Broadcom Inc.

Welcome to Broadcom's Inc. Third Quarter Fiscal Year 2024 Financial Results Conference Call. At this time, for opening remarks and introductions, I would like to turn the call over to GU, Head of Investor Relations of Broadcom Inc.

Thank you, Operator, and good afternoon, everyone. Joining me on today's call are Hop Tan, President and CEO, Kirsten Spears, Chief Financial Officer, and Charlie Kowals, President, Semiconductor Solutions Group. Broadcom distributed a press release and financial tables after the market closed describing our financial performance for the third quarter of fiscal year 2024. 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 2024 results, guidance for our fourth quarter fiscal year 2024, 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 board-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 will now turn the call over to Hawk.

Thank you, Gee, and thank you, everyone, for joining us today. In our fiscal Q3 2024, consolidated net revenue of $13.1 billion was up 47% year-on-year, and operating profit was up 44% year-on-year. These strong results reflected three key factors. One, AI revenue continues to grow and grow strongly. Two, VMware bookings continue to accelerate. And three, non-AI semiconductor revenue has stabilized. Before I give you more color on our two reporting segments, Let me give you a quick update on guidance. Now we started the year providing annual guidance with quarterly updates as we run the process of integrating VMware. Things are now much more stable and we're in the first, sorry, and we're in the final quarter of 2024. So instead of giving you annual guidance, we now revert to providing the quarterly guidance for Q4. Starting with software, in Q3, infrastructure software segment revenue of $5.8 billion was up 200% year-on-year, driven by $3.8 billion in revenue contribution from VMware. the transformation of the business model of VMware continues to progress very well. In fact, last week, we held a well-attended VMware Explore conference in Las Vegas, our first as a combined company. This event was all about promoting VMware Cloud Foundation, or VCF, which is the full software stack that virtualizes an entire data center and create a private cloud environment on-prem for enterprises. The success of this strategy is reflected in our performance in fiscal Q3. We booked more than 15 million CPU costs of VCF. representing over 80% of the total VMware products we booked during the quarter. And this translates into an annualized booking value, or ABV, as I had described before, of $2.5 billion during Q3, up 32% from the preceding quarter. Meanwhile, we continue to drive down costs in VMware, We brought VMware spending down to $1.3 million in Q3 from $1.6 in Q2. And when we acquired VMware, our target was to deliver adjusted EBITDA of $8.5 billion within three years of the acquisition. We are well on the path to achieving or even exceeding this EBITDA goal in the next fiscal 25. Now turning to semiconductors. In networking, Q3 revenue of $4 billion grew 43% year-on-year, representing 55% of semiconductor revenue. This was again driven by strong demand from hyperscalers for both AI networking and on custom AI accelerators. As you know, our hyperscale customers continue to scale up and scale out their AI clusters. Custom AI accelerators grow three and a half times year on year. In the fabric, Ethernet switching driven by Tomahawk 5 and Jericho 3 AI grew over four times year on year. while our optical lasers and pin diodes used in optical interconnect grew threefold. Meanwhile, PCI Express switches more than doubled, and we're shipping in volume our industry-leading 5 nanometers, 400 gigabits per second NICs, and 800 gigabits per second DSPs. So now let me give you more color on our networking products, which are not used in AI. As we had indicated last quarter, we believe we hit bottom in Q2. And in Q3, non-AI networking was up actually 17% sequentially, even as it was down 41% year on year. We expect this level of revenue to sustain in Q4 and the year-on-year decline to moderate to 30%. So in adding the strength we continue to see in AI, we expect total networking revenue to grow over 40% year-on-year in Q4. Across enterprise infrastructure, we see the same trend of recovery in server storage. Our Q3 server storage connectivity revenue was $861 million, up 5% sequentially, and down 25% year-on-year. In Q4, we expect server storage revenue to grow mid to high single-digit percent sequentially, even as revenue is expected to be down high single-digit percent year-on-year. Moving on to wireless, Q3 revenue, wireless revenue of $1.7 billion grew 1% year-on-year, representing 23% of semiconductor revenue. And in Q4, reflecting the launch of next-generation devices and our North American customer, We expect wireless revenue to actually grow over 20% sequentially, even as it will be relatively flat year-on-year. Onto broadband, Q3 revenue declined 49% year-on-year to $557 million, and represented 8% of semiconductor revenue. Broadband remains weak on a continued pause in telco and service provider spending. And in Q4, we expect broadband to continue to be down over 40% year-on-year, but we do expect that recovery to begin in 2025. Finally, Q3 industrial resales of $164 million declined 31% year-on-year. We believe we are approaching bottom in Q3 as Q4 resales are expected to recover sequentially. Year on year, Q4 industrial resales will still be down approximately 20%. In summary, here are the trends we are seeing in semiconductors. In aggregate, we have reached bottom in our non-AI markets. and we're expecting a recovery in Q4. AI demand remains strong, and we expect in Q4 AI revenue to grow sequentially 10% to over $3.5 billion. This will translate to AI revenue of $12 billion for fiscal 24, up from our prior guidance of over $11 billion. Putting it all together with software, here's our forecast for Q4. We expect Q4 semiconductor revenue of approximately $8 billion, up 9% year on year. For infrastructure software, we expect revenue to be about $6 billion. So we are guiding Q4 consolidated revenue to be approximately $14 billion, which is up 51% year-on-year. We also expect this will drive Q4 consolidated adjusted EBITDA to achieve approximately 64% of revenue. This Q4 guidance would imply we're raising the outlook for fiscal 2024 revenue to $51.5 billion and adjusted EBITDA for the year to 61.5%. And with that, let me turn the call over to Kurt.