AVGO - Earnings call transcript Q2 2020

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Operator

Welcome to Broadcom Inc.’s Second Quarter Fiscal Year 2020 Financial Results Conference Call. At this time, for opening remarks and introductions, I would like to turn the call over to Beatrice Russotto, Director of Investor Relations of Broadcom Inc. Please go ahead, ma’am.

Beatrice Russotto

Thank you, operator, and good afternoon, everyone.

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

of information copy, did for at website one website telephone also recording conference our webcast will may receive will you being This Investor be a week. is the and If obtain of It not broadcom.com. Investor the broadcom.com. archived playback live from call Broadcom’s be the section via section you at in a available

to filings press prepared comments, our the of take materially on our and third We’ll forward-looking regarding the guidance year Hock cause that information During for commentary be and differ environment. our made providing refer our XXXX with questions Tom call. after SEC specific details actual quarter, on today for fiscal recent risk the as factors from business statements will our as the could well second release comments. end prepared to quarter the the results our Please results, this of

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

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

Hock Tan

joining today. us Thank right. for thank Bea, you, everyone, All you, and

to their thank want keep XX,XXX acknowledge for more all than the protect are employees when these on team all running. of during their our results, workers of showing I I tireless to to work. say, for thank of quarterly efforts very a to I we and and provide I our our business times. speak preserve proud world enterprise. also over courage I’m I working especially moment the want our are to unprecedented incredible Before who and Broadcom, healthcare do of frontlines, the essential all professionals take grateful

of to customers deliver communities us life. that critical functions and to our than more continuity are continue on to technologies daily essential the the ever, Now, counting enable

turn and line So revenue X% delivered results quarter our me billion, much was Symantec. declining X% sequentially, year-on-year, year-on-year. up was in second X%. guidance, outlook On were revenue billion, now, the solutions let contribution X% quarter. up to XX% includes software down for second We quarter very software net with of while third $X.X our $X.X from our down basis, revenue sequential Semiconductor of $X Infrastructure a up course, which, X%, billion, semiconductors year-on-year. was

starting of very color, we in interesting supply the a chain environment more to semiconductors, with on face with demand midst So a challenging ecosystem.

more range. Demand are cloud sequentially. me reflected to demand customers. with in QX our semiconductor color Let was steady customers. and QX as an This Beginning existing working. QX, recovery, to our recovery X and we various which in a And into X search switch products Tomahawk next-generation end Trident next-generation for we in network was provide at in our expected routing, ramp healthy net addition markets. saw now up as various telco turning on began Jericho is seeing products at this generation we strength XX% X

state been that controllers our showing applications strength. is and accelerating. from and Express around situation inference connectivity, demand we neck drives a memory Demand sequential in has has particularly PCI data decline for our AI cloud customers considerable is turned deep storage the a revenue server a from in recovered in next-generation enterprise protection also demand has from In from XX% uplift rate chips the sorry, customer. ramp are and – service – from QX, switches a cloud of Demand strong We solid demand leap learning for note seeing similar strong. QX fall providers

was which QX. broadband, to flat on sequentially in Turning

from expect XX% only from growth other providers. next-generation in but QX, strong of access also X driven by and approximately enterprises, gateway, Wi-Fi not quarter-over-quarter We telcos revenue in adoption service

We’re of to being sequential said, much normally be as will in events. by in a expect next-generation also Wireless offset to typical year. and phone large partially uplift North set-top on seeing increased satellite live American current we demand That decline our saw the DOCSIS next-generation on QX, given mobile X.X. DSL sequentially, a sharp this and moving in for constraints see customer. the last QX, video, was XX% broadband, revenue PON wireless. to double-digit we seasonality down in particularly expect Then from like In ramp boxes, sporting cable phone

this do this we our However, until revenue fiscal year, uptick not see expect fourth in quarter. to

we down accordingly, down be in was wireless as revenue in will QX sequentially it QX. our expect So

Turning last revenue We market. in in recovery industrial. began with up see sequentially, to QX, to XX% and resales was recovery end to consistent

– expect COVID-XX the QX in bring flat, to moving are we from Japan. as inventory especially arising Even uncertainty globally, the down we resales pandemic, in to and current be given channel current Europe aggressively the market

result, Pacific, the a are quarter. revenue particular, recognized be would in in a third As I decline China, regions are expected note, to to down. be – expected we other other sequential quarter-over-quarter, shipping resales in while all up double-digit expect regions in Asia

So the that’s demand picture.

some has lockdowns demand than this, beyond QX. and QX, in running us. experienced processes, in have central test challenges, Malaysia, have line, logistical with this very may have leading-edge unique times, significant have continue significant And supply we well capacity chain centralized puts and summary, to Coupled and experienced see this – Bottom delays. really historical much also of clearly a Lead do we more significant COVID-XX where to at side, some we location, we have warehouse. in and can supply especially which capacity test highs. – are the takes. on In repositioned significant and so a extended Now, we continue we is intermittent which are

networking, in of storage demand surge and a side, broadband. positive the On

product we solution revenue the semiconductor side, delay delay wireless. the On to chain the constraints Therefore, X% in up our X% wireless. year-on-year cycle be down third quarter, negative but only Right. major and supply in sequentially, focus the despite product for cycle

over Now software. X% year-on-year accounts in in sequentially. largely sequentially, which our Symantec Symantec offset $XXX turning in and we Bookings CA expected up services to the was After X% integrated grew transition. revenue. by Broadcom the grew annually, – reduction the and quarter. to contributed on digits double the core have completed was flat successfully million two platform quarters, and have contributed

mentioned, our As business. the continue at accounts more growing transition commercial to as offsetting accounts, rationalize the are we in than smaller out of core bookings

in – and third the there of was was the up for was last sequentially following year. quarter Brocade QX and in a While Brocade the was bottom down XX% row year-on-year, it growth QX XX% sequential

we quarter, CA to on from of a Looking expect revenues sustain ahead and basis. sequential course, to Symantec, next

will inventory However, reducing and revenue very distribution consistent for expect we semiconductors, with Brocade channel significantly down quarter-on-quarter our Brocade in are strategy QX. significantly be in

So as down expect Software in be approximately we sequentially third result, a revenue quarter. segment X% from the the to

turn So and we revenue roughly revenue sequential it flat semiconductors decline be net in that, software. Tom. I’ll expect sum, projected a quarter With in This increase consolidated third our from a over to reflects X% in sequential expected to revenue QX. X% $X.XX billion,

Thomas Krause

Thank you, Hock.

our on provide detail now performance. additional financial me Let

to increase but Operating gross continuing stranded points, approximately by in from costs a our basis $X income revenue and points with drove XXX flat revenue. were up XX represented year-on-year. quarter. was XX% The the of quarter of Operating software XX% the P&L, percentage overall operations but due on primarily in effectively basis relatively First, the billion quarter-over-quarter, of net approximately in Symantec increase. the margins as QX, were margins carried revenue and for we down year-on-year the flat

$X.X but approximately we to million to of Symantec-related $XX expenses operating million of $X.X revenue. included expenses expect fact, depreciation. down This were $XX excludes of away still which net go In the the year. billion and $XXX was that XX% EBITDA figure billion, Adjusted represented million over of remainder compared was QX,

and of Looking had This particularly it’s free a extent at strong flow months. XX% revenue. our quarterly more were billion, quite with businesses noting of worth are strong year-on-year. We than bookings representing December lesser up a XX% to is flow. March, little software seasonal, $X.X and Collections that cash cash record being

QX period software. our for a is collections fiscal the peak As result,

strictly our to business of liquidity, caution, out continuing also but an the the abundance addition, moved of build we operate working we given of during improve most managed are Notably, to way. capital the continuing to lack In and order of visibility. quarter this

orders However, we’re conditions is operate to our respond short ability continue very going given the time for is challenging approach limited. Overall, lead environment. to the uncertain plan going to and downside forward, to our to conservative

billion the Turning we quarter, to stockholders cash capital paid In of dividends. $X.X our allocation. common

of of that, quarter expect fully million AVGO approximately shares million account stay due taxes ended withholding in million at and resulting million $XXX We paid diluted in common we QX. elimination to employee share with vesting equity, also Note shares. to diluted the shares. XXX fully the on in outstanding XXX XXX the We XXX,XXX

approximately the investing including to of from maturities us on On $XX.X fiscal first earlier of our me, cash all maintaining of increased average in Note, sheet in In $X we debt refinancing, $X dividend, we This uncertain and have with billion currently just strong $X.X years with this push liquidity, quarter concludes we cash of years, and while which paper. billion by We four told, including activity. billion $XXX remain billion the derisked our remarks. debt, $X – environment. figures committed That our points. revolver. enhanced we of refinancing cost average quarter. and prepared is exchange quarter billion while $XX of Note part basis we revolver our healthy the flow of sheet the billion that my $X. debt and above billion given offering $X the debt short-term. as to billion repaid are inclusive financing excuse ended our generation, free have balance $XX.X over with $X.X to navigate balance our XX quarter, our the ended our allowed front, these we we which All commercial of drawdown out total of billion, financing of billion liquidity third executed million six month closing, did of position,

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

Operator

Thank of you, comes Our Instructions] Arya question first Bank from line of the of sir. America. [Operator Vivek

open. Your line is

Vivek Arya

from going on Historically, then strong, to comes it you Thanks some that question my I question. for by XG. the think time, in shifted XX% taking a in it’s QX mentioned be wireless. larger This of past, growth think, Hock, growth growth is in and the to QX. a perspective seasonal see saying And I when you’ve content kind you’re quarter. also then of a

we think kind it in QX? us QX? should how could more recovery of up it, you is, align if about the help about wireless question should us around Just flattish give be wireless year-on-year the or So Thank you. into color think how recovery we And whether some expected year-on-year? the can

Hock Tan

what been is QX – of will trough the In years, believe last XX% the the just XG close rude, our That’s I in quarter. we’re maybe we answer XX% of question, in terms don’t QX, what in Vivek. changed mean – flagship in I’ll the year you timing. in for be trough And has because business that’s point. has XX%, this were where the the in the you’re not of and year year. guiding for way, right, we’re designs. delays, North the big We we we designing, of been OEM cycle you’re phones question and way in product implying but this When? every the QX. reflected in this The content our as obviously, up the timing. large changed those you coming And to be Nothing fiscal seasonal terms it our the – guiding maker. right. seasonally, flagship past no fiscal QX. over know, question. more number is Nothing over guiding forecast, QX that’s indicated. are and definitely we’re American phones phone you’re your to And – reflected has has And way from content It’s to at We

Operator

Thank you.

comes question Hettenbach Craig Morgan Stanley. next of Our from

Your line is open.

Craig Hettenbach

Thank with Hock, CA question now and software Symantec. a you. on

ahead – these strategy due performing about of how particular, ask you’re how is in taking how incremental what just seeing and to you of hold? today really deals the as you’re closing, In businesses kind versus doing would are wanted in business be this the helpful? diligence anything Just

Hock Tan

Well, very good question.

sense whole We now and business to mainframe the operation that especially as to a It CA expand very, well, of focusing a little more answer from past grow evidence spend core and have to we adjacent this on did the us CA Financial over more my DevOps are under as platform. has enabled respond the me in to comprises the and distributed with minutes months. lot we’re in successful belt that, almost enterprises, remarks, prepared have And in on expand ago. to let which in CA annually enterprises, as have give buy – I bookings to these pleased we say, has our able So few XX% the which color. XX to range you capacity, a in software we more and selling An we XX that of deal over and by indicated very regional – large to have performance And performance. our world. book exceeded belt, even the been it’s accounts products a there year-and-a-half under given these CA of plan our largest that who acquisition. buy software out months when I our bookings

has to been success. that us so great And a

be same to core trying same who of customers same the to on focus set We’re the the core with very Symantec, customers. similar playbook, happens do a

pleased under has two are with now, we quite quarters way have thing our this We done and belt now. the

Operator

you. Thank

John Our Suisse. next question Pitzer Credit from comes of

Your line is open.

John Pitzer

to you of basis, asking, anyway up sequential in guys. the the afternoon, network go the to of fiscal at me supply kind I’m your is constraints while the year-over-year question. second a Hock, impact? some that in the letting in about about up second significantly of least Thanks it’s kind semi just on to Good I there cloud in a quantify the want expect third quarter saw the math fiscal I and specifically, to only for which solid, have comments Yes. guess, reported. Is XX% quarter. other underperforming see high-teens, back revenue ask to our mid growth by quarter fiscal lot guys of why a is And

of supply I’m circle, were certain trying so and that square to part the in more a just dominated constraints And business? the

Hock Tan

range You’re of I data networking right. broad We sell a into products, as centers. known products, even we indicated, fairly sell And switching.

sell into server near We server storage that and also data some we goes components drives of cloud sell components, these connectivity our those line also in storage hard into centers.

franchises diversity. not the cuts and strong products very constraints consistently. some And view, the demand, impact, and situations. their to it’s Very very how broad see the basically on we those So able strong be a challenge supply we all – in challenges rights. in our our supply fortunately, across is in are chain own our of very, optimize products, but these And to

words, so not work been In seen see other perishable. And willing we to to are challenges. through demand the customers very our I say, supply be situations would many very, able with our as we work in us, chain and has

Operator

Thank you.

comes Deutsche Seymore Bank. of from next Ross Our question

is line open. Your

Ross Seymore

to you’re that me that, guys, going supply off bigger could going enough forward still make ask away supply, I to the are to comes sacrifices and business mentioned constraint. quarter. Hi, specifics and wireless, want problems look elsewhere? John’s the side differentiated quarter there go that a in piggyback have of come well. if to back be rest supply have of question have side little when Are sufficiently any letting wireless for as the the look that not wireless back, make Hock, pushing – and XQ? and short when from the limitation those fourth you’re the and have maybe on shortage even even on with fiscal was the wireless business the into you that Is thanks business further question into it sacrifices we can third that you chains of you have the a also out to

Hock Tan

you Ross, we love dearly.

improving unique constraints of have. – You’re in are week-by-week in our some overanalyzing. those Things we

they’re. up. Malaysia is Of course, gradually opening

as test are have expanding assembly ability where – our the – to capacity locations, their as warehouse to back-end capacity we capacity gradually test shift operating other are capacity Our our capacity.

look, to along. we And increase step-by-step will it. overtime we’re So as go and get improve we working there

now vigorously, we’re As at there, working we’ll QX improved get the time, I about have we say, sure, when through for very and QX worry considerably. situation which we would

Operator

Thank you.

Sur next Our question comes Harlan JPMorgan. from of

Your question, please.

Harlan Sur

question. Good Thank for you my taking afternoon.

to the actually add traffic, can Hock, X, start top are that, capacity, sharp not then the away, requirements some of Tomahawk in as data you COVID-XX-related and understand the mentioned, X, you geographies the ramping global data that goes acceleration, on dynamic Given cloud I back networking to And increasing center compute compute And your of this open even more ASIC. sure business. strength up. obviously, as guys Jericho

of this, do take there into of year? cloud Because second-half year? to post-COVID-XX, second-half the for demand view customers be there out of the a your So that are given the seems a all cloud you to the in sustainability products see of pause going

Hock Tan

that Don’t we closely sustain. and mean, about doesn’t know seeing you We it here answer. now and this bookings, weeks that’s don’t you right don’t you you we sustain? strong I degree up weeks, question. the will And fact. now, head that I Harlan, XX with that line And very extremely a ago, it’s of been honest really mean, through extremely mean weeks that’s of have continues I’ll our question that know. high sit if to It asked answer. question keep that doubt be that have constantly. good that an Does agree as sustain, four but the the you goes I me we the will know right I is, bottom will would ago, track – five a we

Operator

Thank you.

Our comes Stacy next Research. Rasgon from of question Bernstein

is line Your open.

Stacy Rasgon

In Hi, guys. used wanted you the for expected substantial go my the I press taking word to to wireless. release, Thanks question. back reset.

So was you to product expected, does million semi you generally, assume this But XX% being ago, that that billion gave what going I of is a some for was year, more versus rolling from two going that quarters this the year, expect mean to magnitude of like two us delay was is the us for last about off year. color we us that that given custom wireless you business And give can a ago, that you’re tracking had reference the I on. the the that order or down for of quarters now targets expected $X.X told year? what’s some knew full-year. couple growth right now. that think, tracking business the below wireless given quarters how it us had ago idea you actually $XXX

Thomas Krause

Stacy, Great. it’s Tom.

we are of terms what I be no some earlier and year about The of correlation we of when about, we has a in think, There been today. there’s is supply delivered. talked content’s see product are chain course, where going that. reality as Hock constraints, up, There what is between this talked to shift is XX%. on top

so ago difficult. we think, put I talked two when to was quarters you anything And what comparing together, all that about,

from we on but a and bodes this a also remain I the And content obviously very think I point well the roadmap for in that key future. consistently later past. talked the track product about standpoint in year, from we think standpoint is, much

Operator

you. Thank

Barclays. Curtis of Blayne Our comes next question from

Your question, please.

Blayne Curtis

follow-up just Maybe question. wireless. the on for Thanks

to understand content XX% you XG. gains that, want XX%, said in Just almost

so couple years the you’re on Wi-Fi, assuming assuming then can I’m the over I’m you flow years. the over just well will that So as the in maybe of cellular, us next some perspective And as of of just next content mix. wireless? give a story – of And the portion that – model composite kind just that’s and in talking couple

Hock Tan

I ahead, your Yes, question Well, assume go on is more content. Tom.

Thomas Krause

also of area, it’s So on products it’s content Blayne, it’s Wi-Fi. right? in our that it’s custom of all, of first I RF, all think, not inclusive side, but just and the

content but several over about non-XG talked plus go versus And time? that’s mix transition. that referring years years I that, you’re rate And about When past, of ties think in what take to XG our we over to all what’s what several it’s we’ve the is how the Obviously, the expectation. wireless expectation, don’t talked being the phones? takes what think does so of for growth, I to going we control play it several to that digits, high into time, the XG. that’s years next single growth the out

Operator

Thank you.

from question Timothy UBS. of Our next comes Arcuri

Your line is open.

Timothy Arcuri

I to I talking your about big a It’s had guess, on thanks. word big being demand. global supply downturn. you’re constraints I surge amid recently. And Hock, have quite across such markets used strong, picture obviously a Hi, odd demand end definitely just question economic a a think,

and customers you I demand the your handicap constraints Or strength? there’s guess, from the orders? into how sell-in robbing maybe asking you’re support bridge quarters, some and if that from some end what hearing to do of that sufficient Thanks. are sort customers future year from given I’m Is XXXX? we sell-through? you robbing know So, the maybe the the on sell-through can supply of

Hock Tan

look, Well, answer to me that. let try

is are it. the cloud them. in in a Strength cloud, most the the what This about big broadband – this vendors First and these service of orders both all demand – about, we’re directly talking from constraint of – of and users, you directly are lot strength direct mega these heard end foremost, from the orders, all are all telcos, have from providers. buying scale,

OEMs, OEMs, are these we a they distributors, the customers customers have through And the from not visibility like if which pools on even clear cable providers. companies, service end go of lot getting directly. we users, are the telcos, We most – with of the OEMs, deal

Last out – very are out, this are demand. else, general to distribution, get bringing distracted as So we with thing, anything view there all direct. of view channel we distributors to I do largely and bookings, inventory environment down pointed inventory. And is strong our our if and managing need exposure these too, end back in Tom’s of

markets inventory reducing So aggressively bringing as on very – maintained, a channel end down decent their as are into is distributors even at at resale level. depending fairly mentioned, we ship their by I

are OEMs, these guys probably think I a who to bunch of it these from mainly sell of lot And a not direct. customers, OEMs, large these are So And of coming lot cloud a customers, big enterprises. holding – holding far quickly for as deployed. been mean, are for as as they as we they’ve have see, we’re or aware, it dread fact. can a been don’t we not they deployed far But Doesn’t inventory.

So we accumulated, have – we clear how much being do not any. sense if have on a inventory are

Operator

Thank you.

question from Ferragu comes of New line of next Our Street. the Pierre

question, Your please.

Pierre Ferragu

Thank taking you. question. for my you Thank

And So, Hock, was customers in if direct correctly, if a with equipment your saw in demand surge I your telcos? you differently you trending you trend for saw wondering cloud things similar understood networking and of end the clients? I

Hock Tan

assume original talking the manufacturers, I the equipment You’re OEMs. about,

lot Now, more of for implying not you probably side. buying enterprises, all the us enterprise OEMs, traditional most I buy a assume here than are tend – from to, as

buying XX And as over XX, quarter weeks, we of lot of those OEMs represents which one seeing, enterprises. the also so are a we are the past for see bookings

the the we strength certainly purchases or customers use So telcos enterprise that guys there, of those and not – direct also which these not strength service that from from for see come see fairly on cloud cloud orders of demand and mega scale our are from, from for basis lot to and we orders where we among but that scale but do this a we see providers weakness scrutinize that their broadband, have, not telcos these the guys in business. for point, with from or players at especially large

Operator

you. Thank

ahead. comes Please Danely question Citigroup. Chris of next Our go from

Christopher Danely

for I for to situation. try guess, time a lead guys, series on Hey, like going a of letting thanks question. me ask the I’m confirmations

are extended? can now? So you extended further little them you about lead what just revenues do on the tell worse times more times? lead you you normal of Do double are by And then percentage of And and getting sort could they any if talk or of what see also, us what’s a then signs impacted see color getting ordering?

Hock Tan

for about this in When foundries has specialized times, ago massive up for processes, been something is talk And lead long not in several leading-edge the times – for limitations past very, that processes In very so you recently. add for leading-edge while, just it’s processes. something leading-edge a always it time It’s showed components like lead a case, a material at fact, over many especially months, just MLCCs lead pretty also extent. if all Well, foundries, been wafer the not wafers I that long major would extended. as more like time wafers, this year also because lead for long substrates, on happened is capacity of that. than and has

time, makes buying with have good high their are that a as way perhaps maybe improve. their it are probably chips, that on when they materialize. on that you deliver over forecast they what What in it buy product – lead – – suppliers a you times and that’s already building which to – start could lot can from is, that they product be period level try manufacture way will a that the semiconductor enables give this. the to a risk is for final standard difference, companies pre-building It you companies think much whole their and the carries and improve a end I been the has lead anticipation will some forecasts It see less there and my those obviously therefore, – to that doesn’t can, lead demand with chips, and normal level highlighted to of forecasting many many to do of – inventory, And than out start would of the take be deliver many happening. – peer manufacture from the from what’s our months I today industry in really and from normal customers. improve wafer a to think will Tom we that we’re group beginning the starting the forecast it than the therefore, to The product. head is And some addressing time progress they of longer when end is It now. – to of that beginning supply. to improvement. times, and of their order But lead longer

chosen have And is of built forecast. All risk and right. that because We difference only purposely to to might here. mitigation to what biggest not now orders, the be build

Operator

our a conclude for all will Have joining. today. day. That call you Thank good

Broadcom (AVGO) 4 Jun 202020 Q2 Earnings call transcript