all our customers, if not all of them, are enterprises, even in this environment. You heard when I tell by enterprise in semiconductors and how -- and the approach, the different approach, the different characteristics and behavior enterprises have in terms of demand requirements in this environment of a pandemic, work-from-home to -- compared to telcos, broadband and public cloud. We don’t see that in software, in the infrastructure software we have, simply because these are mission critical products, tools embedded in the business process of these largest enterprises in the world who, if anything else, during this environment, consume more of those products rather than less. Operator: Thank you. Our next question will come from Timothy Arcuri with UBS. Please go ahead. Timothy Arcuri: Hi. Thanks a lot. I guess, I also had a question on the supply demand. Hock, orders obviously were up quite a bit in fiscal Q1, Q-on-Q, given that revenue was up in backlog, I think you said was up significantly. So as you look into fiscal Q2, wireless orders are obviously going to come down a lot. So I'm wondering if orders in the other parts of the business are going to be strong enough such that total orders will be up in fiscal Q2 again. Thanks. Hock Tan: Tim, if we are talking about -- when you say orders, and I hear you say orders, let me say, the orders, as we ramp up to this current generation of phones for a large North American customer, as we ramp it up for this current generation, bookings started ramping up as early as Q3, really shot up in Q4 and started declining late Q4 and Q1. So bookings was already declining. And when I indicated Q1 bookings year-on-year improvement of 80% and what I’m also saying is that is netting out a decline in bookings of our wireless in a fairly substantial manner as it would have -- you would expect seasonally. So the answer is, yes. What we are seeing, what I’m reflecting out to you guys, that I showed those bookings, the revenue is -- the bookings that we are showing in Q1, which is fairly strong, reflects declining bookings in wireless as we all fully expect seasonally in -- at that -- during that time frame. Operator: Thank you. Our next question will come from Toshiya Hari with Goldman Sachs. Please go ahead. Toshiya Hari: Thanks so much for taking the question. Hock, I wanted to ask about capital allocation. The dividend component is pretty predictable, but outside of the dividend, how are you thinking about paying down debt, buying back stock and M&A and software. The markets are clearly very volatile right now, but how are you thinking about those three buckets on a relative basis? Thank you. Hock Tan: That’s a very interesting question. I was wondering when one of you guys will get to that and sure enough. You’re right, we are accumulating cash and you heard Kirsten mention it. We are generating cash -- in Q1, we generated $3 billion of cash. And that was -- Q1 also was -- is the time we pay out bonuses to all our employees. So if I normalize that, that’s about -- we’re generating $3.5 billion a quarter is free cash flow. So it’s building -- and half of that goes to dividends or almost half of it as you correctly say, so that’s predetermined. And the other half for now we are putting into an increasing cash portfolio and you’re right. Well, look -- and our business model and strategy, as you know long-term is to acquire and add on to our portfolio, add on to our earnings stream for our shareholders. And we take that very seriously, and we continue to look at it very seriously. If -- and so -- and that this takes time and we continue to look at it. And we want to take an approach -- my point that we would be somewhat flexible to that as we accumulate cash. And by end of this calendar -- fiscal year, we haven’t done an acquisition, we will obviously take a hard look at our two other choices. One is pay down debt. And that may even happen before then, pay down debt. But interest rates are very low and money is very available, and we’re still very investment grade. And the other alternative is buy back shares. And all these are open. Operator: Thank you. Our next question will come from Blayne Curtis with Barclays. Please go ahead. Blayne Curtis: Hey, good afternoon. Thanks for taking my question. Hock, I was just curious a little bit more on the wireless. We don't have the right compares year-over-year. So maybe if you just give us a little color as to what you're expecting. I just don't know what that 30% to 40% year-over-year really kind of compares to. So maybe just some just color as to what you're seeing from that wireless channel versus normal seasonal patterns that would help us kind of dial in as to what you're really saying for April. Hock Tan: Well, as I indicated in my prepared remarks when it comes to wireless, this is for 2021. Don’t forget there is some timing adjustment by Q2, Blayne, in the sense that what used to be a big quarter in our wireless seasonality of fiscal Q4, in this recent generation, the peak quarter, as I indicated, begin Q1 of '21. So obviously things roll down, perhaps somewhat slower. And because we are also assuming, as it rolls down slower in the course of fiscal '21, that we can -- we have to assume, for lack of knowing no better, that we might be back to a normal seasonal cadence of a wireless seasonality -- of wireless launch of new phones and assume that you will be back to that normal cadence. So '21 might look kind of compressed when you think of in terms of revenue, in terms of availability of a market for us to address. And then couple that with a content increase between '20 and '21, you therefore could understand why we -- I indicated that for the rest of '21 begin to look like a fairly significant 30% to 40% increase on a year-on-year basis as we run through each -- the remaining quarters of '21. Operator: Thank you. Our next question will come from CJ Muse with Evercore. Please go ahead. CJ Muse: Yes. Good afternoon. Thank you for taking the question. I guess wanted to dig a little into your EBITDA margin guide. It would suggest that either gross margins are flat, which would not seem likely given the fall off in wireless or optics is moving higher. Can you kind of walk through the moving parts there? And as part of that, can you help us understand how to model gross margins and OpEx through the remainder of the fiscal year? Thank you. Kirsten Spears: So in Q1, we said that from year-over-year, gross margins were up 30 basis points and that’s largely because of wireless. So when you look at Q2, we will have less wireless revenues in the margin mix. And so therefore, look back at Q4, that’s how I would model Q2. And then as you look at margins for the rest of the year, it would be similar to Q2. Look back at Q4 and then consider the fact that we will have probably more normal seasonality on wireless towards the second half. Operator: Thank you. Our next question will come from Harsh Kumar with Piper Sandler. Please go ahead. Harsh Kumar: Yes. Hey, thank you. Hey, guys, congratulations. Solid numbers. Hock, I had a question for you. I’m trying to wrap my head around some stunning numbers you threw out for networking, 80% increase in bookings, some 62% odd sequential increase. I appreciate the process of identifying real demand. So with that, is there something going on in bookings that is specific to your end markets or your product set that is driving it? Could you just highlight what is going on there? Hock Tan: Yes, great question. And I’ve been dancing around and saying it in nice words. Let me call it directly. People need our products, each of our products. And in particular, whether it’s broadband or networking, our customers, our end-user customers truly need the products. I mean they’re in the business. They’re in the business of launching more broadband, improving their networks. And all the cloud guys have to scale out data centers because there's more demand -- hosting a demand from public cloud in this work from home environment of social media and also online retail and everything else. So we need to buy those products of ours, whether it’s the current generation, which we have, that work of soon to be the next generation. So if we stretch our lead time to an extended basis, the thinking in their mind is these are non-cancelable orders. Do I still need it 6 months, 9 months from now? They need it, they place an order. Otherwise, they have a gap in being able to scale out capacity or scale out launches. They will do that. It’s a real test of how strong our product franchise is and how mission critical it is to our end users. And so -- so as we stretch out our lead time, where it goes from 3 months to 6 months to 8 months, they just book what they need 8 months out or first 3 months out first and 6 months out, then 8 months out. And you only do that if you truly believe you need that products to enable your business. And what I’m trying to say is, it is nothing more fundamental than why we are seeing as we stretch out lead time because we match it against our ability to get those products out, is a great way to indicate whether our products are needed. And they don’t need it now as much as the book -- as people might seem to indicate. They may need it 3, 6 months from now, but they are willing to lock in and say they need it so that we can manage our supply chain to get them those products, which is why I’m also saying the management of our supply chain to match demand. It’s not that extreme and simple as may be made out there that you hear around. It’s all about being able to tell your customers and get your customers to behave in a rational manner and for us, to manage it in a rational manner. I mean, if I ship, I have my entire backlog today, assuming I can even do that, of course, they will take it because they are all in the pending mode. But if on the other side, they know they can get it when they need it 6 months from now, they’re happy to wait until then. Meanwhile, they book it ahead of time because that’s one I need to reserve my capacity. And that’s the perspective I only give to you guys. It is what it is. This is not a panic mode. This is a very structured and reasonable process, which we believe at the end of it all, still shows real underlying demand and the way we want to report it. Operator: Ladies and gentlemen, thank you for participating in today's question-and-answer session. I would now like to turn the call back over to Ms. Yoo for closing remarks. Ji Yoo: Thank you, operator. In closing, please note that Broadcom and Morgan Stanley will be hosting a presentation on our broadband business on Monday, April 12 after market close. Hock will be joined by Rich Nelson and Greg Fisher, General Managers of our broadband businesses. That will conclude our earnings call today. Thank you all for joining. Operator, you may end the call. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.