Broadcom Inc.

to Broadcom's 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 G.U., head of investor relations of Broadcom Inc.

Thank you, Cherie, and good afternoon, everyone. Joining me on today's call are Hawk Tan, president and CEO, Kirsten Spears, chief financial officer, and Charlie Kawas, President, Semiconductor Solutions Group. Broadcom distributed a press release and financial tables after the market closed describing our financial performance for the third quarter fiscal year of 2022. 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 an audio replay of the call can be accessed for one year through the investor section of Broadcom's website. During the prepared comments, Hawk and Kirsten will be providing details of our third quarter fiscal year 2022 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 those 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, Gee, and thank you, everyone, for joining today. then 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, it's actually expected to accelerate year on year, driven by data center build outs 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 handphone OEM, it was solid in Q3, and it's expected to grow in Q4 as we ram 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 terabits per second of Ethernet switching capacity in a single monolithic device, double the bandwidth of any other switched silicon available in the market today. We also announced the industry first silicon photonics co-package 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 a next-generation server storage connectivity, where we benefited from higher content and continued deployment of servers and storage in both cloud and enterprises. We anticipate this strong trend to actually continue, 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 providers 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 our 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 US and Europe. Nonetheless, for Q4, we forecast industrial resales to rebound to high single-digit growth year on year. In summary, Q3 semiconductor solution revenues 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 the 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 actually averaged 137%. Because of these trends, our ARR, 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 getting 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 these efforts, 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 their world-class engineering talent as well as strong customer and channel partnerships. with 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.

Thank you, Hawk. Let me now provide additional detail on our financial performance. Revenue was $8.5 billion for the quarter, up 25% from a year ago. Gross margins were 76% of revenue in the quarter, and up 80 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 $5.2 billion and was 32% from a year ago, was up 32% from a year ago. Operating margin was 61% of revenue, up approximately 320 basis points year on year. Adjusted EBITDA was $5.4 billion or 63.5% of revenue. Note that this figure excludes $129 million of depreciation. Now a review of the P&L for our two segments. Revenue for our semiconductor solution segment was $6.6 billion and represented 78% of total revenue in the quarter. This was up 32% year-on-year. Gross margins for our semiconductor solution segment were approximately 72%, up 220 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 $853 million in Q3, up 9% year-on-year. R&D was $765 million in the quarter, up 10% year-on-year. Q3 semiconductor operating margins increased to 59%. So while semiconductor revenue was up 32%, operating profit grew 44%. Moving to the P&L for our infrastructure software segment. Revenue for infrastructure software was 1.8 billion and represented 22% of revenue. This was up 5% year on year. Gross margins for infrastructure software were 90% in the quarter and were stable year over year. Operating expenses were $375 million in the quarter, up 4% year over year. Infrastructure software operating margin was 70% in Q3, and operating profit grew 5%. Moving to cash flow. Free cash flow in the quarter was $4.3 billion, representing 51% of revenue. We spent $116 million on capital expenditures. Day sales outstanding were 29 days in the third quarter compared to 30 days a year ago. We ended the third quarter with inventory of $1.8 billion, up 10% from the end of the prior quarter, in large part due to higher material costs and the expected sequential revenue ramp. We ended the third quarter with $10 billion of cash and $39.5 billion of gross debt, of which $304 million is short-term. Turning to capital allocation. In the quarter, we paid stockholders 1.7 billion of cash dividends. Consistent with our commitment to return excess cash to shareholders, we repurchased 1.5 billion in common stock and eliminated 292 million of common stock for taxes due on vesting of employee equity, resulting in the elimination of approximately 3.2 million AVGO shares. The non-GAAP diluted share count in Q3 was 436 million. In Q4, we expect the non-GAAP diluted share count to be $435 million, which excludes the potential impact of any share repurchases completed in the fourth quarter. We have not repurchased any of our shares since we announced the pending acquisition of VMware, as repurchases are subject to regulatory rules. We maintain our commitment to return excess cash to shareholders, including buybacks, as soon as we can under SEC rules. Based on current business trends and conditions, our guidance for the fourth quarter of fiscal 2022 is for consolidated revenues of $8.9 billion and adjusted EBITDA of approximately 63% of projected revenue. That concludes my prepared remarks. Operator, please open up the call for questions.

Thank you. As a reminder, to ask a question, you will need to press star 1-1 on your telephone. we ask that you please limit yourself to one question. Please stand by while we compile the Q&A roster. Our first question will come from Ross Seymour with Deutsche Bank. Please go ahead.

Hi, guys. Thanks for letting me ask a question. Hock, you started off your preamble talking about the disconnect between some of the macro data points on the consumer side versus the infrastructure side. Obviously, you have a limited exposure on the consumer side of things, but in the networking broadband server, the enterprise, and cloud businesses in general, are you seeing any changes? Because it's really hard for, I think, investors and even myself to reconcile the fact that everything is fine for you, despite the macro data points seemingly are worsening for many of your peers.

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 earnings calls and in sell-side analyst calls about true demand. What we are measuring, 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 through our backlog thoughtfully, carefully, before we deliver products to customers and users. That's true and 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, is true and demand what we think with respect to the various end markets and the infrastructure products we sell to those end markets. That's as far as we can scrub through through 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 running at somewhat different thoughts, different rates, is 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 and we believe, and we're pretty clear about that, to be true and demand and consumption by our customers.

Thank you. One moment for our next question. And that will come from the line of Stacy Rescon with Bernstein Research. Please go ahead.

Hi, guys. Thanks for taking my question. I just wanted to follow up on that, I guess, Hawk. So I understand you guys are thinking you're shipping to TrueDemand, but it feels like if this was the actual TrueDemand 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 get the whole thing about trying to undership 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 the true demand?

Well, I mean, we put in a lot of checks and balances, hugely, before we put products out on aircraft or trucks to our customers. And we have been doing this now for two years. So we're pretty good at doing it. And the question earlier asked by Ross was, have you seen any particular change in all that in terms of consumption of our products? And I can only obviously talk about our products, and I can't talk beyond our products. No, we don't see that.

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

Thank you. I just wanted to clarify and then ask a question. Hawk, I just wanted to clarify if any of your products are directly or indirectly exposed to any China restrictions that have been in the press over the last handful of days. And then, Hawk, I wanted to ask the growth question in a different way, which is, In the past, you described a sustainable kind of mid-single-digit growth rate for Broadcom. Is that still a good framework to use as we are looking out at the next year or so? Or if you could give us maybe by end market, hyperscaler versus enterprise versus telco or consumer, which markets just conceptually you would expect to kind of grow better or slower than that kind of broad growth rate for the company?

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 action that has 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. 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% thereabouts, 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 say 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%. 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 now. We might, assuming our forecast Q4 comes to play, we're talking about semiconductor growth rate for us around 25% year on year. And that's way above the 5% norm. So at some point, yeah, things will turn around and revert back to that norm. Now, it may take a couple years before it gets there. All right?

One moment for our next question. And that will come from the line of Harlan Sir with J.P. Morgan. Please go ahead.

Hi, good afternoon. Thanks for taking my question. You know, back in April, you guys did this really nice teaching of your custom silicon ASIC business. And the business has been going 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 it's specifically hawking your compute offload, right? You've got some really nice programs like TPU, 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, will this segment hold up better in a weaker macro environment, let's say, next year?

Well, to answer your first question, yeah, we're on track for this year to hit that $2 billion. We told you that, and we're getting there. As far as does this particular compute offload defy gravity? I don't know. I can't really answer that. I like to believe it's emerging and it's a very emerging business. And so like all emerging business that have hit some level of critical mass as it appears to have in our case, it may hold up somewhat better then perhaps enterprise, as we are seeing. And so you're not wrong in that regard. But that is actually calling for some level of speculation on our part, because I mean it more than 23, right? I'm looking at 23, 24, 25, next three years. Will it hold up better? That, I don't know the answer. For 23, sure, it will hold up better.

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

Oh, hi. Hawk, I was wondering if you could update us on the CEMI's backlog number. I think it was 25 billion last call, which was a little bit more than a year. Can you update us on that backlog number? And then also, within that, have you seen any movement in the backlog? I mean, I know, you know, probably it's up, but Have you seen any customers cancel or push out? I mean, you know, obviously that was more than offset by, you know, incoming bookings, sounds like. But sort of what's the fluidity within that backlog? Thanks.

Well, to clarify the first couple of parts, our backlog and our terms are very clear. We do not allow cancellation on a backlog, and 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're still shipping below our booking rate.

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

Great. Thank you for taking my question. Sometimes, you know, we forget that historically we've been in 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 year and a half or so. I'm wondering whether you're seeing that dynamic continue or revert. And if you can comment as to how that's 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. Thank you.

Actually, it isn't. I said that before in a previous earning, couple of earnings call, it worked well for me to repeat. We have been able to raise prices obviously over the last past 12 months, but only because our material cost has gone up. And so we're talking, if we're talking percentages, not absolute dollars, if our cost, material cost, cost of goods sold, so to speak, increase 10% in order to keep our margin in percentage terms from being diluted, we have to raise the price no less than 10%. And just doing that, it's just keeping the gross margin in percentage terms staying neutral. I would say price increases has very little impact on our margin improvement. What has enabled our margins to accelerate or improve, as I said in the last earnings call, is in this environment of pent up in some degree in the last couple of years, last 12 months in particular, basically a pent-up level of spending, particularly in enterprise, somewhat in cloud as well, and broadband as well, is the adoption of new next-generation products and technology. And that always enhances, as I've said that before, our gross margin. And it's the basic fundamental of this semiconductor cycle. New generation of products improves expense of gross margin. And the accelerated adoption is what expands this gross margin. And that's pretty much what has been the case here, but not price increase per se.

And one moment for our next question. And that will come from the line of Aaron Rakers with Wells Fargo. Please go ahead. Mr. Rakers, your line is open if you would like to ask a question.

Yep. Yep. Thanks. Appreciate you taking the question. I wanted to ask about the wireless segment. You know, solid results this last quarter. It sounds like you're guiding 20% sequential growth. Into this current quarter, but if I look back over the past couple of years, you know It's actually been solidly above the 20% sequential growth rate So I guess you know, how are you thinking about the demand profile there? And I guess with that your content expansion Opportunity as we look at the next generation product cycles going forward.

Thank you Okay, you know 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 replicate itself in all matters. In other words, 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 it's 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 as 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 the lift year upon year. And even on the lift year on year, when you compare to any three-month period, Take it with a grain of salt that some volume might have shifted or pulled forward and not be within this three months. But it's kind of in the ballpark.

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

Yeah. Hey, guys. First of all, congratulations for reporting, you know, very good guidance, very good results in such a turbulent market. 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?

Okay. Let me answer the second question first, since it's a little more complex. But it isn't. Our semiconductor gross margin, by the way, if you talk about sustainability, I would say it keeps expanding. It doesn't stay still, as you probably know. If you look back to five years ago, we were more like 60% in the mid-60s or low-60s gross margin. Today, it's now over 70. And it's simply the case that, and that's the beauty of the semiconductor technology business. you always have new generation of products, whether it's wireless, creating a generation every 12 to 24 months, whether it's switching, that's every two, three years, or storage every four, five years. And every time you put in a new generation, you expand your margin because you're delivering more value you're delivering much more value usually, and you're able to extract from the higher value a higher price and profitability. And that's the beauty of this industry. So as we keep coming out with new generations, the margins of our portfolio keep expanding. So we're now at the 70s, And you ask, where will we be five years from now in this phenomenon of constantly updating to next generation products? I'll see this gross margin expansion continuing. And empirically, don't ask me for any mathematical formula behind, physics behind it, but empirically, given our portfolio of about 16 semiconductor franchises, we have average close to 50 to 100 basis points expansion year after year. And that's pretty good. And we see that trend continuing. And as I responded to an earlier question, over the last two years, with the rebound, you might almost say fueled by perhaps changes in IT spending based on, I guess, lockdowns based on behavioral changes with COVID-19. We've seen accelerated adoption of next generation products in many of our franchises. So we have seen some level of accelerated expansion of our semiconductor gross margin. But things will revert back, my belief, to a more normalized 50 to 100 basis point expansion once all this excitement starts cooling off a bit. But we'll still see the sustainable expansion of our semiconductor gross margin. Software, you're right, we kind of stick there at 90% and we're not going anywhere with it. But semiconductor will continue to expand. And your first question, China, that's That's about 13% of semiconductor revenue. That's our exposure to China.

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

Yeah, hi, Hawk. Just two questions here again, sorry. On the enterprise storage side, I saw you guys had a pretty good quadrant guide. Just wondering what your exposure was between consumer and enterprise and What are you seeing in terms of that strength going forward? And also, just my second question on the VMware side, I know you said you're still expecting that to close in fiscal 23. Can you give us some color? Have you gotten most of the approvals? Are you waiting on some where that stands? That's it. Thanks.

Okay. Well, in terms of our breakdown, you're basically asking us on our semiconductor revenues. What's our breakdown of our revenues? We would classify three ways, three groups. Not end markets, but groups. It cuts across all our end markets, except probably wireless. Wireless is all consumer, and so no surprise, our consumer business within semiconductor represents about... 23, just less than 25% of our revenues, just over 20, between 20 to 25 is the best description. And on the balance, which could be anywhere from 75 to almost 80%, it's almost split evenly between enterprise, traditional enterprise, as we call it, and the final grouping we call as service providers, which is really to the hyperscale guys and telcos, which we consider to be service providers. 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 we're in the thick of it. And we're thinking it across several, a few, not a couple of jurisdictions. And we're moving along and making good progress. And just to reiterate, and we fully expect to close on this within fiscal 23.

And one moment for our next question. That will come from the line of Joseph Moore with Morgan Stanley. Please go ahead.

Great. Thank you. With regards to the 50-week lead times that you talked about, you know, what is your goal there over the next, say, 12 months? Do you want to get that down? And to the extent, you know, if you do want to, kind of what has to happen from the standpoint of foundry substrates, things like that, to get that number lower?

I don't know. We haven't thought that hard about it yet. Seriously, Joe. No.

I kind of like the 15-week lead time, to be frank, because... Kind of what has to happen from the standpoint of foundry substrates, things like that, to get that number lower.

I don't know. We haven't thought that hard about it yet. Seriously, Joe. No, I kind of like the 15-week lead time, to be frank, because it gives us great visibility. It also pushes... politely, gently about their demand out one year. So it gives us great visibility. Meanwhile, between now to the end of 50 weeks, we all know where we stand with each other. And we know where we stand now, which is pretty good visibility.

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

Hi. Thanks for taking the question. I wanted to follow up on Joe's question on the supply side. Hawk, just based on the sequential revenue growth that you've been marking over the past couple of quarters, your guidance for the October quarter, it's pretty clear that supply continues to be kind of the key determinant of your revenue growth. Based on indications from your foundry supplier and key substrate suppliers, from a modeling perspective, should we expect mid-single-digit growth to be kind of the normal cadence over the next few or several quarters, or could there be a point in time where your rate of growth starts to accelerate, given easing in some of the other end markets? Thank you.

That's a hell of a good question, so let me try to answer that, which is this. We've always said, and we continue to say, it's not really supply that constrains our revenue. You know, we look at, as we say, we scrub through and try 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 like 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 we're very, very tight to end consumption of products, and it's not really much about supply. And I've said that for the last four, five quarters, and we're still in that same behavior mode. All right.

And one moment for our next question. That will come from the line of Pierre Faragu with New Street Research. Please go ahead.

Hi. Thanks for taking my question. Like you mentioned in your prepared remarks, like your first copackaged 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 pluggable 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, you know, maybe in the next three, four, five 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 holistic adoption from a certain bandwidth from which, like, co-package is going to make more sense than pluggable optics?

Oh, okay. Let me try to get... talk through this. Basically, your question is about how is... I mean, we constantly come out across all our product franchises, especially in semis, new generation of products. And they're pretty cool, even though I say it myself. And adoption is never as quickly as we all like it to be. It tends to be... much lower than we think. So for instance, take switching Tomahawks, top of the rack data center switching. I'm still selling Tomahawk 1, 2, Tomahawk 3, which was the generation before, the current generation, and now we are selling Tomahawk 4. And just to give you a sense, Tomahawk 4, as a percent of my total Tomahawk volume, as I would estimate to be less than 30% in total. So you can see they coexist. And that tends to happen. So by the time we launch Tomahawk 5 two years from now, we'll probably maybe be getting out Tomahawk 1 to the point where it becomes de minimis. So there is this constant coexistence of multiple generations. And that applies, by the way, to every product we have. Server storage. where we have three generations running simultaneously because it's the way the world adopts new technology. And we will keep having a mix, which is probably why when you boil down to it at the end of the day, there's no hockey stick in any product adoption. There's no such thing as winners take all. whether it's part of a new product, or for that matter, a new player. There's always a coexistence, a shared volume, and a shared mix of technologies. And we see that very clearly across. Now, consumer perhaps is less, is more of a hockey stick. And even then, we see two or three generations of our North American OEM running simultaneously. But of course, it's more of a hockey stick, I believe, than our infrastructure products. Infrastructure takes a while, and we would have not very uncommon to have three generations running simultaneously. And that means any expansion of gross margin coming back where it drains out to, because it's a reflection of product makes in terms of product generation, That's why our gross margin grows much more steadily, but not as rapidly as we would like to. But it's okay because it gets more sustainable. And as each year passes and the newer generation products get adopted more in a measured manner, our gross margin grows that 50 to 100 basis points each particular year that passes. Hope that answers your question.

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

Thank you, Cherie. Broadcom currently plans to report its earnings for the fourth quarter of fiscal 22 after close of market on Thursday, December 8, 2022. 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. Cherie, you may end the call.

This concludes today's conference call. Thank you for participating. You may now disconnect.

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