Broadcom Inc.

Welcome to Broadcom Incorporated's third quarter fiscal year 2019 financial results conference call. At this time, for opening remarks and introductions, I would like to turn the call over to Beatrice Rosado, Director of Investor Relations of Broadcom Incorporated. Please go ahead, ma'am.

Thank you, Operator, and good afternoon, everyone. Joining me today are Hawk Tan, President and CEO, and Tom Krause, Chief Financial Officer of Broadcom. After the market closed today, Broadcom distributed a press release and financial tables describing our financial performance for the third quarter of fiscal year 2019. If you did not receive a copy, you may obtain the information from the investor section of Broadcom's website at Broadcom.com. This conference call is being webcast live, and a recording will be available via telephone playback for one week. It will also be archived in the Investors section of our website at broadcom.com. During the prepared comments section of this call, Hawk and Tom will be providing details of our third quarter fiscal year 2019 results, guidance for fiscal year 2019, and commentary regarding the business environment. We will take questions after the end of our prepared comments. Please refer to our press release today and our recent filings with the SEC for information on the specific risk factors that could cause our actual results to differ materially from the forward-looking statements made on this call. In addition to U.S. GAAP reporting, Broadcom reports certain financial measures on a non-GAAP basis. A reconciliation between GAAP and non-GAAP measures is included in the tables attached to today's press release. Comments made during today's call will primarily refer to our non-GAAP financial results. I'll now turn the call over to Hawk.

Thank you, Bea. Good afternoon, everyone, and thank you for joining us today. Looking at the third quarter, consolidated net revenue was $5.5 billion, a 9% increase from a year ago. Semiconductor solution revenue was $4.4 billion, down 5% year-on-year and up 6% quarter-over-quarter. Networking continued to perform well, driven by strong demand for merchant switching and routing platforms. And as we also expected, shipments of custom silicon solutions in AI, smart links, and video transcoding two cloud data centers were strong. Wireless is, of course, seeing the beginning of a typical seasonal uptake and the initial positive effects of increased content. These tailwinds were partially offset by weaker demand in storage and broadband. Revenue for infrastructure software was $1.1 billion. The CA business is running above our expectation, benefiting from sustained enterprise demand for our mainframe and distributed software. However, SAN switching demand has paused as our partner OEM supply chain compressed in these uncertain conditions. Now, let me address the current environment and outlook. Enterprise and mainframe software customer demand continues to remain stable, particularly in North America and Western Europe. Sand switching demand will likely continue to be down another quarter while inventory in the OEM channels are being worked down. As it relates to semiconductors, although the U.S.-China trade conflict continues, we have not seen further deterioration in our business, both specific to China as well as globally. Accordingly, we continue to expect to achieve over $22.5 billion of revenue in fiscal 2019, including $17.5 billion from semiconductor solutions and $5 billion from infrastructure software. Looking into next year, Infrastructure software is stable as renewals among our core customer base continue to be very solid. However, visibility continues to be very limited on the semiconductor side. So we are managing the business with an expectation that we will continue to operate in a very low growth, uncertain macro environment, for the foreseeable future. Fortunately, the fundamentals of our semiconductor business remain strong. As you know, our business is all about connectivity. From CPUs to memory in data centers, core to edge in networks, central office to client devices, in distributed systems. And here we continue to benefit from the underlying trend in the IT world, an insatiable need for increasing bandwidth to connect things. In data centers, come out switching has gone from 3.2 terabits per second just three years ago to 12.8 terabits per second today. In cloud computing, As the limits to Moore's Law constrain CPU and GPU performance, the pipes linking computing cycles to the network and storage expands. PCI Express Gen 4, today at 16G, replaces Gen 3 with the likes of next-generation ROM CPU. Legacy network interface controllers, NICs, as they say, are becoming really intelligent. what we now call SmartNICs, and take on the task of accelerating workloads offload from non-optimized CPU within cloud computing. Even in SAN, that's Storage Area Networks, fiber channel progresses its bandwidth at 32 gigabit per second in Generation 6 today to Generation 7 at 64 gigabit per second next year, to reap the full benefit of all flash arrays in enterprise storage, and to truly connect computer storage, replacing direct attached copper, fiber optics running in 100G channels are moving to 400G as HyperCloud, our HyperCloud customers scale out data centers with Tomahawk 3 today. Turning to telco networks, Core routing has gone from 1.6 terabit per second a few years ago to 9.6 terabits as represented by our Jericho 2 router today. In broadband, cable model with DOCSIS 3.0 at 1 gigabit today will move to DOCSIS 4.0 at 10 gigabit over the next few years as cable operators need to compete against 5G networks. So it is with DSL, digital subscriber line, where at a mere 500 megabit per second of data flow today, it will upshift to over 1 gigabit per second in G.SAS, which may seem inadequate. So we need GPON at 2.5 gigabit. And even with that, we're poised today to launch into mass markets with 10G export. Of course, wireless connectivity too has seen the most headlines. And in enterprise access gateways, the protocol has moved from 802.11ac to the new OFDMA-enabled 802.11ax, otherwise called Wi-Fi 6. And we are at the cusp of cellular communications migrating from 4G to next generation 5G in radio access networks and smartphones. We are enabling these fundamental trends in the marketplace. This gives us confidence that we will continue to sustain and grow our semiconductor business over the long term. Moving on, let's talk about software. First, the CA. As we mentioned, our model for CEA is to focus on the 500 largest enterprises in the world, the biggest users of our infrastructure software. Based on experience through fiscal third quarter 2019, we expect our core customer business that's up for renewal in fiscal year 2019 to grow over 20%. Meanwhile, the attrition rate of business from the long tail of customers behind this core group is anticipated to be over 10% for fiscal 2019. We have another two-plus years to turn over the CA customer contract, but based on the trends of renewal growth from these core customer base in excess of the attrition of non-core business over the last nine months, We're confident that we can meet, if not exceed, the long-term revenue and profitability targets that we laid out for CA to you last year when we acquired that business. Our integration activity is largely complete with operating expenses to support CA approaching target levels. Finally, let me take a few more minutes to talk about our planned acquisition of the Symantec enterprise business announced in August. Acquiring Symantec furthers our efforts to build one of the world's leading infrastructure technology platforms. It is the logical next step in Broadcom's infrastructure software strategy and adds 160 billion cybersecurity markets to the Broadcom's addressable 10. We will gain a portfolio of mission-critical security solutions that are deeply embedded among our core customers. There will be meaningful cross-selling opportunities with Brocade and CA solutions, and we believe this acquisition will enable Broadcom to gain a larger share of the wallet of these core customers. And we expect this transaction to add more than $2 billion of sustainable run rate revenue with its leading franchises in cybersecurity. And we also expect to achieve in excess of $1 billion in run rate cost synergies within 12 months post-close. And importantly, this transaction gives us the opportunity to achieve our ongoing financial objective of double-digit cash-on-cash returns. The integration planning process is well underway, and as you likely saw, we cleared HSR last week. We remain on track to close the transaction in the first quarter of fiscal 2020, subject to antitrust approvals in the European Union and Japan. as well as, of course, customary closing conditions. To some, our broad and increasingly diversified portfolio of leadership technology franchises has allowed us today to sustain revenue and increase cash flows even in this challenging market environment. Now, let me turn this call over to Tom.