Broadcom Inc. 3rd Quarter Fiscal Year 2024 Financial Results Conference Call

Introduction

• Presenter: GU, Head of Investor Relations.
• Participants: Havtan (President & CEO), Kirsten Spears (CFO), Charlie Kawaz (President, Semiconductor Solutions Group).
• Availability: Press release and financial tables available on Broadcom's website.
• Focus: Third quarter results, guidance for fourth quarter, and business environment commentary.

Overview of Financial Performance

• Consolidated Net Revenue: $13.1 billion, up 47% year-on-year.
• Operating Profit: Up 44% year-on-year.
• Key Factors:
  1. AI revenue growth.
  2. Accelerated VMware bookings.
  3. Stabilization of Non-AI semiconductor revenue.

Guidance Update

• Transition from annual to quarterly guidance due to VMware integration stabilization.
• Q4 Guidance:
  • Semiconductor revenue: $8 billion, up 9% year-on-year.
  • Infrastructure software revenue: $6 billion.
  • Total revenue: Approximately $14 billion, up 51% year-on-year.
  • EBITDA: Approximately 64% of revenue.

Software Segment

• Infrastructure Software Revenue: $5.8 billion, up 200% year-on-year.
• VMware Contribution: $3.8 billion.
• Bookings: 15 million CPU cores of VCF; ABV of $2.5 billion, up 32% from Q2.
• Cost Management: Reduction in VMware spending from $1.6 million in Q2 to $1.3 million in Q3.
• EBITDA Goal: Targeting $8.5 billion within three years.

Semiconductor Segment

• Networking Revenue: $4 billion, up 43% year-on-year.
  • Driven by hyperscaler demand for AI networking and custom AI accelerators.
• Non-AI Networking: 17% sequential growth in Q3.
• Wireless Revenue: $1.7 billion, up 1% year-on-year.
• Broadband Revenue: $557 million, down 49% year-on-year.
• Industrial Resales: $164 million, down 31% year-on-year.
• AI Revenue: Expected to grow to over $3.5 billion in Q4.

Financial Metrics

• Gross Margins: 77.4% of revenue.
• R&D: $1.5 billion.
• Operating Expenses: $2.2 billion.
• Free Cash Flow: $4.8 billion, representing 37% of revenue.
• Inventory: $1.9 billion.

Debt Management

• Cash and Debt:
  • $10 billion in cash.
  • $72.3 billion in gross principal debt.
• Debt Refinancing: Replaced $5 billion of floating rate notes.
• Capital Allocation: $2.5 billion in cash dividends; rounding up to $0.53 per share in Q4.

Q&A Highlights

• AI Revenue Mix: Two-thirds compute, one-third networking.
• Market Trends: Strong AI demand expected to continue.
• Networking: Recovery expected in non-AI markets.
• Software: Stability reached in non-VMware segments.
• Semiconductor Cycle: Passing through down cycle, recovery anticipated.
• M&A Strategy: Focused on transforming VMware's business model.

Closing Remarks

• Next Event: Broadcom presenting at the Goldman Sachs Communicopia and Technology Conference on September 11th.
• Next Earnings Report: Scheduled for December 12, 2024.

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These notes cover the key points discussed during the Broadcom's 3rd Quarter Fiscal Year 2024 Financial Results Conference Call, including financial performance, guidance updates, and strategic insights shared during the Q&A session.