Broadcom Inc.

Welcome to the Broadcom, Inc.' 's third quarter fiscal year 2023 financial results conference call. At this time, for opening remarks and introductions, I would like to turn the call over to G.U., head of investor relations of Broadcom, Inc.

Thank you, operator, 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 2023. 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 Investors section of Broadcom's website. During the prepared comments, Hawk and Kirsten will be providing details of our third quarter fiscal year 2023 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 US 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 us today. In our fiscal Q3 2023 consolidated net revenue, we achieved $8.9 billion, up 5% year-on-year. Semiconductor solutions revenue increased 5% year-on-year to $6.9 billion, and infrastructure software grew 5% year on year to $1.9 billion. Hyperscale continued to grow double digits year on year, but enterprise and telco spending moderated. Meanwhile, virtually defying gravity, our wireless business has remained stable. Now, generative AI investments are driving the continuous strength in hyperscale spending for us. As you know, we supply a major hyperscale customer with custom AI compute engines. We are also supplying several hyperscalers a portfolio of networking technologies as they scale up and scale out their AI clusters within their data centers. Now representing over $1 billion, this represented virtually all the growth in our infrastructure business in Q3 this year on year. So without the benefit of generative AI revenue in Q3, our semiconductor business was approximately flat year-on-year in fact since the start of the year the fiscal year our quarterly semiconductor revenue excluding AI has stabilized at around six billion dollars and as we had indicated to you a year ago we expected a soft landing during fiscal 23 and it appears that This is exactly what is happening today. Now let me give you more color on our end markets. As we go through this soft landing, we see though that our broad portfolio of products influencing the puts and takes across revenues within all our end markets except one, and that is networking. And so in my remarks today, we focus on networking where generative AI has significant impact. Q3 networking revenue was $2.8 billion and was up 20% year on year in line with guidance, representing 40% of our semiconductor revenue. As we indicated above, Our switches and routers as well as our custom silicon AI engines drove growth in this end market as they were deployed in scaling out AI clusters among the hyperscale. We've always believed and more than ever now with AI networks that Ethernet is the best networking protocol to scale out AI clusters. Ethernet today already offers the low latency attributes for machine learning and AI, and Broadcom has the best technology today and tomorrow. As a founding member of the Ultra Ethernet Consortium with other industry partners, we are driving Ethernet for scaling deployments in large language model networks. Importantly, we're doing this based on open standards and a broad ecosystem. Over the past quarter, we have already received substantial orders for our next generation Tomahawk 5 switch and Jericho 3 AI routers, and plan to begin shipping this product over the next six months to several hyperscale customers. This will replace the existing 400 gigabit networks with 800 gigabit connectivity. And beyond this, for the next generation, 1.6 terabit connectivity, we have already started development on the Tomahawk 6 switch, which has, among other things, 200 G30s. generating throughput capacity of over 100 terabits per second. We are obviously excited that generative AI is pushing our engineers to develop cutting-edge technology in silicon technology that has never been developed before. We know the end of Moore's law has set limits on computing in silicon technology, but What we are developing today feels very much like a revival. We invest in fundamental technologies to enable our hyperscale customers with the best hardware capabilities to scale generative AI. We invest in industry-leading 200 G30s that can drive optics and even copper cables. We have differentiating technology that breaks current bottlenecks in high bandwidth memory access. We also have X high speed and ultra low power chip-to-chip connectivity to integrate multiple AI compute engines. We also have invested heavily in complex packaging technologies, migrating from today's 2.5D to 3D. which enables large memory to be integrated with the AI compute engines and accelerators. In sum, we have developed end-to-end platform of plug-and-play silicon IP that enables hyperscalers to develop and deploy their AI clusters in an extremely accelerated time to market. Not surprisingly in Q4, moving on to Q4, continuing to be driven by generative AI deployments, we expect our networking revenue to accelerate in excess of 20% year-on-year. And this has been driven by the strength, obviously, in generative AI, where we forecast to grow about 50% sequentially, and almost 2x year-on-year. Moving to wireless, Q3 wireless revenue, $1.6 billion, represented 24% of semiconductor revenue, up 4% sequentially, flat year-on-year. The engagement with our North American customers continues to be deep and multi-year across Wi-Fi, Bluetooth, touch, RF front-end, and inductive power. So in Q4, consistent with the seasonal launch, we expect wireless revenue to grow over 20% sequentially and down low single-digit percent year on year. On our server storage connectivity revenue, it was $1.1 billion, or 17% of semiconductor revenue, and flat year-on-year. With a difficult year-on-year compare, we expect server storage connectivity revenue in Q4 to be down mid-teens percent year-on-year. And moving on to broadband, following nine consecutive quarters of double-digit growth, revenue moderated to 1% year-on-year growth, to $1.1 billion, or 16% of semiconductor revenue. In Q4, despite increasing penetration of deployment of 10G PON among telcos, we expect broadband revenue to decline high single digits year on year. Finally, Q3 industrial resales of $236 million declined 3%, year-on-year, reflecting weak demand in China. And in Q4, though, we expect an improvement with industrial resales up low single-digit percentage year-on-year, reflecting largely seasonality. So in summary, Q3 semiconductor solutions revenue was up 5% year-on-year, and in Q4, we expect semiconductor revenue growth of low to mid single-digit percentage year-on-year. Sequentially, if we exclude generative AI, our semiconductor revenue will be flat. Now turning to software, in Q3, infrastructure software revenue of $1.9 billion grew 5% year-on-year and represented 22% of total revenue. For core software, consolidated renewal rates average 117% over expiring contracts. And in our strategic accounts, we average 127%. Within strategic accounts, annualized bookings of $408 million included $129 million, or 32%, of cross-selling of other portfolio products to these same core customers. And over 90% of the renewal value represented recurring subscription and maintenance. Over the last 12 months, I should add, consolidated renewal rates averaged 115% over expiring contracts. And in our strategic accounts, we averaged 125%. Because of this, our ARR, the indicator of forward revenue, at the end of Q3 was $5.3 billion. In Q4, we expect infrastructure software segment revenue to be up mid-single-digit year-on-year. And on a consolidated basis for the company, we're guiding Q4 revenue of $9.27 billion, up 4% year on year. 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 have received legal merger clearance in Australia. Brazil, Canada, the European Union, Israel, South Africa, Taiwan, and the United Kingdom, and foreign investment control clearance in all necessary jurisdictions. In the U.S., the hard-scored Rodino pre-merger waiting periods have expired, and there is no legal impediment to closing under U.S. merger regulations. We continue to work constructively with regulators in a few other jurisdictions and are in the advanced stages of the process towards obtaining the remaining required regulatory approvals which we believe will be received before October 30th. We continue to expect to close on October 30th, 2023. Now, Broadcom is confident that the combination with VMware will enhance competition in the cloud and benefit enterprise customers by giving them more choice and control where they locate their workloads. With that, let me turn the call over to Kirsten.