Broadcom Q4 2022 Earnings Report

Broadcom EPS Results

• Actual EPS: $0.98
• Consensus EPS: $0.95
• Beat/Miss: Beat by +$0.03
• One Year Ago EPS: $0.70

Broadcom Revenue Results

• Actual Revenue: $8.93 billion
• Expected Revenue: $8.90 billion
• Beat/Miss: Beat by +$30.52 million
• YoY Revenue Growth: +20.60%

Broadcom Announcement Details

• Quarter: Q4 2022
• Date: 12/8/2022
• Time: After Market Closes
• Conference Call Date: Thursday, December 8, 2022
• Conference Call Time: 5:00PM ET

Broadcom (NASDAQ:AVGO) (NASDAQ:AVGO) designs, develops and supplies semiconductor and infrastructure software products for businesses, telecommunications providers and other organizations worldwide. Its semiconductor portfolio includes networking and connectivity components, custom application-specific integrated circuits, broadband and wireless communications products, storage adapters, optical components, and industrial solutions.

The company also provides enterprise infrastructure software through businesses including VMware, which offers virtualization and private- and hybrid-cloud solutions; mainframe and enterprise software; and cybersecurity products. These offerings support data centers, cloud computing, telecommunications networks, storage systems, industrial applications and enterprise information technology environments.

Broadcom’s history includes roots in the semiconductor operations of Hewlett-Packard, the formation of Avago Technologies in 2005, and Avago’s acquisition of Broadcom Corporation in 2016. The combined company adopted the Broadcom name and has since expanded its software operations through acquisitions, including CA Technologies, Symantec’s enterprise security business and VMware. Broadcom is led by President and Chief Executive Officer Hock E. Tan and serves customers across North America, Europe, Asia and other international markets.

Broadcom Q4 2022 Earnings Call Transcript

Key Takeaways

• Record FY2022 performance: Consolidated revenue reached $33.2 B (+21% YoY), operating profit rose 28%, and free cash flow per share grew 25%.
• Q4 & Q1 guidance: Q4 revenue was $8.9 B (+21%), with semiconductor up 26% to $7.1 B and software up 4% to $1.8 B; Q1 revenue is guided at $8.9 B (+16%), with semiconductor growth ~20% and software flat.
• Robust semiconductor demand: Q4 saw networking revenue +30% ($2.5 B), storage connectivity +50% ($1.2 B), broadband +20% ($1.0 B), and wireless +13% ($2.1 B); Q1 segment growth expected to remain strong (networking +20%, storage >50%, broadband +30%).
• Strong software renewals: Infrastructure software posted 117% renewal rates (128% in strategic accounts), ARR grew 4% to $5.4 B, and software revenue is backed by over 90% recurring subscriptions.
• Capital returns: Management raised the quarterly dividend by 12% to $4.60 ($18.40 annual), plans to resume up to $13 B in share repurchases, and converted 50% of Q4 revenue into free cash flow.

Presentation

[Operator]

Welcome to Broadcom Inc.'s fourth quarter and fiscal year 2022 financial results conference call. At this time, for opening remarks and introductions, I would like to turn the call over to Ji Yoo, Head of Investor Relations of Broadcom Inc.

[Ji Yoo, Head of Investor Relations at Broadcom]

Thank you, Sherri. Good afternoon, everyone. Joining me on today's call are Hock Tan, President and CEO, Kirsten Spears, Chief Financial Officer, and Charlie Kawwas, 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 2022. If you did not receive a copy, you may obtain the information from the Investors 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, Hock and Kirsten will be providing details of our fourth quarter and fiscal year 2022 results, guidance for our first quarter, as well as commentary regarding the business environment. We'll take questions after the end of our prepared comments.

[Ji Yoo, Head of Investor Relations at Broadcom]

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 results. I'll now turn the call over to Hock.

[Hock Tan, President and CEO at Broadcom]

Thank you, Ji, and thanks, everyone, for joining us today. Before I provide color on our Q4 results, let me put in perspective what we achieved in fiscal year 2022. For the year, I'm pleased to report that consolidated revenue hit a record of $33.2 billion, growing 21% year-on-year, yet another year of double-digit organic growth. This growth was driven by our strong partnerships with customers and increased R&D investments, which enable accelerated adoption of our next-generation technologies. With our robust business model, we grew our fiscal 2022 operating profit by 28% year-on-year and our free cash flow per share by 25% year-on-year. Now to discuss details of our fiscal Q4. In our fiscal Q4 2022, consolidated net revenue was a record $8.9 billion, up 21% year-on-year.

[Hock Tan, President and CEO at Broadcom]

Semiconductor Solutions revenue increased 26% year-on-year to $7.1 billion, and Infrastructure Software revenue grew 4% year-on-year to $1.8 billion. In Q4, our semiconductor business continued to perform well across hyperscale, service providers, and enterprise. On top of this, wireless grew sequentially as we ramp up the new platform at our North American customer. In reporting these results, I'd like to emphasize we demonstrate our continued discipline in shipping our strong backlog only as and when needed by our end customers. In contrast to weak consumer electronic spending today, and despite concerns of a global recession, we believe overall infrastructure spending remains strong, and we continue to experience sustained demand in most of our end markets. This is what we continue to see in Q1. Let me expand on this. Starting with networking.

[Hock Tan, President and CEO at Broadcom]

Networking revenue was a record $2.5 billion and was up 30% year-on-year, representing 35% of our semiconductor revenue. We see strong growth from deployment of Tomahawk 4 for data center switching at hyperscale customers. We see upgrades of edge and core routing networks with our next-generation Jericho portfolio at cloud and service providers. At multiple cloud customers, we continue to lead in delivering custom solutions for compute offload accelerators and actually surpass the $2 billion mark in revenues in fiscal 2022. Looking into Q1, we do expect networking revenue to be strong and grow about 20% year-over-year.

[Hock Tan, President and CEO at Broadcom]

Our storage connectivity revenue was a record $1.2 billion or 17% of semiconductor revenue and up 50% year-over-year. As we have mentioned in previous earnings call, we are benefiting here from substantial content increases as both cloud, and enterprise customers adopt our next generation MegaRAID and storage adapters. This trend will continue in Q1, and we expect server storage connectivity revenue to grow above 50% year-over-year. Moving on to broadband. Revenue of $1 billion grew 20% year-over-year and represented 15% of semiconductor revenue. Our broadband business is benefiting from ongoing multiyear deployments by North American and European service providers of 10 Gb PON and DOCSIS 3.1 with embedded Wi-Fi 6 and 6E.

[Hock Tan, President and CEO at Broadcom]

In Q1, we expect the secular drivers behind broadband to continue and our business to be strong at about 30% year-on-year growth. Moving on to wireless. Q4 revenue of $2.1 billion represented 29% of semiconductor revenue, with the 13% year-on-year increase coming largely from higher content. In Q1, we expect wireless revenue to be sequentially flat and up low single digits year-on-year. Finally, Q4 industrial resale of $234 million grew 1% year-over-year, as softness in China mostly offset the strength in North American and European automotive. In Q1, we forecast industrial resales to continue the trend of low single-digit percent growth year-on-year.

[Hock Tan, President and CEO at Broadcom]

In summary, Q4 Semiconductor Solutions revenue was up 26% year-over-year, and in Q1 we expect semiconductor revenue growth to sustain at approximately 20% year-over-year. Moving on to software. In Q4, Infrastructure Software revenue of $1.8 billion grew 4% year-over-year and represented 21% of total revenue. Core software revenue grew 5% year-over-year. In spite of adverse FX impact, in dollar terms, consolidated renewal rates averaged 117% over expiring contracts. In our strategic accounts, we average 128%. Within our strategic accounts, annualized bookings of $357 million included $101 million of cross-selling of our portfolio products to these customers. Over 90% of the renewal value represented recurring subscriptions and maintenance.

[Hock Tan, President and CEO at Broadcom]

Over the last 12 months, consolidated renewal rates averaged 120% over expiring contracts. In our strategic accounts, we averaged 135%. Because of this, our ARR, which is annual recurring revenue, the indicator of forward revenue at the end of Q4 was $5.4 billion, which was up 4% from a year ago. In Q1 we expect our Infrastructure Software segment revenue to be flat year-on-year, reflecting core software revenue growth of mid-single digit percent year-over-year, offset by a year-on-year decline in the Brocade enterprise SAN business. In summary, we're guiding consolidated Q1 revenue of $8.9 billion, up 16% year-on-year. While we are fully booked for fiscal 2023, in this environment, we're not providing you guidance for the year.

[Hock Tan, President and CEO at Broadcom]

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 are making progress with our various regulatory filings around the world, as we very much expect. Having received merger clearance in Brazil, Canada and South Africa, we anticipate the timeline for the review process will be more extended in other key regions, especially given the size of this transaction. Having said that, we're still confident that this transaction will close. Be completed in our fiscal 2023. The combination of Broadcom and VMware is about enabling enterprises to accelerate innovation and expand choice by addressing their most complex technology challenges in this multi-cloud era, we are confident that regulators will see this when they conclude their review. With that, let me turn the call over to Kirsten.

[Kirsten Spears, CFO at Broadcom]

Thank you, Hock. Let me now provide additional detail on our financial performance. Revenue was $8.9 billion for the quarter, up 21% from a year ago. Gross margins were 75% of revenue in the quarter, up 10 basis points year-over-year. Operating expenses were $1.2 billion, up 3% year-over-year, driven by investment in R&D. Operating income for the quarter was $5.5 billion and was up 25% from a year ago. Operating margin was 62% of revenue, up approximately 240 basis points year-over-year. Adjusted EBITDA was $5.7 billion or 64% of revenue. This figure excludes $129 million of depreciation. Now a review of the P&L for our two reportable segments.

[Kirsten Spears, CFO at Broadcom]

Revenue for our Semiconductor Solutions segment was $7.1 billion and represented 79% of total revenue in the quarter. This was up 26% year-on-year. Gross margins for our Semiconductor Solutions segment were approximately 71%, up 70 basis points year-on-year, driven by product mix and adoption of next-generation products across our extensive product portfolio. Operating expenses were $825 million in Q4, up 4% year-on-year. R&D was $731 million in the quarter, up 4% year-on-year. Q4 semiconductor operating margins were 59%. While semiconductor revenue was up 26%, operating profit grew 33% year-on-year. Moving to the P&L for our Infrastructure Software segment. Revenue for Infrastructure Software was $1.8 billion, up 4% year-on-year, and represented 21% of revenue.

[Kirsten Spears, CFO at Broadcom]

Gross margins for Infrastructure Software were 91% in the quarter, and operating expenses were $348 million in the quarter, down 1% year-over-year. Infrastructure Software operating margin was 72% in Q4, and operating profit grew 6%. Moving to cash flow. Free cash flow in the quarter was $4.5 billion, representing 50% of revenue. We spent $122 million on capital expenditures. Day sales outstanding were 30 days in the fourth quarter compared to 29 days in the third quarter. We ended the fourth quarter with inventory of $1.9 billion, up 5% from the end of the prior quarter, because we expect the mix of revenue in Q1 to have a higher cost of materials.

[Kirsten Spears, CFO at Broadcom]

We ended the fourth quarter with $12.4 billion of cash and $39.5 billion of gross debt, of which $440 million is short-term. Based on current business trends and conditions, our guidance for the first quarter of fiscal 2023 is for consolidated revenues of $8.9 billion and adjusted EBITDA of approximately 63% of projected revenue. In forecasting such operating profitability, we would like to point out that because of product mix changes, our non-GAAP gross margin could be down roughly 100 basis points from Q4, and R&D spending could be up sequentially as we step up hiring of engineers for multiple critical projects. Let me recap our financial performance for fiscal year 2022. Our revenue hit a record $33.2 billion, growing 21% year-on-year.

[Kirsten Spears, CFO at Broadcom]

Semiconductor Solutions revenue was $25.8 billion, up 27% year-over-year. Infrastructure Software revenue was $7.4 billion, up 4% year-on-year. Gross margin for the year was 76%, up 110 basis points from a year ago. Operating expenses were $4.8 billion, up 6% year-on-year. Fiscal 2022 operating income was $20.3 billion, up 28% year-over-year, and represented 61% of net revenue. Adjusted EBITDA was $21 billion, up 27% year-over-year, and represented 63% of net revenue. This figure excludes $529 million of depreciation. We spent $424 million on capital expenditures, and free cash flow grew 22% year-on-year to $16.3 billion or 49% of fiscal 2022 revenue. Turning to capital allocation.

[Kirsten Spears, CFO at Broadcom]

For fiscal 2022, we spent $15.5 billion, consisting of $7 billion in the form of cash dividends and $8.5 billion in repurchases and eliminations. We ended the year with $13 billion of authorized share repurchase programs remaining and expect to resume our repurchase of common stock as soon as we can under SEC rules. Excluding the potential impact of any share repurchases, in Q1, we expect the non-GAAP diluted share count to be 435 million. Aligned with our ability to generate increased cash flows in the preceding year, we are announcing an increase in our quarterly common stock cash dividend in Q1 fiscal 2023 to $4.60 per share, an increase of 12% from the prior quarter. We intend to maintain this target quarterly dividend throughout fiscal 2023, subject to quarterly board approval. This implies our fiscal 2023 annual common stock dividend to be a record $18.40 per share.

[Kirsten Spears, CFO at Broadcom]

I would like to highlight that this represents the 12th consecutive increase in annual dividends since we initiated dividends in fiscal 2011. That concludes my prepared remarks. Operator, please open up the call for questions.

[Operator]

Thank you. To ask a question, you will need to press star one one on your telephone. We ask that you please limit yourself to one question. Please stand by while we compile the Q&A roster. Today's first question will come from CJ Muse with Evercore ISI. Please go ahead.

[CJ Muse, Senior Managing Director at Evercore ISI]

Yeah, good afternoon. Thank you for taking the question. You talked about infrastructure holding up well across most segments. I guess I was hoping you could speak more to why infrastructure to date has been so immune from the weakness we've seen elsewhere in semis. Specifically, can you speak to trends you're seeing, perhaps in hyperscale versus enterprise? Any differences there? Also, can you speak to how you see these trends throughout all of fiscal 2023? Thanks so much.

[Hock Tan, President and CEO at Broadcom]

All right. Great question. What we see now, last quarter and this current quarter as we progress, is hyperscale spending continues strong. Enterprise consumption continues strong and broadband deployment across, you know, across North America, Europe, and even parts of Asia continues their multiyear trend of growth, simply because, you know, out of COVID-19, there was a lot of plans to invest, and these are multiyear. Exactly as I said, all these areas currently continue to be very much on track as we've seen it. Now, keep in mind, as I said in previous earnings call, and I just reemphasize here today, again, it's just want to assure you, we don't believe we are shipping beyond true demand.

[Hock Tan, President and CEO at Broadcom]

We continue to scrub to basically judge orders, the backlog we have, and we also take pains to only ship to customers who can consume it pretty much within the same quarter before we do it. As far as we can tell, based on what we see as a willingness of our customers to accept and consume the products we ship, that's what we see right now. Asking me for the rest of 2023, no, I tend to be more careful in being able to answer that. I don't know the answer to that, is my opinion. I do not know whether the strength in acquisition and consumption of our products will continue to sustain for the rest of 2023.

[Hock Tan, President and CEO at Broadcom]

What we do see is over the next several months, we see those orders still in place. We see customers willing to take the products. We have talking to multiple CIOs among the largest enterprise customers we have out there. We have not seen them talk about a reduction in their IT spending. We've seen many saying it will grow and others saying it will at least remain flat. I guess I'm cautiously positive about trends looking forward.

[Operator]

Thank you. One moment for our next question. That will come from the line of Ross Seymore with Deutsche Bank. Please go ahead.

[Ross Seymore, Managing Director and Senior Equity Analyst at Deutsche Bank]

Hi, everybody. Thanks for letting me ask a question. Hock, I wanted to follow on CJ's and maybe ask a similar question, but in a slightly different way. Last quarter, you talked about actively scrubbing your backlog, and clearly, that's helped you avoid some of the inventory pitfalls that some of your peers have seen. But have you noticed since last quarter's call a change in either the rate of your backlog growth? I think it was up about 7% sequentially last quarter. The composition of your backlog, or how actively and aggressively you need to scrub it. Any sort of changes in those forward-looking metrics that would alter your view on kind of the sustainability of demand or the duration of it, et cetera?

[Hock Tan, President and CEO at Broadcom]

You know, it comes down very simply to we continue to scrub our backlog in a manner this quarter, last quarter, no differently than we did it six months or one year ago. We haven't changed our focus on ensuring that we do not ship products to the wrong people who just sit, put it on the shelves. That is still very much, very intact in our view. Our backlog continues to be way up there, and you're right, makes us change. As you can see, one quarter it would be broadband growing 20% year-on-year and networking growing 30% year-on-year, and the following quarter is broadband growing 30% year-on-year and networking growing 20%.

[Hock Tan, President and CEO at Broadcom]

It impacts not just from hyperscale varying their purchases in, you know, in, for want of a better word, seasonal manner, is also the particular end markets it goes to. There's a lot of our mix of backlog and products we ship in any particular quarter will vary, and they all change. It doesn't change the fact that we have still a very, very strong backlog, and what we're shipping, which is most important in the current quarter, we believe is what we are reflecting as end demand for our products.

[Ross Seymore, Managing Director and Senior Equity Analyst at Deutsche Bank]

Thank you.

[Operator]

One moment for our next question. That will come from the line of Stacy Rasgon with Bernstein.

[Stacy Rasgon, Senior Analyst at Bernstein]

Great, guys. Thanks for taking my question. Hock, I guess just to ask the question explicitly, last quarter, I think you said your semiconductor backlog was $31 billion and your lead times were still 50 weeks, give or take. What are those numbers now? Like, where is backlog, and where are lead times?

[Kirsten Spears, CFO at Broadcom]

Stacy, this is Kirsten Spears. We're not gonna guide the year, we're not providing that.

[Stacy Rasgon, Senior Analyst at Bernstein]

I'm not asking you to guide the year.

[Kirsten Spears, CFO at Broadcom]

We're fully booked for the year, so if I give you the backlog number, I'm effectively guiding you to the year. We've chosen not to provide that data this time.

[Stacy Rasgon, Senior Analyst at Bernstein]

Okay. I guess, can you just tell me, is it gone up, flat or down?

[Hock Tan, President and CEO at Broadcom]

Our forecast for the year, if you want to call it forecast base, our backlog is not a forecast. You know, for the year, we'll continue to grow. Other than that, I'm not telling you what it is. We don't guide.

[Stacy Rasgon, Senior Analyst at Bernstein]

Got it. You think backlog will grow for the year, is what you're saying?

[Hock Tan, President and CEO at Broadcom]

Our year forecast will grow.

[Stacy Rasgon, Senior Analyst at Bernstein]

Got it. Thank you.

[Operator]

Thank you. One moment for our next question. That will come from the line of Harlan Sur with JPMorgan.

[Harlan Sur, Executive Director and Equity Research Analyst at JPMorgan]

Good afternoon. Thanks for taking my question. Hock, you know, your server storage connectivity business has been extremely strong, right? Up 50%+ in fiscal 2022. More importantly, that business continues to sustain based on the January quarter outlook. You know, we typically tend to think about HDD controllers and preamps, but your business is much more diverse than this. Can you just first of all walk us through, like, what percentage is MegaRAID, PCIe or what I call overall storage connectivity versus your storage controller business, which is primarily HDD controller and preamps? Maybe what's driving the near-term growth in the storage franchise when many of your storage competitors and customers are seeing major weakness in this segment?

[Hock Tan, President and CEO at Broadcom]

Well, that's a interesting question. It's our server storage connectivity, and you're right, which includes nearline hard drives, which includes some, what do you call, on-prem server storage connectivity, host bus adapters included. It's broad. I don't have the numbers on my mind exactly what it is. Just broad-based, particularly from the MegaRAID business. As I said, a big part of the growth, the big dollar, of the big percentage growth, as I indicated before, is due to the fact that the newer generation of products are all subsystems, are boards. We're not just shipping chips.

[Harlan Sur, Executive Director and Equity Research Analyst at JPMorgan]

Yeah.

[Hock Tan, President and CEO at Broadcom]

That counts for a big part of the growth. Notwithstanding, unit growth is up, but not as much as the 50% we announced, obviously. A big part of 50% is content growth as we ship subsystems and boards versus chips. Even then, unit growth is up, and it's across the board. It's not everything that grows, but enough said that overall it grows.

[Harlan Sur, Executive Director and Equity Research Analyst at JPMorgan]

Thank you.

[Operator]

Thank you. One moment for our next question. That will come from the line of Timothy Arcuri with UBS.

[Timothy Arcuri, Managing Director at UBS]

Thanks a lot. Hock, you know, you keep on scrubbing demand, and you're shipping to what you think is consumption. I guess I take it to believe that there's still a gap between what you're shipping and what customers want in any given quarter. I guess we could call that delinquencies. Some others call that delinquencies. You know, obviously you haven't changed your approach, but I would imagine that this delinquency or this gap between what you're shipping in a quarter and what your customers want, that's probably declining. I guess the question is, can you quantify the gap, and is the gap getting smaller? Thanks.

[Hock Tan, President and CEO at Broadcom]

That's an interesting question. We don't really try to quantify the gap. A big part of it is I don't want to get you guys overly excited, but You know, backlog is sometimes is very often categorized or characterized under CRD or customer request dates. Our customer request date in this particular quarter, for instance, or last particular quarter, was much higher than what we actually ship. It was the same way six months ago. Is it got better from six months ago? I can only guess, and in this forum is the last thing I want to do. There's still a big amount of CRDs backlog in excess of what we actually ship out.

[Timothy Arcuri, Managing Director at UBS]

Got it. Okay, Hock. Thanks.

[Operator]

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

[Vivek Arya, Managing Director and Senior Analyst at Bank of America]

Thank you. I actually have two very quick clarifications. First, Hock, have you seen the impact, or do you expect to see any impact of China lockdowns in your wireless business in Q2? I know, you know, there's nothing, doesn't seem to be anything in Q1. I was just wondering if there's something we should be prepared for in Q2. Then on the gross margin, I thought I heard gross margin goes down sequentially in your semiconductor business in Q1. Is that really all mix related, or is there a like-to-like impact that we should keep in mind?

[Hock Tan, President and CEO at Broadcom]

Okay, let's take your first question first and then go to your more interesting second question, which is interesting because connect a few dots here. On the first one, as you know, our wireless is one single customer, and the COVID shutdown and all that does slow down inter-quarter shipments, but we don't see Q2 is too far away for me to really give you any sense and/or accuracy of what it's like. There's obviously movements between Q4 and Q1 as our numbers does kind of reflect. Which is why year-on-year is a pretty good measure. As you see there, Q4 year-on-year was just 13%. I shouldn't say just, was 13%, and Q1 was actually still 1% up. There's obviously some movements in between.

[Hock Tan, President and CEO at Broadcom]

I'm sure that has something to do with COVID logistics impact on logistics chain of our largest customer. I can't really tell in the bigger picture. Now, switching and certainly on Q2, I'm no position to give you any indication. We don't have visibility. Now turning to the second part of the question on gross margin, it's all product mix. It's all product mix because there are some depending on the particular product, products we ship, as I've said many times before, the margin, product margin, gross margin does vary simply because it's the nature of the market conditions, the ecosystem that we have in each of those in those markets, those niche markets we participate in.

[Hock Tan, President and CEO at Broadcom]

Broadly, to give you a sense, perhaps that gives you more color, networking tends to have some of the highest margins, collectively of our products, and much higher than broadband. Of course, wireless has the lowest. You look at Q4 to Q1, the mix shifts away from networking somewhat and more to broadband. Wireless still remains a big chunk of it, even though it hasn't receded as a %. That's why we see that impact on the gross margin sequentially. Nothing more than just the mix of products we ship and the natural gross margin of those products vary, one from the other. You can actually see it with the way our inventory grew too. As Kirsten reported, our inventory ending Q4 grew about 5% from that ending Q3, the quarter before.

[Hock Tan, President and CEO at Broadcom]

Obviously, the Q4 inventory is positioned to ship in Q1. You see that increase even as our guidance on revenue remained pretty flat.

[Vivek Arya, Managing Director and Senior Analyst at Bank of America]

Thank you, Hock. Very useful.

[Operator]

One moment for our next question. That will come from the line of Joseph Moore with Morgan Stanley.

[Joseph Moore, Semiconductor Industry Analyst at Morgan Stanley]

Great. Thank you. You talked about being booked for the whole year, next year. You know, how much visibility do you think that gives you, really, and I guess what's your philosophy gonna be if customers with non-cancellable backlog come to you and try to make an adjustment in a potentially weaker economic period next year?

[Hock Tan, President and CEO at Broadcom]

Let's start with the first part. I mean, when we're booked, we're really booked. I mean, we got paper that says they have a committed orders for us to ship. As you know, our orders are non-cancellable orders. Customers know that. We have the paper, and when we say we are fully booked, it means we have the backlog sitting there. The second question you ask is a more interesting question. What if we all hit a massive recession, depression or recession late next year, in the next six months, nine months, and customers and things really collapse around our ears? What would we do? My answer is, I don't know, which is partly why we're not giving you annual guidance. We will react as and when circumstances require us to do. At this point, we have the orders.

[Joseph Moore, Semiconductor Industry Analyst at Morgan Stanley]

Great. Thank you.

[Operator]

One moment for our next question. That will come from the line of William Stein with Truist.

[William Stein, Semiconductor and Artificial Intelligence Equity Research Analyst at Truist]

Great. Thanks for taking my question, and congrats on the good results and outlook. It seems that the capital allocation policy in terms of the outlook, maybe the policy didn't change, but at least the tactics did. The payout ratio relative to free cash flow, you're setting that a little bit lower than 50%, and you're resuming the buyback. I'm hoping you can just discuss why these decisions were made. Does it reflect an indication or a changing view about the timing of the VMware close, or is it related to concerns around macro, or anything else? Thank you.

[Kirsten Spears, CFO at Broadcom]

I would say that we are policy-wise, we've always said we would pay out approximately 50% of the preceding year's free cash flows. In this economic environment that we're all seeing, we believe that a 12% increase year-over-year is a robust dividend. Yeah, we're quite happy with that.

[Hock Tan, President and CEO at Broadcom]

Don't forget, we're going to start buyback once the rules allow us to do that. That's another return of cash to shareholders. We fully intend to get that going as soon as we could.

[Kirsten Spears, CFO at Broadcom]

As soon as we can. We still have $13 billion under that program.

[William Stein, Semiconductor and Artificial Intelligence Equity Research Analyst at Truist]

Thank you.

[Operator]

One moment for our next question. That will come from the line of Matt Ramsay with Cowen. Please go ahead.

[Matt Ramsay, Managing Director and Senior Semiconductor Analyst at Cowen]

Yes, thank you very much. Good afternoon. Hock, I think in some of the prepared script that you guys disclosed that you're now sort of in the compute offload ASIC franchise, the fiscal year was $2 billion, and I think that's maybe a third higher than it was last year. It looks like You guys did an event on that business earlier in the year, and things really jumped up in fiscal 2018 and then kind of leveled off a bit in terms of revenue. This is a pretty big, I guess, acceleration in that compute offload business. Maybe you could talk a little bit about the trends there, and are you seeing a broadening of the customer base, or maybe higher volumes per tape out as you go down the node stack?

[Matt Ramsay, Managing Director and Senior Semiconductor Analyst at Cowen]

I'd just be interested in seeing some of the trends there. It seems like hyperscale really wants custom silicon at this point. Thanks.

[Hock Tan, President and CEO at Broadcom]

Yeah, you're right in that regard, that we have multiple programs from the hyperscalers on custom or semi-custom silicon, all largely collectively we call as offload compute. They all have their, do their own. In one way, that's very positive and very opportunistic for our technologies to be deployed. On an ongoing basis, you know that the tricky thing in all this is, more will come on. The rate of ramp is harder for us to predict. These are very lumpy programs, fairly large and lumpy, which is why we can get to $2 billion and a raise, an increase of like, as you correctly said, a third from a year ago. It's lumpy. The trend is very hard for me to chart out unless you ask for it over the next five years.

[Hock Tan, President and CEO at Broadcom]

Even then, if you look at it five years, become a question of would these hyperscalers revert to merchant silicon versus continuing to use custom ASICs. That poses another issue for me to figure it out. If you ask for me over the next year or two where it will go, I'll be honest and say I'm in no position to give you really a good forecast.

[Operator]

One moment for our next question. That will come from the line of Aaron Rakers with Wells Fargo.

[Aaron Rakers, Managing Director and Technology Analyst at Wells Fargo]

Yes, thanks for taking the question. Hock, I wanted to go back to the prior comment you had made, and I wanna make sure I'm clear on it. I think possibly within the context of lead times. You talked about customers, I think it was, you know, giving you forecasts that were notably longer. I just wanna understand a little bit of the context behind that comment earlier or, appreciating that you're not giving backlog, any kind of, you know, context around that lead time discussion would be helpful.

[Hock Tan, President and CEO at Broadcom]

We haven't in any major substantive way changed our lead times by any means. As I've said before, we kind of go along on that practice mode. We have forecasts, but we're really not talking about forecasts either as it relates to the previous comment. I think I was referring to backlog and paper that we use. As I said before, even on those paper, we have with customer request dates for shipments. We scrub each of those demands before we ship it out in any in the current quarter or the preceding quarter, depending on what it is. We have forecast, but obviously, we're not giving you any indication of our forecast at this point simply because we are still grinding our way through the backlog.

[Aaron Rakers, Managing Director and Technology Analyst at Wells Fargo]

Okay. Thank you.

[Operator]

One moment for our next question. That will come from the line of Toshiya Hari with Goldman Sachs.

[Toshiya Hari, Managing Director and Senior Equity Research Analyst at Goldman Sachs]

Hi. Thanks so much for taking the question. Hock, I was hoping you could talk a little bit about your business in China, not so much from a ship-to-perspective, but from a end consumption perspective. I know you don't have perfect visibility into what's being consumed at the end customer level. If you can kind of talk about what you're seeing in terms of trends across enterprise, cloud, and service providers, that would be helpful. You know, how significant of a headwind was China in fiscal 2022, and what are your expectations going forward, and what are you hearing from your end customers? Thank you.

[Hock Tan, President and CEO at Broadcom]

Well, to answer your question directly is China has slowed down in terms of consumption of products across industrial, across even infrastructure. It has slowed down, and we see that. You know, they're still not totally collapsed, but they have slowed down compared to what they were taking a year ago. We see that particularly in our industrial business, which as I indicated in my prepared remarks, strength in Europe, strength in North America, especially in automotive, but weakness in China, which is a big part of our industrial business, slowing down, slowed it down. Beyond that, in the IT side, yeah, we have seen a slowdown, but keep in mind, China represents just less than 10% of our total revenues to date.

[Hock Tan, President and CEO at Broadcom]

While it obviously has some level of offsetting effect, it's not sufficiently large to have that much impact on our overall growth, trend for the entire company.

[Toshiya Hari, Managing Director and Senior Equity Research Analyst at Goldman Sachs]

Any signs of improvement going forward, Hock, on the IT side? Or is it too early to tell?

[Hock Tan, President and CEO at Broadcom]

I think it's too early at this point for me to make a call. You know, there's a sense it's some reopening, but if I make a call, good chance I could be wrong in a month's time when thing might shut down again.

[Toshiya Hari, Managing Director and Senior Equity Research Analyst at Goldman Sachs]

Thank you.

[Operator]

One moment for our next question. That will come from the line of Christopher Rolland with Susquehanna.

[Christopher Rolland, Semiconductor Analyst at Susquehanna]

Thanks for the question, and congrats on bucking the trend in semis here, Hock. So my question, it was kind of addressed on the last one, but I wanted to talk about the divergence, particularly between storage and maybe China enterprise networking. There's your other competitor, and call it core, hard disk drive, talked about a downturn in demand in storage, a large inventory build, and something similar happening in China networking as well. You guys have seemingly such a big divergence there. I was wondering if perhaps you had an explanation for some of that and why the difference.

[Hock Tan, President and CEO at Broadcom]

The only explanation to an earlier question was our portfolio in server storage is pretty broad-based. Now with couple of areas that are very large, areas like, you know, RAID, MegaRAID, particularly pretty bunch. There are more than MegaRAID we have, you're correct, and it's pretty broad-based. There's some puts and takes obviously, but overall, we see what we tell you.

[Christopher Rolland, Semiconductor Analyst at Susquehanna]

Okay, thank you.

[Hock Tan, President and CEO at Broadcom]

Sure.

[Operator]

One moment for our next question. That will come from the line of Edward Snyder with Charter Equity Research.

[Edward Snyder, Managing Director at Charter Equity Research]

Thanks a lot. Hock, I'd like to talk a little bit about your wireless business, which is more retail-focused and probably be the first one to see any recessionary pressures if you hit them. I know your guide is really solid. First, give us some idea of your firm order book. I know you get, you know, you get a projection, when the, when the model year starts of what the total number would be for the year, but you don't get a firm order for that for some time. Just kinda how would you characterize firm order book for that or orders per se? Is it 30 days, 60 days? You know, help anticipate if you see a change, when would that be?

[Edward Snyder, Managing Director at Charter Equity Research]

Maybe if you could touch on how we should think about overall content at your largest customer in the next year or so, 'cause there's obviously increased competition in some of your core areas? I was wondering if you're looking to shift more of your focus there into some of the mixed signal custom stuff and maybe wait for some of the RF. Thanks.

[Hock Tan, President and CEO at Broadcom]

Okay. Interesting question. Let me try and address that. First, I assume you imply when you say orders or forecasts on shipment, we only guide Q1, so I can only give you Q1. We have it all on paper, orders. These are real orders, non-cancelable. We're giving you numbers that we intend to ship, that we think the customer needs, as far as we can scrub, and we have it. These are committed orders. These are not forecasts at all, especially when you talk about Q1, which ends, by the way, end of January. We have orders beyond end of January as it is. These are very committed orders, and by that same token, pretty committed revenue forecast. Just to make it clear, Vietnam. You're right.

[Hock Tan, President and CEO at Broadcom]

By the way, we have pretty good visibility, you know, from that particular customer too. Now, beyond that, you know, to the second part of your question, yeah, we're very pleased with content increase that we have experienced, not every year necessarily, as you know, but over a period of years, we always see this content increase. We're still very, very well-positioned in our product line, in those few product lines that are, I call it, almost franchise in our North American customers. This is Wi-Fi, Bluetooth, this is RF front-end, and this is touchscreen controllers, high-performance mixed signal. That's all we focus on because these are areas where we are the best. We believe we have the best technology and in delivering value to our customer.

[Hock Tan, President and CEO at Broadcom]

There's no reason to find something else where you're not the best and hope to gain share from someone else. I could apply the same to my competitors in their thinking.

[Edward Snyder, Managing Director at Charter Equity Research]

You don't see the competitive landscape shifting and making things more difficult for you in that, especially in the RF section in the next coming year or so, you think, you know, your franchises are your franchises and you're not anticipating.

[Hock Tan, President and CEO at Broadcom]

Answer is no.

[Edward Snyder, Managing Director at Charter Equity Research]

Great. Thank you.

[Operator]

Thank you. Our last question of the day will come from the line of Pierre Ferragu with New Street Research.

[Pierre Ferragu, Managing Partner and Head of Global Technology Infrastructure Research at New Street Research]

Hey, thanks for taking my question. Hock, you mentioned you're fully booked for 2023, and you've had a lot of questions on that one. I apologize in advance for squeezing in one last one. I was wondering if you look at the year as you see it booked today, if you could tell us, in this, in this, like, booking dynamics, where do you see for the full year 2023, the most growth and the least growth? I know you can't give us, like, numbers, and you don't want to guide. I completely accept that. If you could give us, like, a kind of idea of where things keep growing very fast, where things are slowing down in your order dynamics over the full year.

[Hock Tan, President and CEO at Broadcom]

Infrastructure is still holding up very well, as we have said in this call so far. We continue to see infrastructure. Infrastructure by looking at it comes from hyperscale in building their data centers and components to their data centers, in service providers like telcos, where we see our strength in broadband access gateways and broadband. I know people are finding hard to imagine, we're seeing it even in enterprise, where that's why I made a comment earlier. We do not see across a cross-section of large enterprises a reduction in their IT spending for 2023. We have not come across too many enterprise customers, and I'm talking real end-use enterprise customers, who are seeing their IT budget drop below 2022.

[Hock Tan, President and CEO at Broadcom]

For most that we have asked, it's either flat or even up as they all continue to have the compelling need to keep modernizing their platform and workloads and digitizing their business model. I think that was the only explanation given to me why there was no such or clear reduction, even as we all hear every day the likelihood possibility of a global recession.

[Pierre Ferragu, Managing Partner and Head of Global Technology Infrastructure Research at New Street Research]

Thank you very much.

[Hock Tan, President and CEO at Broadcom]

Thank you.

[Operator]

Thank you. As there are no further questions in the queue at this time, I would now like to turn the call back over to Ji Yoo for any closing remarks.

[Ji Yoo, Head of Investor Relations at Broadcom]

Thank you, Sherri. Broadcom currently plans to report its earnings for the first quarter of fiscal 23 after close of market on Thursday, March 2nd, 2023. A public webcast of Broadcom's earnings conference call will follow at 2:00 P.M. Pacific. That will conclude our earnings call today. Thank you all for joining. Sherri, you may end the call.

[Operator]

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

Participants

Executives

• Hock Tan, President and CEO
• Ji Yoo, Head of Investor Relations
• Kirsten Spears, CFO

Analysts

• Aaron Rakers, Managing Director and Technology Analyst at Wells Fargo
• CJ Muse, Senior Managing Director at Evercore ISI
• Christopher Rolland, Semiconductor Analyst at Susquehanna
• Edward Snyder, Managing Director at Charter Equity Research
• Harlan Sur, Executive Director and Equity Research Analyst at JPMorgan
• Joseph Moore, Semiconductor Industry Analyst at Morgan Stanley
• Matt Ramsay, Managing Director and Senior Semiconductor Analyst at Cowen
• Pierre Ferragu, Managing Partner and Head of Global Technology Infrastructure Research at New Street Research
• Ross Seymore, Managing Director and Senior Equity Analyst at Deutsche Bank
• Stacy Rasgon, Senior Analyst at Bernstein
• Timothy Arcuri, Managing Director at UBS
• Toshiya Hari, Managing Director and Senior Equity Research Analyst at Goldman Sachs
• Vivek Arya, Managing Director and Senior Analyst at Bank of America
• William Stein, Semiconductor and Artificial Intelligence Equity Research Analyst at Truist