Broadcom Inc.

Welcome to Broadcom Inc. third 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 Rosado, Director of Investment Relations at Broadcom Inc. Please go ahead.

Thank you, Operator, and good afternoon, everyone. Joining me on today's call are Hawk Tan, President and CEO, and Tom Krause, Chief Financial Officer of Broadcom. After the market closed, Broadcom distributed a press release and financial table describing our financial performance for the third quarter of fiscal year 2020. If you do not receive a copy, you may obtain the information from the investor section of Broadcom's website at Broadcom.com. This conference call will be webcast live and a recording will be available via telephone playback for one week. It will also be archived in the investor section of our website at Broadcom.com. During the prepared comments, Hawk and Tom will be providing details of our third quarter fiscal year 2020 results, guidance for our fourth quarter, as well as commentary regarding the business environment. We'll take questions after the end of our prepared comments. Please refer to our press release today and our recent filings with the SEC for information on the specific risk factors that could cause our actual results to differ materially from the forward-looking statements made on this call. In addition to U.S. GAAP reporting, Broadcom reports certain financial measures on a non-GAAP basis. A reconciliation between GAAP and non-GAAP measures is included in the tables attached to today's press release. Comments made during today's call will primarily refer to our non-GAAP financial results. So with that, I'll now turn the call over to Hawk.

Thank you, Bea, and thank you, everyone, for joining us today. I have to say that the strength of our broad and diversified portfolio of leadership technology franchises led to record third quarter revenue for Broadcom. Despite these uncertain times, we continue to operate it. We remain well positioned to address the work from home environment, especially with many of our networking and broadband products in the cloud and telcos. In addition, we expect to soon start from benefiting from the transition to 5G and new product ramps later this year. While there continues to be ebb and flow in the parts of our business linked to enterprise, this is somewhat offset by the highly recurring revenue of our infrastructure software divisions. So as a result, we remain confident in the strategy we have laid out over the past several years, delivering sustainable revenue and significant cash flow margins while remaining focused on total shareholder return. Let me now provide further detail on our third quarter results. We deliver net revenue of $5.8 billion above the midpoint of our guidance and up 1% sequentially and up 6% year-on-year. Semiconductor solutions revenue was $4.2 billion, declining 4% year-on-year. Infrastructure software revenue was $1.6 billion, up 41% year-on-year, which of course does include the contribution from Symantec in 2020. Starting with semiconductors, our semiconductor solution segment was up 5% sequentially, driven by continuous strength in networking and broadband. Networking was up 9% sequentially due to continued healthy demand from our cloud customers as we began to ramp for our next generation Kamahawk 3 and Trident 3 switch products. Routing demand also remained strong as Telcos launched our Jericho 2 in their Edge and Core networks. We expect the strength in networking that we have experienced since the beginning of this fiscal year to sustain in Q4 with continued demand from cloud and telcos driving solid sequential growth. Turning to broadband, which was up 7% sequentially in Q3, we continue to see strong demand for the next generation cable modem, cable DOCSIS 3.1, which was partially offset by a decline in the satellite set-top boxes. We also continue to see strong adoption of Wi-Fi 6 in next generation access gateways in telcos and consumer and even in large enterprises. Telecom and consumer have been particularly strong, driven by work-from-home environment. But after a strong Q3, we expect the strength in broadband revenue to take a pause and come down on a sequential basis by approximately 10% in Q4. Keep in mind, however, this will still be up 20% on a year-on-year basis. Moving on, wireless was down 4% sequentially in Q3 due to the expected typical RAM being pushed out this year. This is expected to result in a significant uplift, however, in wireless revenue of approximately 50% sequentially in Q4. Despite this significant sequential ramp and a significant increase in our RF content, we expect revenue to be roughly flat year on year in Q4. Now this is due to fewer units of our parts for the next generation phone being shipped in the fourth quarter this year relative to last year due to this product delay. That being said, We currently expect Q1 revenue in wireless to be up sequentially from Q4 with an increase in expected unit shipments of our parts for the next generation phone compared to Q1 last year. In other words, the launch ramp this year is expected to complete only in Q1 where as it has normally been completed in Q4 of previous years. In server storage connectivity, where the majority of the revenue is tied to enterprise, Q3 was up 10% sequentially. However, expected softness in enterprise demand will likely result in server storage revenue declining in high single digits quarter over quarter in Q4. Turning last to industrial, resales and revenues were both down 3% sequentially in Q3. In Q4, we expect resales to continue to hold up. However, we are taking the opportunity to further reduce our channel inventory significantly. And as a result, we expect industrial revenue to be down double digits quarter over quarter in Q4. So, in summary, our semiconductor solution segment was up 5% sequentially in Q3, and given the continuing surge of demand in networking and the expected 5G phone RAM in wireless, we expect a mid-teens percentage sequential increase in our fourth fiscal quarter. We should note On a year-on-year basis, Q4 will mark a return to growth for semiconductor segment overall, which we think is a key inflection point for Broadcom and which we expect to sustain into Q1. Now turning to software, CA was up 6% year-on-year flat sequentially. Bookings at our core accounts continue to grow double-digit year on year and has offset the expected reduction in the services business. Semantec was flat sequentially and contributed over $400 million in the quarter. Similar to CA, bookings at our Semantec core accounts are growing, offsetting the transition out of the smaller commercial accounts as we continue to rationalize the business. Brocade was up 3% year-on-year, and as expected, was down significantly sequentially. Looking ahead to next quarter on a sequential basis, we expect revenues from CA to sustain and expect cementing revenue to be up 4%. We anticipate brocade revenue to be relatively flat on a sequential basis, and as a result, Revenue from the software segment is expected to be up by a low single-digit percentage sequentially in the fourth quarter. So in summary, we expect our fourth quarter net revenue to be $6.4 billion, up 10% sequentially from Q3. an approximate mid-teens percentage sequential projected revenue increase in the semiconductor solution side, and a low single-digit percentage sequential revenue increase in infrastructure software. With that, I'll turn it over to Tom.