Broadcom Inc.

Welcome to the Broadcom, Inc.' 's fourth quarter and fiscal year 2024 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, Cherie, and good afternoon, everyone. Joining me on today's call are Hawk Tan, President and CEO, Kirsten Spears, Chief Financial Officer, and Charlie Coas, President, Semiconductor Solutions Group. Broadcom distributed a press release and financial tables after the market closed, describing our financial performance for the fourth quarter and 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 then audio replay of the conference 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 fourth quarter and fiscal year 2024 results, guidance for our first quarter of fiscal year 2025, 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 will now turn the call over to Hawk.

Thank you, Gee, and thank you everyone for joining us today. Well, this has been a transformative year for Broadcom. Our fiscal year 2024 consolidated revenue grew 44% year over year to a record $51.6 billion. Now, excluding VMware, our revenue grew over 9% organically. So fiscal 24 operating profit excluding transition costs grew 42% year over year. And we returned a record $22 billion in cash to our shareholders, up 45% year-on-year through dividends, buybacks, and eliminations. There were two significant drivers of this transformation this year. First, we closed the acquisition of VMware in the early weeks of fiscal 24 and have focused VMware on its technology leadership in data center virtualization. The integration of VMware is largely complete, revenue is on a growth trajectory, and operating margin reached 70% exiting 2024. We are well on the path to delivering incremental adjusted EBITDA at a level that significantly exceeds the $8.5 billion we communicated when we announced the deal. were planning to achieve this much earlier than our initial target of three years. The second driver in 2024 was AI. Our AI revenue, which came from strength in custom AI accelerators, or XPUs, and networking, grew 220% from $3.8 billion in fiscal 23 to $12.2 billion in fiscal 24 and represented 41% of semiconductor revenue. This drove semiconductor revenue up to a record $30.1 billion during the year. Let's move on to the fourth quarter and give you more color. Consolidated net revenue of $14.1 billion was up 51% year-on-year. Excluding VMware, organic growth was 11% and operating profit of $8.8 billion was up 53% year-on-year. for the details on infrastructure software in Q4. This infrastructure software segment revenue was $5.8 billion, 196% year-on-year, flat sequentially even as multiple deals slip over into Q1. In VMware, we booked 21 million total CPU calls in a quarter versus 19 million a quarter ago. Of these, about 70% represented VMware Cloud Foundation, or VCF, the full software stack virtualizing the entire data center. And this translated into annualized booking value, or ABV as we call it, of 2.7 billion for VMware in Q4, up from 2.5 in Q3. Since closing the acquisition just over a year ago, we've signed up over 4,500 of our largest 10,000 customers for VCF. VCF enabled customers to deploy private cloud environments on-prem as an alternative to running their applications in the public cloud. And in doing all this, we continue to drive down spending in VMware. We brought spending down to $1.2 billion in Q4, down from $1.3 in Q3. By reference, VMware spending was averaging over $2.4 billion per quarter prior to the acquisition with operating margin less than 30%. Moving on to Q1 outlook for infrastructure software, we expect Q1 revenue to grow to $6.5 billion. up 11% sequentially and 41% up year-on-year. For VMware, ABV is expected to exceed $3 billion compared to $2.7 billion in the preceding quarter. Turning to semiconductors, let me give you more details by end markets. Q4 revenue of $4.5 billion grew 45% year-on-year. AI networking revenue, which represented 76% of networking, grew 158% year-on-year. This was driven by a doubling of our AI XPU shipments to our three hyperscale customers and four times growth in AI connectivity revenue driven by our Tomahawk and Jericho shipments globally. In Q1, we expect the momentum in AI connectivity to be as strong as more hyperscalers deploy Jericho 3 AI in their fabrics. Our next generation XPUs are in three nanometers and will be the first of its kind to market in that process node. We are on track for volume shipment at our hyperscale customers in the second half of fiscal 25. Turning on to server storage. From its bottom six months ago, Q4 server storage connectivity revenue has recovered some 20% to $992 million. And in Q4, we expect service storage revenue to continue to grow. Turning to wireless, as we expected, seasonal launch by our North American customer drove Q4 wireless revenue to $2.2 billion, up 30% sequentially. This was up 7% year on year. because of entire content. We continue to be very engaged with this customer in multi-year roadmaps across various technologies we have leadership in, including RF, Wi-Fi, Bluetooth, sensing, and touch. In Q1, reflecting seasonality, we expect wireless to be down sequentially, but still be flat year on year. In Q4, broadband reached bottom at $465 million, down 51% year on year. We've seen significant orders across multiple service providers during this quarter. And reflecting this trend, We now expect broadband to show recovery beginning in Q1. Finally, on to industrial, which only represents 1% of the total revenues. Measure on resales, Q4 industrial resales of $173 million declined 27% year-on-year. We only expect a recovery in the second half 2025. Before I sum up and provide you Q1 fiscal 25 guidance, let me outline a longer-term perspective on how we see our semiconductor business evolving over the next three years. On the broad portfolio of non-AI semiconductors with its multiple end markets, We saw a cyclical bottom in fiscal 24 at $17.8 billion. We expect a recovery from this level at the industry's historical growth rate of mid-single digits. In sharp contrast, we see our opportunity over the next three years in AI as massive. Specific hyperscalers have begun their respective journeys to develop their own custom AI accelerators or XPUs as well as network these XPUs with open and scalable Ethernet connectivity. For each of them, this represents a multi-year, not a quarter to quarter journey. As you know, we currently have three hyperscale customers who have developed their own multi-generational AI XPU roadmap to be deployed at varying rates over the next three years. In 2027, we believe each of them plans to deploy 1 million XPU clusters across a single fabric. We expect this to represent an AI revenue serviceable addressable market or SEM for XPUs and network in the range of $60 to $90 billion. in fiscal 2027 alone. We are very well positioned to achieve a leading market share in this opportunity and expect this will drive a strong ramp from our 2024 AI revenue base of $12.2 billion. Keep in mind, though, this will not be a linear ramp. will show quarterly variability. To compound this, we have been selected by two additional hyperscalers and are in advanced development for their own next generation AI XPUs. We have line of sight to develop these prospects into revenue generating customers before 2027 and could therefore expand this SEM significantly. So the reality going forward for this company is that the AI semiconductor business will rapidly outgrow the non-AI semiconductor business. Recognizing this, we will now shift to guiding our semiconductor business by AI and non-AI revenue segments. So summarizing Q4, semiconductor revenue of $8.2 billion grew 12% year-on-year and 13% sequentially. Q4 AI revenue grew a strong 150% year-on-year to $3.7 billion. Non-AI semiconductor revenue declined by 23% year-on-year to $4.5 billion, but still a 10% recovery from the bottom of six months ago. Now, moving on to our outlook for Q1. We expect semiconductor revenue to grow approximately 10% year-on-year to $8.1 billion. AI demand remains strong, and we expect AI revenue to grow 65% year-on-year to $3.8 billion. We expect non-AI semiconductor revenue to be down about mid-teens percent year-on-year. And in total, summing this all up, we're guiding consolidated Q1 revenue to be approximately $14.6 billion, up 22% year on year. And we expect this will drive Q1 adjusted EBITDA to approximately 66% of revenue. With that, let me turn this call over to Kiersten.