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.

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.

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.

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.

Vivek Arya:

Thank you.

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?

Ross Seymore:

Thank you.

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?

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?

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?

Stacy Rasgon:

All right. Okay, Hock, thank you. I appreciate it.

Operator:

One moment for our next question, and that will come from the line of Harlan Sur with JPMorgan. Your line is open.

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.

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.

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.

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.

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.

Hock Tan :

Thanks.

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.

Toshiya Hari :

All right. Thank you.

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?

Blayne Curtis:

Okay, thank you.

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.

Timothy Arcuri:

Perfect Hock, thank you so much.

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?

Thomas O'Malley:

Thanks Hock.

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.

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.

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.

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.

Hock Tan:

Thanks.

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.

William Stein:

Great. Thank you.

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:

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.

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?

Operator:

[Operator Instructions] Our first question comes from the line of Harsh Kumar with Piper Sandler.

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.

Operator:

Our next question comes from the line of Harlan Sur with JPMorgan. Your line is open.

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.

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.

Operator:

Our next question comes from the line of Vivek Arya with Bank of America Securities. Your line is open.

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.

Operator:

Our next question comes from the line of Stacy Rasgon with Bernstein Research. Your line is open.

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.

Hock Tan:

Correct.

Operator:

Our next question comes from the line of Aaron Rakers with Wells Fargo.

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.

Operator:

Our next question comes from the line of Chris Danely with Citi. Your line is open.

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.

Operator:

Our next question comes from the line of Karl Ackerman with BNP Paribas. Your line is open.

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.

Operator:

Our next question comes from the line of Christopher Rolland with Susquehanna. Your line is open.

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.

Operator:

Our next question comes from the line of Toshiya Hari with Goldman Sachs. Your line is open.

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.

Operator:

Our next question comes from the line of Vijay Rakesh with Mizuho. Your line is open.

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.

Hock Tan:

Who is getting to the market, please repeat?

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.

Operator:

Our next question comes from the line of Matt Ramsay with TD Cowen. Your line is open.

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.

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.

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?

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.

Edward Snyder:

Great. Thank you.

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:

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.

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.

Operator:

[Operator Instructions] Our first question will come from the line of Vivek Arya with Bank of America.

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.

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?

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?

Operator:

Thank you. One moment for our next question. And that will come from the line of Harlan Sur with JPMorgan.

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.

Hock Tan:

As Kirsten indicated, as we exit fiscal ‘24, we are practically at a run rate of $8.5 billion EBITDA.

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?

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.

Hock Tan:

Well, that’s a total -- we will get pretty close to where we are supposed to, before we started this whole exercise.

Hock Tan:

It’s somewhere between 60% and 65%. How does that sound, Stacy?

Hock Tan:

At steady state, you’re right. At steady state, we’ll get to pretty close to 65% on VMware.

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.

Timothy Arcuri:

Okay. And it doesn’t make you think any differently about the synergies that you can drive from the business?

Operator:

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

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.

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?

Operator:

And one moment for our next question. And that will come from the line of Toshiya Hari with Goldman Sachs.

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.

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.

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.

Operator:

Thank you. And one moment for our next question. And that will come from the line of Matt Ramsay with TD Cowen.

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.

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.

Operator:

Thank you. One moment for our next question. And that will come from the line of Harsh Kumar with Piper Sandler.

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.

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:

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

Hock Tan:

Thank you.

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.

Aaron Rakers:

Yeah, thank you.

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.

Matthew Ramsay:

Thanks, Hock. Appreciate it.

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.

Christopher Rolland:

Thanks, Hock.

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.

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.

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.

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.

Operator:

[Operator Instructions] And today's first question will come from the line of Ross Seymore with Deutsche Bank.

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.

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?

Operator:

One moment for our next question. And that will come from the line of Harlan Sur with JP Morgan.

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.

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.

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.

Operator:

One moment for our next question. And that will come from the line of Ambrish Srivastava with BMO Capital Markets.

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.

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.

Operator:

One moment for our next question. And that will come from the line of Karl Ackerman with BNP Paribas.

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.

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.

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.

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.

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.

Operator:

One moment for our next question. And that will come from the line of Edward Snyder with Charter Equity Research.

Hock Tan:

All right. You have two questions here, don't you?

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?

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.

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.

Operator:

One moment for our next question. And that will come from the line of C.J. Muse with Evercore ISI.

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.

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?

Operator:

Thank you. I would now like to turn the call over to Ji Yoo for any closing remarks.

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.

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.

Operator:

Thank you. [Operator Instructions] Our first question will come from the line of Harsh Kumar with Piper Sandler. Your line is open.

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.

Hock Tan:

Thanks, Harsh.

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?

Harlan Sur:

Okay.

Harlan Sur:

Thank you, Hock.

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?

Vivek Arya:

Understood. Thank you, Hock.

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?

Stacy Rasgon:

You give us some guidance for the year on this, right, so...

Stacy Rasgon:

Okay.

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…

Stacy Rasgon:

….I have been asking in the second half, right?

Stacy Rasgon:

Got it. Okay. Thank you so much, Hock.

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.

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.

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.

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…

Hock Tan:

… a lot of investment in that direction.

Hock Tan:

It’s there…

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.

Hock Tan:

Sure.

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?

Ross Seymore:

Is the concentration changing? So are you broadening customers in that growth?

Ross Seymore:

Okay. 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.

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.

Hock Tan:

Yes.

Hock Tan:

Thank you.

Pierre Ferragu:

Great. Thank you for taking question. Can you hear me well?

Hock Tan:

Yes.

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.

Hock Tan:

I will not think about it at this point. It might be a bit too mature. Don’t forget generative…

Hock Tan:

…AI is still early stage.

Hock Tan:

Thank you.

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.

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.

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.

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.

Operator:

Thank you. [Operator Instructions] And today’s first question will come from C.J. Muse with Evercore ISI. Please go ahead.

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.

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?

Operator:

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

Kirsten Spears:

Stacy, this is Kirsten Spears. We’re not going to guide the year. So, we’re not providing that...

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.

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.

Hock Tan:

Our year forecast will grow.

Operator:

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

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.

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.

Operator:

Thank you. One moment for our next question. That will come from the line of Vivek Arya with Bank of America.

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.

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?

Operator:

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

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.

Kirsten Spears:

As soon as we can, and we still have $13 billion under that program.

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.

Operator:

And one moment for our next question. That will come from the line of Aaron Rakers with Wells Fargo.

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.

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.

Toshiya Hari:

And any signs of improvement going forward, Hock, on the IT side, or is it too early to tell?

Operator:

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

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.

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.

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...

Operator:

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

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.

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:

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.

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.

Operator:

[Operator Instructions] Our first question will come from Ross Seymore with Deutsche Bank. Please go ahead.

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.

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?

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.

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.

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?

Operator:

And one moment for our next question. That will come from the line of Timothy Arcuri with UBS. Please go ahead.

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.

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.

Operator:

And one moment for our next question, and that will come from the line of Aaron Rakers with Wells Fargo. Please go ahead.

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.

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?

Operator:

One moment for our next question. That will come from the line of Vijay Rakesh with Mizuho. Please go ahead.

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.

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?

Operator:

And one moment for our next question. That will come from the line of Toshiya Hari with Goldman Sachs. Please go ahead.

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.

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?

Operator:

Ladies and gentlemen, I would now like to turn the call back over to Ms. Ji Yoo for any closing remarks.

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.

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.

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.

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?

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.

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?

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.

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.

Operator:

Our next question comes from Vivek Arya from Bank of America Securities.

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.

Operator:

Our next question comes from Harsh Kumar from Piper Sandler.

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

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?

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.

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.

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.

Operator:

Thank you. [Operator Instructions] Our first question will come from Harlan Sur with JPMorgan. Please go ahead.

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.

Operator:

Thank you. Our next question will come from Vivek Arya with Bank of America. Please go ahead.

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.

Hock Tan:

At least the first part of 2023, yes.

Operator:

Thank you. Our next question will come from Stacy Rasgon with Bernstein Research. Please go ahead.

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.

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.

Operator:

Thank you. Our next question will come from Ross Seymore with Deutsche Bank. Please go ahead.

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.

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.

Operator:

Thank you. Our next question will come from John Pitzer with Credit Suisse. Please go ahead.

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.

Hock Tan:

Sure.

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.

Toshiya Hari:

Thank you so much.

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?

Pierre Ferragu:

Yes. Thank you. That’s perfect. Thank you so much.

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.

Tim Arcuri:

Thanks, Hock.

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.

Edward Snyder:

Thank you.

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.

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.

Vijay Rakesh:

Great. Thanks, Hock.

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:

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.

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.

Operator:

Thank you. [Operator Instructions] Our first question comes from Toshiya Hari with Goldman Sachs. The line is open.

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.

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.

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?

Stacy Rasgon:

That's helpful. Thank you so much.

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?

Harlan Sur:

Great, thank you for the insight, Hock.

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.

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?

Vivek Arya:

Thank you.

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?

Ross Seymore:

For the OpEx, Kirsten?

Ross Seymore:

Great. Thank you.

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.

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?