AVGO - Earnings call transcript Q2 2019

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Operator

Good day ladies and gentlemen and welcome to the Q2 2019 Broadcom Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to introduce your host for today's call, Ms. Relations. Investor Director, Russotto, Beatrice Ms. Russotto, you begin. may

Beatrice Russotto

Thank operator and good everyone. afternoon you,

today table of describing Joining Chief President and closed Financial second Hock CEO; Tan, year of for a release me financial distributed After quarter today, our financial are the Broadcom. XXXX. and Broadcom market the and press Officer fiscal Tom performance Krause,

If information broadcom.com. section Investors website at from you of did not receive a copy, the you may obtain the Broadcom's

telephone our recording conference for call in webcast being It be also one playback This broadcom.com. via will live and week. will the available a Investors website is be archived section at of

and During providing regarding environment. this details the call, the year of second be our XXXX, will fiscal quarter Tom for commentary prepared of guidance section XXXX business Hock comments results, and year fiscal

end questions of prepared take comments. will after our We the

press cause the with risk Please made today refer SEC factors actual the from this to call. forward-looking our that materially results on for our recent and differ the specific our filings could on release information statements to

to Comments will GAAP our tables between on reconciliation financial reports non-GAAP Broadcom measures a today's U.S. during press reporting, certain to results. A measures and today's release. included to financial in basis. attached non-GAAP is primarily the refer made call GAAP addition non-GAAP In

the So, with to over turn that, I'll Hock. call

Hock Tan

Bea, thank you and you, Thank everyone today. for in joining

second outlook the which update you will for results of on I touch environment me after second current and the Let our quarter on the the half year.

the the This softness just our by anticipated business continued perform and to at offset passed, broadband wireless decline storage. really in in Networking planned. recover. to very the it and sharp Looking second went ongoing quarter as started well, was

well enterprise infrastructure solid SAN hand, benefiting as distributed other as switching demand software the topline results, software from delivered products. mainframe our and for sustained the On business

CA progressing The integration of well. is

IP milestone week, the CA the two, onto with processes Broadcom's a which last day platform. Just business is reached major we of integration

year. not if customers are and and grow. we we CA to We for targets can that out remain exceed, in core meet, laid the from profitability last revenue business the confident our continue that Renewals you our long-term commitments to dollar strong, CA

me let year. remainder for business the address environment Now, the the and outlook of our current

We have, in plan And fiscal the much the indicated, half we a performed very second I as to recovery. XXXX. first half, had expected in of

particularly Huawei However, ban, while the America and reducing and stable, for enterprise uncertainty our is semiconductors, with trade political visibility including remained is mainframe OEM respect U.S./China Europe, in and customers. clear export that and creating demand software global it the to North conflict, economic

semiconductor volatility $XX.X anticipate to the levels high As more in has the customers XXXX are with a the first This result, demand opposed half solutions line actively increased previously We believe leads billion, risks. to manage us expected XXXX of recovery. will inventory into half the and single-digits. second translates year-over-year segment a our fiscal be to revenue which of now as decline in reducing

CA after half. original switching very to a above software expectations SAN perform strong first while down is continues our slowing

software outlook infrastructure $X As XXXX at our a maintaining are we billion. result, fiscal

While playing remains of emphasize I scenario much this very fundamentals should has out, the been our intact. business

XG. next leading-edge We week. We've next-generation North routing at RF well this and secured front-end announced on two American software-defined for for into a and in to recently of roadmap positions Trident the very just transition the including switching rich large generations switch continue the network which enterprises, execute cloud network OEM, the also us very the X

increasing numbers off-load We accelerators networking. to operators cloud hyper in win transcoding, of encryption, and compute the across video continue AI,

growth continue in enterprise carrier this we confident free otherwise long-term to Wi-Fi of leaves X, cash new-generation our able access [PONs][ph]. revenue XXX.XXax, called to will us ramp We are flow. increasing pleased with and and that drive All gateways sustained the Wi-Fi

me color. more Let over turn who it with Tom you to provide will now

Thomas Krause

the Hock. from average you, from a a off XX% billion, of a year $X.X fully million came ago count. was year increase increase Consolidated ago XXX $X.XX, a for second in diluted quarter net weighted X% at revenue share a Thank and EPS

In have billion Free grew of record revenue. or year-over-year. cash XX% addition, of we flow flow free cash XX% $X.XX

The basis. semiconductor quarter, down a our XX% $X.X was solutions revenue segment on represented as revenue billion this year-on-year comparable total XX% was of expected and which

software infrastructure $X.X represented billion segment Our revenue. and XX% revenue was of

detail $X.XX additional excludes was XX.X% from operations were net expenses provide billion. now revenue. of represented million Operating me of $XXX Adjusted of performance. was revenue. net $X.XX continuing Operating financial represented billion billion XX.X% on and income figure depreciation. Let $X.XX EBITDA our and This

Receivables in and integration payments the prior in and note quarter. million cash of we inventory million, restructuring the integration made from of expenses quarter accrued also would $XXX $XXX quarter. and restructuring decreased $XX and I million million decreased that $XXX the

Finally, capital we million spent $XXX expenditures. on

dividends consisting cash $X.X In of for outstanding. million $X.X and shares, AVGO XXX $X.X of XXX repurchase of diluted cash, million the billion ended with We elimination returned X.X the quarter form $X.X billion outstanding the second the $XX.X debt, in stockholders quarter, total billion of and shares. million and billion billion fully shares to we of

our years finance put in and to billion due refinanced debt combination a year. debt fiscal term extend bonds any in the at CA able of term also reduce average quantum $XX of we're substantially Via to that our loan, and billion a of place We loans grade of approximately the acquisition. one $XX beginning of investment XXXX to the maturity new five we

X.X%. As average our of today, stands approximately cost borrowing of at

IP we guidance, as guidance billion from Turning $XX.X $X $XX.X full revenue approximately software. to including not are is approximately semiconductor generate material updating solutions billion from licensing and our to revenue. infrastructure XXXX Hock amount billion, to our year of discussed, expected fiscal year a

approximately XX.X%, XXXX. be $X.X basis, in to Net are do from non-GAAP billion. XXX interest of others margins fiscal We are prior contemplate increase pay year On our to debt expected points approximately operating approximately and down basis not a be an expected guidance. expense any

is $XXX Depreciation rate approximately be XX%. CapEx to be to forecast approximately tax million. to $XXX million. is expected be is expected The approximately

$X flow of free expected to takes is $X.X cash restructuring result, account As projected billion, integration into approximately be approximately a billion. charges and which

Stock-based compensation be diluted eliminations. expected And be we approximately count weighted impacts and and $X.X XXX excludes million from to finally, to average QX for for and XXX expense share any share billion. expect buybacks this is million QX

dividends to We per Now, Board quarterly $X the of allocation on fiscal pay XXXX. plan the to current plan payout to to throughout remains cash capital out quarterly capital $X.XX the share approval, over means year strategy billion allocation, subject which we our same. dividend maintain in in

back billion we buying total $X shares. we committed billion of first the remain and and elimination XXXX. eliminating the spent to $X.X the fiscal of a stock of have repurchase for year, addition, half fiscal in In In

That concludes prepared remarks. my

Operator, we During each, many possible. the Q&A portion today's call accommodate analysts open-up one to for of as so can please questions. question as the call, limit please yourselves

Operator

Instructions] you. Thank [Operator

Our first with America. question comes from Bank Vivek Arya of

Vivek Arya

you. my we much of taking billion Huawei, Hock, next in you that the for segment impact reduction of for so so can in how outlook some just the the $X how any is or Huawei Thank is and two sense outside much semiconductor Thanks our question. can models? give calibrate level us quarters,

Hock Tan

itself. $XXX I put terms beyond figure part that this providing, add Huawei picture way million one down company Well, particular revenues by the guide of $X disclosure, is it's of full just But for in as out customer. year interesting billion of represented the that that because extends an you other to about we're should of it, last obviously

the marketplace, our because in reduction uncertainty as of uncertainty about to form constricts talking compressed, the so We're there the of chain -- demand speak. supply out in of order --

reduction put and placing North in of continuing there. But in inventory there. some chain to concern orders because what more based. else this between do users end compression broad anything driving the of in Basically, environment a and what's America reduction Europe, about And and has it's supply we we do be additional see, is out extent, of is uncertainty place U.S., the the a than to actively particularly see

Operator

Thank you.

Barclays. Our Curtis from next comes question with Blayne

Blayne Curtis

Maybe could that for Hock. my just thanks on guys, follow-up question. taking Hey question, I to

Just revisions lot and as were curious, I look, kind markets saw I quarter. of mean of a think you last soft you

maintained of saw this to idea if give out slowdown, you us you can trying of just when I'm any kind figure forecast. guys You kind of your that.

end And product, you if there then for if end add that more markets be market, And there's particular not you're helpful. you color is can to just any any that would weakness? any this can seeing point

Hock Tan

of as and was order -- we with softness beginning much imposed the very quarter, particularly basically, dramatic seeing reduction, so like that we [ph] [denial] a accelerated QX, this Well, Huawei. it on started this

Operator

Thank you.

comes question next Harlan from Our with JPMorgan. Sur

Harlan Sur

question. my taking for Thanks afternoon. Good

actually year-over-year Tomahawk digits Jericho some a the side area compute ASICs. area been that's do On pretty an few team, you product double where X, the strong it's quarters. the have strong the like of offload cycles networking for guys some growing past specifically, X, And for

the and how the you outlook expect the networking ex-Huawei, half? second programs? uncertainty first of macro half over impacting to revised segment would business this some In is ex-Huawei, And again, these grow

Hock Tan

good very Harlan, question.

Our strong in what total the we networking cycles strong to business. particularly new product It's year-on-year. this very related one our ramps to our and be think expect to in that. in I to referring Year-on-year, switching, brightest ban a be networking It seen routing Huawei. is strong, notwithstanding networking the -- business, new on export of which both that business, with you're double-digits grow continues and portfolio is continuous product environment we've areas to,

Operator

Thank you.

Seymore next Ross question comes Our with Bank. from Deutsche

Ross Seymore

wireless of know have large you you customer. the some for They most the share. a thanks American me second us seasonality. question. half positive with go to Hock, ask agreement I letting typically just side. believe North were And in actually I Hi into signed wanted reaping a supply

in to double-digits, I are of are the getting wireless getting if or how put all with in flat relatively assumptions growing Is incorrect? are the that offsets some given in half? you mix, you the said be other some our second just half -- networking what first there areas into So, you especially how

Hock Tan

terms what are area see, of -- networking on about that's cycles it of of strength don't In in really because in seeing. I with end not the improvement we very Well, wireless. XXXX. we year-on-year, broadly the just know about the environment, about from segments, are, the and only is this But Ross, any market assumptions strong current do is product coincides

Operator

Thank you.

next comes Our Arcuri from question UBS. with Timothy

Timothy Arcuri

actually their in complete had front-end modem. I your into large move being modem Hock, kind package competitive RF and talking environment having a particularly about a around we and business a that sweep of XG that's just as with the of to question able for sort RF now about Hi. maker

your the and you into as can you Thanks. competitive So, can position kind talk get environment of about XG?

Hock Tan

a very question. interesting That's

ways many in believe we the by to just validated very strongly continue positioned. it's mentioned. We very, I points some are of And data

We modules. in the out technology best components. the filters products have, far, They're integrated by and and typically there RF front-end the front-end

ahead we are, and front. We of technology-wise terms believe to furthest in continue we very in capabilities. the much And are by still far,

as customers I by very to our supportive And it's to give to we very they fact be said, the continues business. be that the continue validated validated of and been value our critical and

Operator

Thank you.

question Toshiya Our Goldman comes Hari from next with Sachs.

Toshiya Hari

question I expecting both Hi the business into us RF back of growth as a Wi-Fi side side guys. had RF on you as content you wireless? well or Thanks within are remind can well. kind half, for as what your Hock, taking the the of question. assuming the on

into recent the well And XG how you rather talked then win positions you also about XG. or

As of transition what of content the you what you next of growth side couple what years? know today, on your are XG the you kind expecting we RF on to over you. customers, from heard Thank as based

Hock Tan

actually content products XX% have RF, the see years in and the is difficult, I of years, asking you to X% with appreciate I that we seen evidence and growth annually, ship. longer have probably two, and we the describe in empirical to very content -- range way year-on-year on over asking in same content the that, And Well, you. even best I last do we that of see three me growth. so the we five next and terms what Thank every not the mean for is year, growth

the yes, growth for I it's our available a probably the smaller Now, guess, further market, -- entire, our available market, percentage. further

Operator

you. Thank

Our Suisse. comes John Credit next Pitzer with question from

John Pitzer

half-to-half. you're days want for back relative of Hock, ago guide wireless Yes, just good flat to XX a question to seasonality guiding were overall above guys. just the of about the Ross' you go now I'm the about guys the the kind year. curious, for year, balance I talking semi well the business of when balance to normal afternoon

your a did wireless this issue extent content on back business? what of side of half year the expectations unit come being To just the the down the to really versus

Hock Tan

out very numbers an been forecasting as do in keep rest -- question that taking we're the And interesting is the lays are very that that's more mind; Well, by a that frankly, and of And that stance set we -- even ramp-up, see for we that environment before. ramp-up here. seeing dramatic we've see conservative we're also broader fairly is the demand a when markets, a -- the of than you the fact extremely offset and uncertain. just we

Operator

you. Thank

Stanley. question Our from comes Morgan next Hettenbach Craig with

Craig Hettenbach

Hock, the ASICs. while offload little guys traction back, you know a compute about about you in thanks. coming at to just hyperscale. initial back Yes, some talked talked I

and extending -- we is to update of you're look forward. Just of that get as customers extent hyperscale particular to breadth an terms in the to that wanted multiple the how that

Hock Tan

in AI, our compute call focus calls increasing in -- emerging Well, multiple call continue see have offload to orchestration of I course, in mentioned an perspective. our that I is from and and video traction about accelerators offload before we space the engines areas, expanding from that to now it, earnings servers, And or compute transcoding and previous encryption. and including compute in we what it calls virtualization,

to be compute seems and And years of But the any this the very total percentage trend believe matter spend nonetheless, of data be space significant to very significantly. within continuing is that to steadily in center. large space -- three a we end it's a could scale growing five a at a up

center. even we're perhaps talking spend high total as data as And environment more of the computing potentially getting XX% a of to about scale or in large cloud

Operator

you. Thank

with comes Our Danely from Citi. next question Chris

Christopher Danely

thanks Hey guys.

i.e., the Just feel your $XXX incorporates could go still round you at that there tariffs, do thing does next be through, if downside do more you billion the overall good in through? proposed does go that looking environment, of think think guidance? Hock, Or do your if you about guidance

Hock Tan

into this at think including the picture. I that point, try everything round next capture to we proposed

out especially We that very and hasn't and North a Europe, things we customers see very, And of that. global as sharp end have chain and believe, we rapid mentioned OEM orders very there environment supply as the belief nervous. even very, that's demand reflected America from contraction customers, is our why are I -- in our

mood are seeing So, we here. reactive a very

includes the that of I so billion potential place. next And this round got tariffs to $XXX believe in that be sense could of

some Also One Huawei the that on company this. add keep in selling are -- mind, something to the I impact should like technology? components us there a parts is is what's even as part of we see two and ban

impact other exist, Well, mind, and end see in because allowed, exist. purchases to there's short-term, there no taking simply -- a in replace very from may obvious place continue sharp keep we'll OEMs substitution may which no are demand, over which

qualified to other to replace Huawei few other OEMs will those out to those give and remains a our mostly and will buy it over OEMs demand Give products. in, take come demand continue OEMs those months, on six end still months, there, it if those,

we our But so readjustment rebalancing And expect a see not have in we from do and that. side. demand to short-term,

Operator

Thank you.

Our with comes SunTrust. from next question Stein William

William Stein

with that Great. Thanks sort about for in Thank about similar of with more strategic at quarter, points think might one traction Were like I a around proof you. in both around On CIOs brighter you involve the the seeing business. deal point of that my question. engagements that? note, regard you to acquisition? a to Anything least a approach Last CA proof sides deeper sort taking of little Hock, talked I'd bit. ask to

Hock Tan

yes. Well,

-- said -- core is we on the we infrastructure as software as software. accounts I of largest are time, is lot focus things last buys are the One and a who these world as said, infrastructure enterprises the we of doing in

significant booking of runs very, And large successful months ability mainframe CA a enterprise this in of we given over in we've enterprise-wide as mostly an in such to that the portfolio offer lot larger six renewals on largest distributed now, and in infrastructure, the our been with, accounts dollars of mainframes, XX with since has to very of companies products software these transaction, portfolio-wide amount and we and this contracts broad capacity and taken between and transaction. bring over right uplift securing have closed form the bear

And we foresee the that six rate being next even higher months. over

has positive So, allows trending that's a how you working. fairly business that's to the are tone give concerned. CA working And which very far well, as as we us been to

has of to able that compared In nutshell, achieve earlier, increased what quite said we've been commitments dollar expires I the amount significantly. to a and

Operator

you. Thank

comes with question next Cowen. Ramsay Our from Matt

Matthew Ramsay

much. about environment it. I demand talked about little wanted Hock, wanted to -- see very bit, the ask bit to the as a but and obviously, environment the about afternoon. bit you little environment Good ask Thank a a M&A trade you we

CA of you I Obviously, announced on a right see as us little the some environment took you. it M&A very side. a give different of company here direction, seen if bit but might a mergers the little semiconductor a on you Thank wonder now bit recently. view semiconductor the we've in

Hock Tan

too. us encouraging, view, see I the quite are which level the interesting, industry there, this making large be go M&A seems see we And of it's of our have it. welcome a of from to to lot is to for You to what a we peers, sense that in semiconductor you taken, seems activity on. point the direction space? of a And in part our that Yes. saying some environment way see quite

that terms in are of -- sustainable are as makes earnings see what's businesses us, we previous that call, indicated acquire. in to before that for what's that very franchises able actionable as are I've we sense, And and it's

we continue of but but very a present in see and and -- -- be we be we lot in those assessing opportunities. opportunities interested right to very that may active continue we to now, movements, themselves And

Operator

question And from James. our come with final you. will Raymond Thank Chris Caso

Chris Caso

you. or about Hock, think the your just to the of here quarter comments I because inventory guess demand. and the you reducing I thank by of into the how coming at some a to driven situation just inventory inventory, Do are you see rather the return proactively where reducing the were is elevated customers of talked levels your as some the of -- Yes, reduction uncertainty? wanted that inventory the is inventory. you questions opposed customers to is regarding customers question weakness much this

Hock Tan

I we what overall are the it but think should coming uncertainty terms probably now weakness started customer and say, out directly. from are aggressively I the inventory customers sharpness is quarter of more this lot lot we're seeing demand demand reduction, -- is a reduce because that in a demand -- there contraction here began, even about or to even of inventory fact trying talking that before

and consistent in XX our balance has the all to on As range this, through of you noticed, days be continue our well-managed, very very, inventory been of inventory. sheet, we very tightly managed

supply talking significant much this of the the six reduction a action months -- year, is rest of what continue, of less anticipate seen out we the We is we believe which on next reflects which very in this and there. is is for which our our there. significant? to where chain the been Yes. it And the reduction are than guidance there's revised we've inventory that So, reflects out of end really customers direct user, sharp very

Beyond that, who knows?

Operator

concludes well Ladies session you program. call. today's conference as the This Thank and as Q&A today's in thank gentlemen, for participating you.

may You wonderful have and a day. disconnect all

Broadcom (AVGO) 13 Jun 192019 Q2 Earnings call transcript