Broadcom Q1 2022 Earnings Call Transcript

Quartr
Provided by Quartr
March 3, 2022

There are 14 speakers on the call.

Operator

Welcome to Broadcom, Inc. 1st Quarter 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, Director of Investor Relations of Broadcom Inc.

Speaker 1

Thank you, Sherry, and good morning, everyone. Joining me on today's call are Hock Tan, President and CEO Kirsten Spears, Chief Financial Officer Tom Krause, President Broadcom Software Group and Charlie Kowas, Chief Operating Officer. Broadcom also distributed a press release and financial tables after the market closed describing our financial performance for the Q1 fiscal year 2022. If you did not receive a copy, you may obtain the information from the Investors section of Broad We will now begin the call to provide a brief update on our financial results. This conference call is being webcast live and a recording will be available via telephone playback for 1 week.

Speaker 1

It will also be archived in the Investors section of our website atbroadcom.com. During the prepared comments, Haak and Kirsten will be providing details of our Q1 fiscal year 2022 results, guidance for our 2nd 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 U.

Speaker 1

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'll now turn the call over to Hock.

Speaker 2

Right. Thank you, G. Thank you, everyone, for joining us today. So in our fiscal Q1 22. Consolidated RedNet revenue was a record $7,700,000,000 up 16% year on year.

Speaker 2

Semiconductor Solutions revenue grew 20% year on year to 5,900,000,000 And Infrastructure Software revenue grew 5% year on year to $1,800,000,000 Now enterprise demand grew very robustly from the trough we saw In Q1 last year, as the recovery in enterprise IT spending continued to accelerate, Meanwhile, hyper clouds are upgrading their data centers and service providers, telcos continue to deploy next generation Fiber to the Home. As expected, against the peak of a year ago, wireless grew single digits And our core software business remains very stable and steady. On the supply front, Lead times remain extended and unchanged as inventory of our products in the channel And then our customers remains lean. Our semiconductor backlog at the close of Q1 Continue to grow double digits from that of the prior quarter. Let me now provide more color by end markets.

Speaker 2

Starting with networking. Networking revenue of $1,900,000,000 was up 33% year on year And represented 32% of our semiconductor revenue. This strong growth was driven by Employment at scale of Tomahawk 4 and compute offload across several hyperscale customers As they upgrade and scale out their data centers. In enterprises, campus switching upgrades Continue to accelerate. Let me talk about routing in this space.

Speaker 2

Investments in 5 gs backhauled by telco operators worldwide continue to drive strong growth in our Qumran family of products. More than this, the opportunity in our routing silicon Has expanded into hyperscale in a very significant way, moving Ethernet into the back end networks of large scale AIML clusters. In particular, I'm referring to the Arista 7,800 AI platform, which scales Ethernet to connect many tens of thousands of CPUs and GPUs in hyperscale. This platform is built On our Jericho router, our devices provide the most cost efficient cost effective fabric For AIML scale up, we have an end to end congestion managed lossless network and Highest efficiency load balancing across the links. Now in contrast to proprietary protocols, Such as InfiniBand, used typically in high performance computing, we see low latency Ethernet Our unique ability to network these complex AI workloads in hyperscale It's extending our customized training and inference SoC footprint at several cloud guys.

Speaker 2

In Q2, we expect networking to continue to be Strong across the board and revenue growth to be in excess of 30% year over year. Next, our server storage connectivity revenue was $801,000,000 And growth accelerated to 32% year on year, representing 14% of semiconductor revenue. This was driven in large part by the continuing recovery of enterprise IT spending, much of which was deployed towards upgrading compute servers. And most of these compute servers use either our Migrate or SAN for server storage connectivity. We are also benefiting from increased content as enterprises upgrade to next generation storage connectivity solutions to support deployment of leading edge service.

Speaker 2

Beyond enterprise, With proliferation of video content in social media, we see our cloud customers increasingly adopting Nearline hard disk drives is the primary storage of choice. And to manage this large arrays of hard disk drives, They deployed storage servers and expanders, which utilize very much our next generation storage connectivity Silicon and software, creating another driver for revenue growth. Interestingly, We are also a critical supplier of preamplifiers and read channels in nearline hard disk drives. We've our revenue growing at over 20% CAGR over the last 5 years. Our nearline revenue represented over twothree of our hard drive business this quarter.

Speaker 2

With the adoption of next generation technology here, We're selling more boards than just silicon, resulting in much higher dollar content. This dynamic, coupled with continuing strong demand from both enterprise and hyperscale, It's expected to accelerate Q2 server storage connectivity revenue to over 55% year on year. Now moving on to broadband. Revenue of $911,000,000 grew 23% year on year And represented 16% of semiconductor revenue. This was driven largely by increased deployment of next generation PON and DOCSIS, our cable modem, with high attach rates of Wi Fi 6 And 6E in home gateways.

Speaker 2

Examples of this abound. Last quarter, Chartered announced trials of DOCSIS 4.0 running at speeds of 8.5 gigabit Downstream and 6 gigabit upstream, both in CPE and remote node. Comcast started deployment of their Wi Fi 6E DOCSIS 3.1 gateways and AT and T announced a multi gig PON service on their gateways. All of this Are using Broadcom SoCs. We remain the market leader in delivering Wi Fi 6 and 6E Chips to leading phones as well as routers, enterprise access points and carrier gateways.

Speaker 2

Through the Q1 of 20 We have cumulatively shipped over 1,000,000,000 WiFi 6 and 68 radios In just around 3 years since our launch, our OEM customers and carrier partners are now ramping WiFi 6E, The current generation of WiFi for WiFi making use of the 6 gigahertz band, which has increasingly been made available for And as we look ahead, we are the industry leader Heavily investing in WiFi 7 as the strategic complement to 10 gs PON and cable modem. We see both broadband. We see this as the next step in broadband development and deployment globally. In the U. S.

Speaker 2

Alone, the pending infrastructure act sets aside $65,000,000,000 Over the next 5 years to connect more homes to high speed broadband. Across the world, the same is happening As next generation wired broadband is seen as the better alternative to 5 gs for home connectivity. As far as Q2 is concerned, we expect our broadband business to continue to grow 20% year on year. Moving on to wireless. Q1 revenue of $2,000,000,000 represented 34% of semiconductor revenue.

Speaker 2

Demand from our North American customer for our products continued to be strong during the quarter, driving wireless revenue up 10% sequentially and up 4% year on year from the peak quarter in fiscal 'twenty 1. As expected in Q2, wireless revenue will be seasonally down about midteensquarteronquarter, but will still be up mid single digits from a year ago. Finally, industrial revenue of $243,000,000 represented approximately 4% of Q1 semiconductor revenue. Q1 resales of $239,000,000 grew 37% year over year, driven by robust demand from electric vehicles, renewable energy, factory automation and healthcare. Reflecting such strong resales, our inventory in the channel remain around 1 month, and we expect resales to continue to be strong in Q2.

Speaker 2

Accordingly, in summary, Q1 Semiconductor Solution revenue was up 20% year on year. Q2, we expect semiconductor revenue to accelerate to 25% year on year. Turning to software. In Q1, infrastructure software revenue of 1 point year on year and represented 24% of total revenue. Core software revenue grew 6% over expiring contracts, while in our strategic accounts, we averaged 136%.

Speaker 2

Within these strategic accounts, $656,000,000 represented renewals on expiring contracts, of which $164,000,000 represented cross selling, including PLAs, of our portfolio products to these same customers. Over 90% of the renewal value represented recurring Okay. ARR Annual recurring revenue at the end of Q1 was $5,300,000,000 which was up 5% from a year ago. In Q2, we expect our infrastructure software revenue to sustain around mid single digit percentage growth In summary, in Q1, Semiconductor revenue grew a strong 20%. In fact, excluding wireless, it grew actually grew Over 30%.

Speaker 2

Combined with our stable software business, consolidated revenue grew 16% year on year to $7,700,000,000 Now turning to Q2 guidance. We expect semiconductor revenue growth will accelerate to 25% year upon year. And excluding wireless, It will be 35% year on year. Layering on our stable software business, we expect Q2 consolidated revenue growth of 20% year on year to $7,900,000,000 And before I turn this call over to Kirsten, I just want to add Broadcom recently published its 2nd annual ESG report available on the company's corporate Citizenship site, which discusses the company's ESG initiatives. As a global technology leader, we recognize The company's responsibility to have a positive impact on our communities through our product and technology innovation and operational excellence, we remain very committed to this mission.

Speaker 2

With that, let me turn the call over to Kiersten.

Speaker 3

Thank you, Hock. Let me now provide additional detail on our financial performance. Revenue was $7,700,000,000 for the quarter, up 16% from a year ago. Gross margins were 76% of revenue in the quarter and up 2 27 basis points year on year. Operating expenses were $1,200,000,000 up 6% year on year driven by investment in research and development.

Speaker 3

Operating income for the quarter was $4,700,000,000 and was up 23% from a year ago. Operating margin was 60% of revenue, up approximately 3 62 basis points year on year. Adjusted EBITDA was $4,800,000,000 or 62.5 percent of revenue. Note that this figure excludes 130 Revenue for our Semiconductor Solutions segment was $5,900,000,000 and represented 76% of total revenue in the quarter. This was up 20% year on year.

Speaker 3

Gross margins for our Semiconductor Solutions segment were approximately 71%, up 3 47 basis points year on year, driven by favorable product mix and content growth in next generation products across our extensive product portfolio. Operating expenses were $817,000,000 in Q1, up 9% year on year. R and D was $725,000,000 in the quarter, up 10% year on year. Q1 semiconductor operating margins increased to 57%. So while semiconductor revenue was up 20%, Operating profit grew 31%.

Speaker 3

Moving to the P and L for our Infrastructure Software segment. Revenue for infrastructure software was $1,800,000,000 and represented 24% of revenue. This was up 5% year on year. Gross margins for Infrastructure Software were 90% in the quarter, up 71 basis points year over year. Operating expenses were $348,000,000 in the quarter, up 1% year over year.

Speaker 3

Infrastructure software operating margin was 71% in Q1 and operating profit grew 7%. Moving to cash flow. Free cash flow in the quarter was $3,400,000,000 representing 44 percent of revenue. We spent $101,000,000 on capital expenditures. Days sales outstanding were 30 days in the Q1 compared to 35 days a year ago.

Speaker 3

We ended the Q1 with inventory of 1.5 Our hardware backlog at the end of the quarter was over $25,000,000,000 compared to $22,000,000,000 the preceding quarter and our lead times remain steady at 50 weeks. Our software backlog continued to grow as well and ended the quarter at over $15,000,000,000 As a point of reference, software backlog was $13,000,000,000 a year ago. We ended the quarter with $10,200,000,000 of cash $39,500,000,000 of gross debt of which $300,000,000 is short term. Turning to capital allocation. In the quarter, We paid stockholders $1,800,000,000 of cash dividends.

Speaker 3

Consistent with our commitment to return excess cash to shareholders, We repurchased $2,700,000,000 in common stock and eliminated $375,000,000 of common stock for taxes due on vesting of employee equity, resulting in the elimination of approximately 5,000,000 AVGO shares. The non GAAP diluted share count in Q1 was $446,000,000 Based on current business trends and conditions, our guidance for the Q2 of fiscal 2022 is for consolidated revenues of $7,900,000,000 and adjusted EBITDA of approximately 62.5 percent of projected revenue. Note that we expect Q2 non GAAP diluted share count to be $442,000,000 This excludes The potential impact of any share repurchases completed in the Q2. That concludes my prepared remarks. Operator, Please open up the call for questions.

Operator

Thank We ask that you please limit yourself to one question. Our first question will come from Harlan Sur with JPMorgan. Please go ahead.

Speaker 4

Good afternoon and congratulations on the strong results and execution. Hock, given your backlog and extended lead times, We've got pretty good visibility into this year. Your end markets are strong, right? Cloud and hyperscale CapEx spending is looking to grow about 30%. You're driving the 204 100 gig networking upgrade cycle, enterprise spending is still expanding.

Speaker 4

As you mentioned Broadcom continues John, whether it's DOCSIS, Wi Fi, fiber upgrades. And then on your compute acceleration ASIC pipeline, you've got Google, Facebook, Microsoft, All of these guys are ramping. So it seems like the demand, your product leadership, seasonality can sustain a Sort of low to mid-twenty percent plus type year over year revenue growth profile through this year. So I guess the question for you is, do you have line of sight and confidence on sustaining this type of growth through the year? And then more importantly, do you have the supply commitments to support this type of growth?

Speaker 2

I'm not providing annual guidance, Harlan, if that's what you're angling for. But what you say makes A lot of sense. And to answer your questions directly, yes, we have line of sight through End of 2022 and both we believe in demand and in supply.

Speaker 4

Thanks, Aap. Sure.

Operator

Thank you. Our next question will come from Vivek Arya with Bank of America. Please go ahead.

Speaker 5

Thank you for taking my question. Hock, I was hoping if you could just revisit what's Driving the acceleration in growth. And then the more important question is that there is a perception that semiconductor companies are benefiting abnormally because of Pricing lever because of the tight supply conditions and as the foundry capacity eases that your costs will go down and the pricing advantage will disappear. And I was hoping you could give us some more color how much of a role is pricing playing in the expected sales growth this year on a like to like basis versus what you saw last year?

Speaker 2

That's a very good question. And I mean, in truth, the rail Demand that we're seeing underlying if you talk about underlying trend that is sustainable at least in this typical Up cycle, you're right. It's while we're showing 30% in networking, 30% in server storage, A part of it is driven by ASP increases simply because we are passing on Our material cost increases, wafer, substrates, assembly to our customers inevitably. But it's much less than you probably think it is. What is really sustainable is what Harlan said in the previous question.

Speaker 2

We think Under the trend demand increase is more like closer to 20% year on year than what Perhaps in dollar terms, you are represented. And how long would it last? Who knows? It's hard to for me to figure out because I've been wrong so many times, and this is now going on into the almost 'twenty two is Done and strong. We're now booking, given our lead times I indicated, in 'twenty three.

Speaker 2

And 'twenty three, I think we'll be at least the first half of twenty twenty three will still be pretty close to the same. And it's the latter part of twenty 3 and 24 that we have to figure out whether there's enough supply that will start coming in To basically address what is today and what we're seeing An extremely strong demand environment, whether it's from enterprise, telcos and service providers and Hyperscale. All three are strong.

Speaker 5

Got it. So price stickiness perhaps can continue into 'twenty three. I just wanted to clarify that.

Speaker 2

At least the 1st part of 2023, yes.

Speaker 5

Okay. Thank you, Hock.

Operator

Thank you. Our next question will come from Stacy Rasgon with Bernstein Research. Please go ahead.

Speaker 6

Hi, guys. Thanks for taking my questions. Hock, I wanted to ask about gross margin. So you did like 75.5% in the quarter, 71% for semis. And if I sort of like squint at your guidance, it implies gross margins in Q2 at least at that level, if not even probably higher.

Speaker 6

And this is amid cost increases and everything else. So I mean, how do we think about like the limit of this? I know you always talk about margins kind of going up 100 basis They seem to be doing even better than that. Do we just keep modeling them going up from here? Or do you think they take a pause?

Speaker 6

Are there any other drivers Like into the back of this, your mix or anything else that would sit on that? Just how do we think of it just given the levels that they're sitting at right now?

Speaker 2

Well, And I could trouble my usual statement because it happens to be true, which is year upon year Under normal situations, yes, we see this 100 around 100 basis points Expansion of gross margin on our semiconductor front, you get that. Now, Kirsten just Indicated, we did better than that in semiconductor. And I guess the and the reason why we did better than that this Season, so to speak. If you have back to my remarks, There's a lot of deployment launch and deployment of newer generation products that I mentioned. We're talking about In networking, Tomahawk 4 and much more Trident 4, Which is more towards some data centers that use in enterprises, Tomahawk 4 used in HyperCloud, that new generation.

Speaker 2

Then we talk about Jericho being deployed the latest Jericho being deployed in the back And the backside networks of machine learning, AI, GPU interconnectivity, that's a whole new application. Then we talk in service storage. I've been talking about a whole slew of new generation solutions, which we put in place Towards basically for new generation leading edge servers out there from the guys who do those servers. And with those new generation, we get that better margin. So in all, I guess the additional input I put in is A lot more new generation products coming out now, happens in 2022.

Speaker 2

We're seeing happen. And of course, We are, in this environment, thankfully, able to pass on our cost increases to supply to customers. And that all adds up to a fairly decent gross margin set of results. But do not let that be an indicator, please, That it is something that will be a 200, 300 basis points expansion year on year. We still believe Normal situation is still be just on average 100 basis point expansion.

Speaker 6

Got it. But as long as you can keep the new products coming, we should be able to see that 100 basis points even from here.

Speaker 2

Yes. And by the way, it's not just me having to come out new products. It's a there's a pool. The customers, The applications of our markets require us and that's the beautiful thing about the semiconductors and technology. It always There always is a need for next generation better products, whether it's performance power, whatever, it's always is a pool And that product life cycle is what enables us to drop develop these new products, And our margins will keep expanding.

Speaker 6

Got it. It's helpful. Thank you so much. Sure.

Operator

Thank you. Our next question will come from Ross Seymore with Deutsche Bank. Please go ahead.

Speaker 7

Thanks for letting me ask a question. Hock, thanks for the information on the backlog for the semi business. It's good to see that rising as much as it did sequentially, especially considering the lead times It stayed flat. While the magnitude is impressive, I really wanted to ask about the profile of that and how it may or may not be changing. So as that additional backlog comes in, given all the moving parts between enterprise and cloud and broadband and wireless, etcetera, Any sort of changes in the profile of that backlog that you find to be interesting either in

Speaker 8

a positive or negative sense that will give us a

Speaker 7

clue about the future growth drivers for your company?

Speaker 2

That's a good question. And I implied in some of my points, some of my remarks, but Let me take it directly. Yes, enterprise, enterprise demand spending is the strongest driver That we're seeing today. And it should be no surprise, guys, something we have said since last quarter and the quarter before. Enterprise has recovered more than recovered.

Speaker 2

It's going it's on fire It's the best way to describe it. Enterprise spending on IT is, as we perceive it, on fire. And we are seeing A big part of that. And that's not to say that hypercloud and telcos are not adding to it, but Not as strong as Enterprise Recovery.

Speaker 7

Any negative surprises in that? You talked about the positive side. Is there anything that's been surprising in the negative side?

Speaker 2

No, not really. It's just there's I think there's a lot of pent up spending. There's a lot of need For a lot of enterprises to upgrade, and that's also what's driving, as I indicated in my remarks, a lot of On prem campus switching investment going in. I mean, look at even Broadcom. We've been using Wi Fi in our hotspots, in our access gateways in through the campus.

Speaker 2

A key part of it is wireless connectivity, Wi Fi, so I mean, we've been running Wi Fi 5 for many years. Now is the time to move to Wi Fi 6, 6E, and we're not the only one. We're seeing Across the board, very strong demand from lots of enterprises wanting to upgrade connectivity As offices start to slowly open up.

Speaker 7

Thank you.

Speaker 2

Sure.

Operator

Thank you. Our next question will come from John Pitzer with Credit Suisse. Please go ahead.

Speaker 9

Yes, guys. Thanks for letting me ask the question. Hock, usually at this point in the cycle with lead times extended as much as they are And you guys getting pricing power, the big concern on Wall Street is to what extent is the demand you're seeing real demand versus perhaps Your customers building inventory. And I know you're less consumer focused than most and so maybe inventory builds are less relevant in some of these I'm wondering if you could give us your perspective on or at least what you guys try to do To scrub the backlog to make sure it's good demand. And if you think it's good demand, I'm kind of curious, you've always had a very realistic view Of what the long term growth rate for your semi should be semi business should be, is that beginning to change?

Speaker 9

And like many of your peers Who have put up a higher kind of new CAGR? Are you willing to go there right now?

Speaker 2

Let's answer the first question first and let me go to the last one at the best at the end. But On the first part, yes, as I've said in previous earnings calls, and I'm more than happy to reiterate it Here, which is we are very, very concerned, obviously, that you could ease we could easily build up Inventory in various parts of our demand environment, just because We ship according to what customer sending in orders as their customer request is. So we don't. We actually spend huge amount of bandwidth of our operations and salespeople in this environment To make sure we get products to any particular customer just when they need it. None any earlier and hopefully not too late either because we like to address customer and a real need in that regard.

Speaker 2

Well, what's very, very important to us is not to ship excessively and fill up inventory, whether it's in the customer inventory, in distribution, The nice thing about our business in semiconductor is this, 75% of our revenue Comes from just about 100 customers and they are direct. The last 25% go through distribution, 75% direct to 100 customers. We have enough salespeople. We have enough visibility on these customers to know exactly pretty closely, you would like to think, What they need and shift to what they need and to what exactly they need. And when we do all that, I said it before in last earnings call, True end demand growth, true growth we have been seeing in 2021, it's about 20% Year on year improvement.

Speaker 2

Now we now take on the fact that material costs have gone up in 'twenty two, So there's an addition beyond 20%. But I still believe it's about 20%, in response to the earlier answer, in this environment because The last upcycle we saw in 2017, it was 20% year on year improvement. It wasn't stronger than that. And by the way, we sell mostly those big core system on a chip into any platform that our customer builds and sells out. We do and generally, we get very good visibility.

Speaker 2

If we were to sell More of the peripheral chips, the secondary chips that adds up to the total platform And that cost a fraction of what our system on a chip cost, then perhaps you will not have that visibility. And we believe there are a lot of pockets of those inventory in the wrong places because of unbalanced chipsets sitting out there. But if you for example, if you are building a data center and you need 1,000 Tomahawk Force, believe me, you will not buy more than 1050 Tomahawk Force. And but if you're buying a Voltage regulator. You'll probably buy 2,000, 3,000 of those voltage regulators just in case.

Speaker 2

And that's the difference of what we think. So we think we get a good sense of what's out there. And the kicker here is the price increase That was passed on because of wafer cost and substrate cost increases, which makes it go over perhaps what we think is a sustainable level. Now to answer your longer term question, no, I don't think on a long term, say, next 10 years, would the CAGR change? I think people who say the CAGR change frankly are probably dreaming, because there's no evidence on our side to show Why this industry, which is relatively matured semiconductor industry, should suddenly Spiral into a different trend growth rate.

Speaker 2

We have seen our last 10 years compounded roughly 5% Annual growth rate. And there's nothing to indicate, frankly, why you would not be that way for the next long term 10 years. Now it won't be 5% every year. Obviously, we're not at 5% this year. But on the long term, I still think that trend has not changed.

Speaker 9

Perfect. Thank you very much.

Speaker 10

Sure.

Operator

Thank you. Our next question will come from Toshiya Hari with Goldman Sachs. Please go ahead.

Speaker 11

Great. Thank you so much for taking the question. Hock, I wanted to ask for your thoughts On capital allocation, it's been a while since your last meaningful acquisition. A lot of things are going on from a macro perspective. Rates are going up and obviously the economy is a little bit squishy.

Speaker 11

You just spent $2,700,000,000 on buybacks. Just curious how you're thinking about allocation of capital, any changes to how you think about M and A and Thank you.

Speaker 2

Well, and Really, in last quarter, we were very clear about capital allocation plan, at least for 2022, And which is frankly, we're still looking for acquisitions. We're just being very, very As we usually do, being very thoughtful and selective about the assets We would acquire, but very much so, we're still in the market to look for good and great assets also acquire, and we have The capacity to handle it. And in the meantime, given 2 years, 2020 2022, When we haven't done anything on acquisitions and have been earning and generating lots of cash, We have taken on other than paying dividends and maintaining the policy on dividends that we have outlined for the long term. We have decided for fiscal 2022 for actually calendar 2022 To put out that buyback program of $10,000,000,000 we've spent $2,700,000,000 of it so far, And we have probably most of the year to go, and we'll probably use we will likely use all of it up evenly Over the next 9 months of the remaining year, and that nothing has changed. But and we believe we still have the capacity to do a good size acquisition.

Speaker 12

Thank you so much.

Operator

Thank you. Our next question will come from Pierre Ferragu with New Street Research. Please go ahead.

Speaker 12

Hi, thank you for taking my question. I'd love to hear whatever debt you can give us Haak, on your ASIC business In semiconductors and what I'm wondering is how is business trending compared to your other segments In semiconductor, do you see your ASICs taking share overall with your hyperscale clients or is that just growing in line with the rest of the Yes, it's actually below the rest of the markets.

Speaker 2

Okay. Let me paraphrase my your question the way I would probably be able to answer it and see if it's the right thing. What you're saying is, see, We have a product division that does ASIC custom chips essentially for usually large customers. And that's a good sized business for us. And a big part of that business, to address what you're seeing here, Its address has been used is now currently, though not in the past, but more recently in the last few years, It was the hyperscale players who are starting to develop wanting to develop There are customized and dedicated accelerators for specific Functions and workloads mostly related to, for instance, machine learning, AI, Also to do with video transcoding and also gradually increasing Virtualization and orchestration of data centers, all those that Customized silicon accelerators to enable these hyper cloud guys to run their workloads better and more effectively.

Speaker 2

I believe that was your question. And the best way to answer your question is year on year this quarter, Q1, we grew revenue in this Offload computing sector, which is all ASICs, north of 50% revenue year upon year, All right. I hope that answers your question.

Speaker 12

Yes. Thank you. That's perfect. Thank you so much.

Operator

Thank you. Our next question will come from Tim Arcuri with UBS. Please go ahead.

Speaker 13

Hi, thanks a lot. Hock, I had a question on your wireless business. It's been very strong, but you've been recently talking about some trade offs that one of your customers making Is making on the FR side and maybe making it a little even more concentrated on a single customer. And I know that you considered selling this business sometime back, But does the even further revenue concentration, does it make you rethink maybe how committed you want to be to that segment and Maybe whether you could redeploy this capital into another market, especially as things might be changing on the modem side? Thank you.

Speaker 2

Okay. Good question, and my answer will be very simple and direct. We have always indicated our wireless business It's one customer largely, our North American OEM. And you know what? They're very good customer.

Speaker 2

They're very strategic. And we are not only selling one product, but selling multiple Products which are very strategic to us and I like and I believe also very important and strategic to them, which will which is what makes a partnership very sustaining. I see this as a very long term sustaining Partnership in the sense of the products we do develop, we collectively call wireless and because it goes into Mobile a lot of mobile devices, though not entirely, but most of it, it goes into phones, it goes into wearables, It goes into pads or tablets and it goes into not so mobile, but many of them are Into even notebooks, but it goes into all the stuff and we sell we develop and Provide something like 1 about 5 different critical engine technology products To this same customer, so it is it has, over 10 years now, developed into an extremely Sustainable and strategic relationship. Clearly, from our side, yes. I like to believe from their side the same thing.

Speaker 13

Thanks, Mark.

Operator

Thank you. Our next question will come from Edward Snyder with Charter Equity Research. Serge, please go ahead.

Speaker 10

Thank you. Well, since we are talking about wireless, I wanted to follow-up with that. Thanks for that answer, Hock. But I

Speaker 8

want to step back and maybe look

Speaker 10

at the longer term on this. When you bought Royal Oak Cave, you kind of shifted the narrative from We don't really need revenue growth. We're mostly looking for cash flow and high margins, which worked out very well. In wireless, you got a little bit different animal. With Samsung on the way out, they shifted their phone strategy to more cost centric and Less performance wise, it made sense for Broadcom not to participate there.

Speaker 10

And your large customer is doing fine. It looks like they will be 3 years. But As we've already seen on the high end 5 gs, the growth in revenue or growth in content is slowing. And by all measures, it will likely Stagnate in the next 3 to 4 years. In that kind of environment, and especially if you're not doing these custom designs anymore, And given just given the revenue may not grow, if margins are affected, what do you do with it?

Speaker 10

I mean, you've not ever embraced a business where both Revenues flat to down and margins are in decline. I think the question a lot of folks have is what could you possibly do? It's so large and there's so few suitors for it. It's kind of puzzling in 3 years or 4 years what the strategy would be with wireless. Maybe you could help shed a light on that.

Speaker 10

Thanks.

Speaker 2

That's interesting thing, Ed. Here it is. All our businesses, I just want to remind you, In our view, as I said, in the view of all semiconductor segments itself, It's not a high growth business. You guys like to think, because probably there are few companies out there who are trying to grow In a business that doesn't grow, 5% is what it is. And I so it's a business that does grow.

Speaker 2

But in dollar terms, overall, mid single digits. I call it a slow growth industry. Within it, however, it still evolves new generation of products constantly. That's the unusual Unique thing about semiconductors, it keeps evolving. Not disruptive Much as people like to say they are disruptive, my view is evolutionary.

Speaker 2

But that evolutionary Creates new opportunities for basically selling a better product, a more valuable product To the same customer for the similar application, Anyco and which the customer can then monetize back on their own. And that's really all it is. And what we are doing here in wireless is no different. And tell you something also very interesting. Every product we sell in wireless is in effect A nonstandard product.

Speaker 2

It is customized. It is customized for the needs For the unique needs and particular requirements of that particular customer, That's what makes us so successful, and that's what makes the partnership so sustainable. We develop Technology in the form of products that we do, whether it's an RF with F bar front end module Our weather is pure silicon with some SDK a lot of SDK software, where some unique high performance mixed signal Analog product, all of which we do to this customer, we do it to meet their particular requirements, which allow their products To be at a level that's very differentiated from their own space in the competitive space they are in. And that's what makes it very unique, and that's what makes this thing keep going. But we're not looking for in any End market we are in, in any product line we are in for high growth.

Speaker 2

If high growth in semiconductors comes in spurts And do not last. If anybody tells you otherwise, please don't believe it because it has never happened.

Speaker 10

Thank you.

Operator

Thank you. And we do have time for one Final question from Vijay Rakesh with Mizuho. Please go ahead.

Speaker 8

Yes. Hi, Hock. Just a question on the network Kingsley, obviously, very strong growth, up 33% with the Tomahawk and the DPU, I guess. What do you see the long term Growth there, meaning in the as you look at the next 12 to 24 months on the networking side. I had a follow-up.

Speaker 8

Thanks.

Speaker 2

Okay. The next 12 months, it's pretty good. We have visibility, and we kind of indicated in our answer. 24 months? Harder for me to tell you.

Speaker 2

If you ask me what do you think over the next 10 years, I'll tell you what it is, Mid to high single digits. And because that's it's consistent with all right. There is No segment, don't believe anybody telling otherwise that we'll have a sustainable growth rate in this space. Its Change changes, maybe. So but next 12 months, very good growth rate is what I indicated.

Speaker 8

Thanks. And one last question on the software side, obviously, since December 8th, when they announced the big buyback, Obviously, software evaluations have become much more attractive in the last might be down 30%, 40% there. But do you have a target in mind As to what you think that software business should be, it's like 24%, 25% of revenues now. Are you looking to build it up to Half of your business or is there a long term target that you're putting out there? Thanks.

Speaker 2

Hate to tell you, I don't have a strategic plan here. My plan or a numbers plan, it's our strategy in acquisitions And growing this entire Broadcom platform is more about locating, identifying very, very Strong assets out there and which are actionable And then making a deal and buying them and integrating in our platform. They got to meet our requirements Of quality of the assets of the product of the business model, to some extent, the product characteristics It's been very mission critical. And then after that comes the price. For us, After that is the price because you recall, the way we run those software businesses tends to be different usually from the way The party we buy from runs it.

Speaker 2

And because of that, we are able to create the financial returns Consistent with a business model that we put in place fairly different from what the existing business model is in most software companies out there. All right.

Speaker 7

Great. Thanks, Hock.

Operator

Ladies and gentlemen, thank you for participating in today's question and I would now like to turn the call back over to Ji Yu, Director of Investor Relations for any closing remarks.

Speaker 1

Thank you, Sherry. In closing, similar to our networking, broadband and storage teach ins in fiscal 2021, Broadcom and Deutsche Bank will be hosting a teach in of our custom silicon business on Tuesday, April 19 at 12 pm Eastern, 9 am Pacific. Hock will be joined by Frank Ostowich, General Manager of our ASIC Products division and Vijay Janapati, General Manager of our Physical Layer Products division. Broadcom currently plans to report its earnings for the Q2 of fiscal 2022 after close of market on Thursday, June 2, 2022. A public webcast of Broadcom's earnings conference call will follow at 2 P.

Speaker 1

M. Pacific. That will conclude our earnings call today. Thank you all for joining. Sherry, you may end the call.

Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now

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Earnings Conference Call
Broadcom Q1 2022
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