Sempra Q4 2021 Earnings Call Transcript

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Provided by Quartr
December 8, 2021

There are 12 speakers on the call.

Operator

Hello, and welcome to Broadcom's Inc. 4th Quarter and Fiscal Year 2021 Financial Results Conference Call. At this time, for opening remarks and introductions, I will turn the call over to Ji Yu, Director of Investor Relations of Broadcom Inc. You may begin.

Speaker 1

Thank you, operator, and good afternoon, everyone. Joining me on today's call are Hock Tan, President and CEO Kirsten Spiers, 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 Q4 fiscal year 2021. If you did not receive a copy, you may now disconnect the information from the Investors section of Broadcom's website atbroadcom.com. 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, Hock and Kirsten will be providing details of our 4th quarter and fiscal year 2021 results, guidance for our Q1 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

Thank you, Gee, and thank you, everyone, for joining us today. So in the environment we have today, enterprise demand rebounded sharply over 30% year on year. Hyper cloud and service provider demand continued to be strong and strong wireless growth in Q4 was driven by the Season launch of next generation smartphones by our North American OEM. Our core meanwhile, our core software business continues to be steady with a focus on strategic customers. On the supply side, our lead times remain extended and stable.

Speaker 2

Inventory in our channels and at our customers remains very lean. Accordingly, in Q4, Semiconductor Solutions revenue grew 17% year on year to 5,600,000,000 and with infrastructure software revenue growing 8% year on year to $1,800,000,000 Consolidated net revenue was a record $7,400,000,000 up 15% year on year. Let me now provide more color by end markets. Let's start with networking. Net working revenue of 1 $900,000,000 was up 13% year on year in line with our forecast for low double digit growth and represented 34% of our semiconductor revenue.

Speaker 2

Double digit year on year growth was primarily strong demand from campus switching, both from our merchant silicon as well as ASIC solutions through OEMs like Cisco and HP. We also experienced similar double digit growth With the deployment of Jericho routers within large scale AI networks in the cloud as well as Qumran in 5 gs Infrastructure and DCI. Our unique capability here to deliver ultra low latency Ethernet networks enables large scale deployment of AI compute for the cloud. Meanwhile, in the core of these Large data centers, we have begun to ramp Trident 4 and Tomok 4, the world's First 25.6 terabit per second switch to several hyperscale cloud customers as they address via ever growing need for bandwidth demand in scaling out their massive data centers. Now within Hyperscale Cloud, we continue to lead in delivering ASIC silicon for multiple compute offload accelerators, which has manifested into being 20% of our networking revenue, expect continued growth in the next fiscal year here to over $2,000,000,000 The key to our success here lies with our robust design methodology, which integrates our broad and substantial silicon IP and rapidly delivers world class customized silicon SoCs to enable AI, virtualization, orchestration, video transcoding and security.

Speaker 2

We have now extended our footprint here beyond TPUs at multiple cloud customers. In Q1, networking is firing on all cylinders, and we expect Networking revenue growth to accelerate to close to 30% year on year. Next, Our server storage connectivity revenue was $815,000,000 up 21% year on year in sharp contrast to the first half of twenty twenty one and represented 15% of semiconductor revenue. The better than expected results were driven by robust demand for storage controllers and horsebus adapters from renewal spend by enterprises upgrading their compute and storage infrastructure. Additionally, with hypercloudstorage, we saw accelerated migration to 8 Terabytes and the start of 20 terabyte hard disk drives, which drove our nearline storage revenue.

Speaker 2

To put things in perspective, today, our nearline storage business is close to $1,000,000,000 on an annualized basis. We continue to gain share in server storage connectivity as we expand our leadership in next generation SaaS 4, PCI Express Gen 5 and NVMe. Spending for enterprise continues to recover and we expect this will accelerate growth in our Service storage connectivity revenue in Q1 to approximately 30% year on year growth. Moving on to broadband, revenue of $872,000,000 grew 29% year on year and represented 16% of semiconductor revenue. This was driven by the continued strong growth in deployment by service providers globally of next generation PON with WiFi 6 and 6E access gateways.

Speaker 2

We continue to lead the industry with a portfolio of end to end integrated solutions across multiple access protocols, cable modem and DSL. All SoC controllers, each with integrated Wi Fi managed through our software stacks to reliably deliver more bandwidth, faster data speeds from the call service provider networks to the homes. And a critical element in our broadband platform at my end is leading edge WiFi, WiFi 6 and 6E today and WiFi 7 tomorrow. Having leading edge wireless is important for our service provider customers to reach digital homes from their networks. By the same token, In campus switching in enterprises, it's also critical that our OEMs can connect enterprise data centers through campus switches to the access points with leading edge WiFi.

Speaker 2

In both markets, Our platforms, which encompass wired and wireless, silicon and software, uniquely differentiate Broadcom and sustain our market leadership. So in Q1, We expect this double digit percent year on year growth rate in broadband to continue as we have seen for the last few Moving on to wireless, consistent with the launch of our customers' next generation phone during the quarter, Q4 revenue of $1,800,000,000 represented 32% of semiconductor revenue It was up 21% against a softer Q4 quarter a year ago. Nevertheless, We expect continuing strong demand into Q1 and which will drive Wireless revenue to be up sequentially single digit and be flat to up low single digit percentage year on year from the peak of a year ago. Finally, industrial revenue of $197,000,000 represented approximately 3% of our Q4 Semiconductor Solutions revenue. Having said this, resales of industrial of $232,000,000 grew 36% year over year in Q4 driven by strong demand from OEMs for electric vehicles, robotics, factory automation and healthcare.

Speaker 2

As a result, Our inventory in the channel declined further to below a month. And turning to Q1, We expect resales to continue to be strong at the levels we saw in Q4. In summary, Q4 Semiconductor Solutions revenue was up 17% year on year And in Q1, we expect the momentum to continue and revenue growth to be up double digits again year on year. This implies that Q1 semiconductor revenue will be up low single digits sequentially. Turning to software, Q4, infrastructure software revenue of 1 $8,000,000,000 grew 8% year on year, represented 24% of total revenue.

Speaker 2

Within this, Rocket showed strong growth of 19% year on year, consistent with strong enterprise recovery during the quarter and deployment of our next generation 7 fiber channel send products. Now excluding Brocade, our core software revenue grew 6% year on year. In dollar terms, Consolidated renewal rates averaged 116% over expiring contracts, While within our strategic accounts, we actually averaged 127%, consistent with prior quarters. Over 90% of the revenue represented recurring subscription and maintenance. Stepping back and following the Software Investor Day last month, Let me provide an update on the entire fiscal 2021 for our core software.

Speaker 2

Total backlog at the end of the year totaled $14,900,000,000 up 15% from a year ago with average duration of contracts extending from 2.6 to 2.9 years. This backlog translates into an ARR or annual recurring revenue of $5,200,000,000 which was up 5% from a year ago. 74% of this comes from our approximately 600 strategic accounts, which in fiscal 2021 we renewed at 129 percent or $2,400,000,000 of annualized booking value. Dollars 1,900,000,000 of this represented renewals on expiring contracts and roughly $500,000,000 represented cross selling, including PLAs of our portfolio of products to these strategic customers. For the year, we booked over 300 contracts generating greater than $1,000,000 of revenue annually with over 30 contracts generating over $10,000,000 annually.

Speaker 2

With such stability In Q1, we expect our infrastructure software revenue to continue to sustain around mid single digit percentage growth year over year. So let me summarize. With the continued strength in our semiconductor segment and steady growth in our software segment, Total Q4 net revenue grew 15% year on year. Turning to Q1. Semiconductor revenue, excluding wireless, is expected to be up 28% year on year.

Speaker 2

Wireless is expected to grow flat to low single digit percentage compared to the peak of a year ago. So semiconductor revenue in total is expected to grow 17% year on year again and consolidated revenue is expected to grow 14% year on year. Sequentially, This will drive revenue to grow from $7,400,000,000 in Q4 to $7,600,000,000 in Q1. We are very well positioned in every one of our franchise markets In fiscal 2022 and beyond, we continue to significantly out invest anyone else across our platforms in switching and routing, offload compute, silicon photonics and wireless connectivity to accelerate our next generation roadmaps as we continue to gain market share. Lieutenant, 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 $7,400,000,000 for the quarter, up 15% from a year ago. Gross margins were 75% of revenue in the quarter and up approximately 105 basis points year on year. Operating expenses were $1,100,000,000 up 3% year on year driven by investment in R and D.

Speaker 3

Operating income for the quarter was $4,400,000,000 and was up 20% from a year ago. Operating margin was 59 percent of revenue, up approximately 286 basis points year on year. Adjusted EBITDA was $4,500,000,000 or 61 percent of the total. This figure excludes $134,000,000 of depreciation. Now a review of the P and L for our 2 segments.

Speaker 3

Revenue for our Semiconductor Solutions segment was $5,600,000,000 and represented 76% of total revenue in the quarter. This was up 17% year on year. Gross margins for our Semiconductor Solutions segment were approximately 70%, up 170 basis points year on year, driven by favorable product mix and content growth in next generation products across our extensive product portfolio. Note that We have been able to continue to expand our semiconductor gross margin despite higher wireless revenue mix. Operating expenses were $790,000,000 in Q4, up 3% year on year.

Speaker 3

R and D was $701,000,000 in the quarter, up 6% year on year. As a side note for fiscal 'twenty two, we are planning to increase R and D spend in semiconductors by mid to high single digit percent year on year. As Hock indicated in his remarks, we are committed to investing heavily in our next generation products to maintain and even increase our leadership across all our franchises. Q4 operating margins increased to 56% of 3.50 basis points year on year. So while semiconductor revenue was up 17%, operating profit grew 24%.

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 8% year on year. Gross margins for infrastructure software were 90% in the quarter, up 19 basis points year over year. Operating expenses were $3,000,000 in the quarter, up 1% year over year.

Speaker 3

R and D spending at $220,000,000 is up 9% year over year and SG and A of $133,000,000 is down 10% year over year. Operating margin was 70% in Q4, up 166 basis points year over year and operating profit grew 11%. Moving to cash flow. Free cash flow in the quarter was $3,500,000,000 representing 47 percent of revenue. We spent $88,000,000 on capital expenditures.

Speaker 3

Day sales outstanding were 25 days in the Q4 compared to 32 days a year ago. We ended the Q4 with inventory of $1,300,000,000 an increase of $137,000,000 or 12% from the end of the prior quarter in preparation to meet customer demand in Q1. We ended the 4th quarter with 12 point $2,000,000,000 of cash $39,700,000,000 of total debt of which $290,000,000 is short term. Turning to capital allocation. In the quarter, we paid stockholders $1,500,000,000 of cash dividends.

Speaker 3

We also paid $266,000,000 in withholding taxes due on vesting of employee equity, resulting in the elimination of 525,000 EVGO shares. We ended the quarter with 413,000,000 outstanding common shares and 448,000,000 diluted shares. Based on current business trends and conditions, our guidance for the Q1 of fiscal 2022 is for consolidated revenues of 7.6 $1,000,000,000 and adjusted EBITDA of approximately 61.5 percent of projected revenue. Let me recap our financial performance for fiscal year 2021. Our revenue hit a new record of 27 point $5,000,000,000 growing 15% year on year.

Speaker 3

Semiconductor solutions revenue was $20,400,000,000 up 18% year over year. Infrastructure software revenue was $7,100,000,000 up 7% year on year. Gross margin for the year was 75%, up 100 basis points from a year ago. Operating expenses were $4,500,000,000 down 2% year on year as we completed the integration of Symantec. Operating income from continuing operations was $15,900,000,000 up 23% year over year and represented 58% of net revenue.

Speaker 3

Adjusted EBITDA was $16,600,000 up 21% year over year and represented 60% of net revenue. This figure excludes $539,000,000 of depreciation. We spent $443,000,000 on capital expenditures and free cash flow represented 49% of revenue were $13,300,000,000 Free cash flow grew 15% year over year. For the year, We returned $7,500,000,000 to our stockholders consisting of $6,200,000,000 in the form of cash dividends and $1,300,000,000 for the elimination of 2,800,000 AVGO shares. We have extended our weighted average debt maturity to approximately 10.6 years with a weighted average interest rate of approximately 3.6%.

Speaker 3

Looking ahead to fiscal 2022, we remain committed to returning approximately 50% of our prior year free cash flow to stockholders in the form of cash dividends. Consistent with that, we are increasing our quarterly common stock cash dividend in Q1 fiscal 'twenty two to $4.10 per share, an increase of 14% from the prior quarter. We intend to maintain this target quarterly dividend throughout this year subject to quarterly Board approval. Today, as part of our commitment to return capital to shareholders, we announced that the company's Board of Directors has authorized to repurchase $10,000,000,000 of our common stock under Broadcom's new share repurchase program. The authorization is effective until December 31, 2022.

Speaker 3

This new share repurchase program reflects our confidence in the company's ability to generate strong and sustainable cash flow. Note that we expect the diluted share count to be 448,000,000 in Q1. This excludes the potential impact of any share repurchase. That concludes my prepared remarks. Operator, please open up the call for questions.

Operator

Thank Our first question comes from the line of Toshiya Hari with Goldman Sachs. Your line is open.

Speaker 4

Hi. Thank you so much for taking the question and congrats on the very solid results. Hock, I know you guys don't guide for the full year, but I was hoping you could kind of walk us through how you're thinking about fiscal year 'twenty two On the semiconductor side, obviously bookings have been strong, continue to be strong across most of your buckets Or end markets within semis. But if you can talk about bookings trends in the quarter, what you're seeing there, that would be super helpful. And then as you sort So to answer the fiscal 'twenty two question, if you can touch on supply, and to what extent supply could be a gating factor over the next 12 months, that would be helpful.

Speaker 4

Thank you.

Speaker 2

That's a very good a hell of a question, I may add. So let me try to address in its various component parts. What we continue to see with the recovery, I made a point of saying There is now we are now in the midst of a very strong spending recovery in enterprise, Particularly, so we are continuing to see strong demand bookings in the semiconductor site. But a big part of that demand, an increasing part of that demand is now coming from enterprise spending, which translates to end markets tends to drive a lot of our broadband, continue to drive the broadband, which has been strong in most of 2021, continuing to drive the enterprise part of our networking business And of course, server storage and industrial is just very, very strong. Having said that, on the hyper cloud spending side, A lot of it resides in obviously in our networking business.

Speaker 2

Things are still fairly, very elevated. The market continues to be strong. And So when you combine all this together, we continue to see booking rates being at a fairly and continue to be a very elevated level week after week so far. And as of right now, we're pretty much Both all the way through 2022 and even beyond 2022 into 2023. If you think about 15 week lead time, No surprise it goes to late 2022, but we've gone even in many cases now gone beyond 2022 into 2023 and that's partly because 1, timing of our customers planning very far ahead and 2, as I said, our continuing Disciplined approach to ensuring that we deliver products at the right time to the right place, And we see that going on.

Speaker 2

And I hate to disappoint you, still we are still not ready or prepared to give you guidance on Whole fiscal year. Thank you.

Operator

Thank you. Our next question comes from the line of Stacy Rasgon with Bernstein Research. Your line is open.

Speaker 5

Hi, guys. Thanks for taking my questions. Hock, I wanted to follow-up on those lead times and order times. So you said obviously on the industrial space Channel is lean. It sounds like your bookings overall is very strong.

Speaker 5

At the same time, we know you've been taking efforts to limit like worries around stockpiling and over shipping, whether it's parsing orders, Excellent. I was wondering if you could just talk a little bit about what you are doing in that space. How are you feeling right now in terms of your shipments versus where end demand is? And how meaningful those like long with 50 plus week lead times actually are? Do they actually represent demand even if it's that far out?

Speaker 5

Mike, if you could just talk about your efforts there, that'd be helpful.

Speaker 2

Yes. Well, we've been doing this 50 weeks now for just since the beginning of 21. So and we've been delivering very much as much as we can to those lead times. So in some ways, I like to believe it's giving Some method to this booking madness, I guess, is what I would call it in terms of our ability and in terms of How we are shipping the products and but by keeping lead times very stable and predictable as we are doing now, we are also Clearly communicating to our end users the way they should be planning their business. And I like to think All this is working out in terms of allowing us to making sure we don't over ship And build up buffer inventory through our ecosystem out there, that means distributors, channels and customers.

Speaker 2

And all that has been done purposefully in the truth, we told that the day will come when things have to land No, and we like to make sure it lands very gently and softly. And we like to think that is working very well. And but so what we are reporting in some sectors now, what we are guiding in some sectors and reporting where you see growth of some 20%, 30%. I know even from our perspective, it seems Very hot, excessively hot. And in those areas in particular, we take strong particular attempt to make those attempts to ensure these products we ship are for programs that get deployed rather than sit on the shelves for a future need.

Speaker 2

And so I'd like to believe that growth in networking, Broadband, server storage lately of some 20% to 30% year on year, are rail through end demand.

Speaker 5

Got it. That's helpful. Just a quick follow-up along those lines on enterprise. You gave some numbers for year over year growth For things like networking and storage. And those year over year numbers, does that imply a sequential decline, especially for networking and storage?

Speaker 5

Or just I'm not sure if my year ago numbers are tightening or not, but

Speaker 2

do you expect those businesses

Speaker 5

to decline sequentially within the compound 2020 guidance?

Speaker 2

In May, depending then we're talking mathematical numbers now and how we Because some of the shipments are lumpy and you may see that from quarter to quarter when you talk about sequential quarter, you may sometimes see that. And what I'm trying to say and we may also chose to deploy, supply to one market versus another as you go quarter by quarter. So looking at it sequentially in specific verticals Mike, sometimes for Mark, for our case, our point of view be rather misleading. Unintentionally, I may add, Simply because we may chose to ship more to, for instance, sometimes to server storage Because there is a hot need there versus to networking. And you may see then because of that networking see some sequential weakness in one particular quarter, which is why we report as much as we can on a year on year basis, Where then you take out the effects of this short term lumpiness and short term discontinuities.

Speaker 5

Got it. That's helpful. Thank you so much.

Operator

Thank you. Our next Question comes from the line of Harlan Sur with JPMorgan. Your line is open.

Speaker 6

Good afternoon and congratulations on the strong results and execution. Hocken, on your networking business, you've been somewhat conservative on your view on the sustainability of the strong cloud and hyperscale growth, but yet In cloud, I mean, you guys are ramping 7 nanometer Tomahawk 4 and Trident 4. They're in the early innings of the ramp. Demand is strong. You talked about Jericho and Qumran being strong in routing.

Speaker 6

Your cloud ASIC customer is ramping their 7 nanometer TPU and you have more programs firing next year as you mentioned. And then on the enterprise side, your large Enterprise OEM customers are benefiting from the strong recovery. So you're starting off the fiscal year In networking with strong double digits growth, but do you see your networking business continuing to drive double digits year over year growth for the full year? And Will the growth be driven by all three of your end markets, cloud, enterprise and service provider?

Speaker 2

Harlan, that's a hell of a question. And the only way I can answer that is, if this is the way of trying for me to guide to ask me To guide you on networking for the year in working, I'm not doing that. But you're right though, There are a lot of levers, and I articulate quite a few of them. And maybe I over say it in some cases. And they seem to be, as I use the expression, as we sit here today and going into 'twenty two, firing on all cylinders.

Speaker 2

And by that, I mean more than just forecasting. We actually seen the backlog. We have the backlog and they keep building up. And you're right, HyperCloud, guys, I like you would have asked me 6 months ago, I would not believe the level of spending they are embarking on right now in 2022, but they appear to be. So we have been you're right.

Speaker 2

Enterprise has been strong and you've seen the rate of growth of enterprise year on year of 30% across broadly. And cloud The current elevated levels we are seeing in networking has not softened, has not weakened. It's still sustaining. Now it's not recovering obviously year on year basis as fast As enterprise is showing, simply because enterprise starting from a lower point, but cloud is still growing. We are seeing hypercloud growing and it's growing from not just switching and routing, that's our traditional strength, It's growing now for us on what I, for one of a better expression, collectively call Offload computing applications from virtualization orchestration and more and more AI beyond just a single lead customer we have in TPUs today.

Speaker 2

So we are seeing multiple, As I said, multiple levels, all moving in the right direction for fiscal 'twenty two. And good possibility what we're seeing today in Q1 Would run for a large part of fiscal 2022.

Speaker 6

Great. Thank you for the insights, Hock.

Operator

Thank you. Our next question comes from the line of Vivek Arya with Bank of America Securities. Your line is open.

Speaker 7

Thank you for taking my question and congratulations on the strong results and the guidance. So Hawk, I find 2 things interesting. One is you didn't use the word metaverse in your commentary, but that's not my question. The question is on the buyback announcement. What changed your view?

Speaker 7

Because for some time, you were not as favorable towards buybacks. So the $10,000,000,000 announcement, is that more a statement about business trend? Is it lack of M and A targets? Are you going to be more consistent in buybacks? So that's part A of the question.

Speaker 7

And part B is that If I take that $6,000,000,000 or $7,000,000,000 in dividends that you will pay next year and add the $10,000,000,000 in buybacks and apply the free cash flow range you have, It suggests sales of somewhere in the low to mid-30s $1,000,000,000 right, using that math. And I know you're not giving a guidance, but does that You know, math makes sense. Thank you.

Speaker 2

Hey, you're very good at these numbers. I shall just Bow to those better judgment and wisdom here. Thank you. Next question.

Operator

Thank you.

Speaker 2

You have another follow through?

Speaker 7

Yes. Thank you. Yes. So Wireless is your most seasonal business. Is there a way you're thinking about wireless?

Speaker 7

So you said it could be up somewhat Right in the January quarter. How are you thinking about seasonality for that business going into the April quarter?

Speaker 2

Oh, April quarter is hard to forecast. I mean, this is consumer, right? So It's very hard. I can't even begin to forecast much less. I think my customer will be better at it and even then I suspect they are very challenged.

Speaker 2

But what we do see interestingly enough is demand for our components for the January quarter is good. And hence you see In order to fact that even as we measure year on year to an all time peak a year ago, we're still flattish to slightly up And sequentially from Q4, which this in this current round, you're correct in this regard. Q4 is supposed to be back to normality in seasonality has been the peak quarter. Our Q1 will exceed our Q4 shipments as we forecast today. So yes, it sounds like even that part is doing quite well.

Speaker 2

Just that year on year compare in percentage terms may not be as exciting as the rest of the semiconductor verticals that we're in, But it's still holding up very nicely.

Operator

Thank you. Our next question comes from the line of Ross Seymore with Deutsche Bank. Your line is open.

Speaker 8

Hi. Thanks for letting me ask a question. I guess I'll ask the 2 questions and then I'll listen to the answers for the question and the follow-up. So first, Hock, I want to revisit kind of the quality of demand and maybe ask it a different way. You've talked about under shipping what The actual demand or what your bookings are because you believe you can ship to actual demand.

Speaker 8

So that delta between what you're shipping And what is being booked? Is that changing? Is it shrinking, growing? Basically trying to get at any change in customer behavior. And then the second question will be separate and one for Kirsten.

Speaker 8

You mentioned about the OpEx on the semiconductor side rising going forward. Any more color about The linearity of OpEx as we go throughout the year and any color on kind of the areas that would be focuses of that investment?

Speaker 2

On the first, Ross, that's a very, very clever question, I might add. Has anything changed between what we're booking versus what we're shipping? I'm trying to answer it not because I'm not trying to answer it. It's because the demand by verticals have rotated somewhat. And you can probably understand that.

Speaker 2

Son, what I'm saying is one clear example is what I'm saying now. Enterprise is actually are waking up big time and they are asking for Products, they're asking for products in a very, very urgent manner. And so we're seeing A lot more shipments to OEMs who support those enterprises. And by verticals, we are seeing strength in basically in server storage in particular and also the enterprise portion of networking, hence the strength in, as I mentioned, campus switching And WiFi in many ways because enterprise, campus switching now for enterprise switching needs a wireless strategy component. And so we're seeing our Wi Fi business for excess gateways in enterprise really take off now.

Speaker 2

Having said that, our classification of cloud includes telco service providers. They've been steady. It's interesting, cloud and telcos have been steady, but they've been steady in different manner. The cloud guys are now pushing more and more into compute outload. I mean, the programs you're working on starting to happen, starting to manifest As deployment, so we're seeing that.

Speaker 2

And that is really driving some more growth Than just normal switching and routing that we have seen super strong in 2021. We've seen areas like In some of their very massive scale out of machine learning or AI networks, Here, you need a different kind of performance of those networks. So we've seen a different kind of products going into that areas. And I highlighted in my remarks about Jericho being going into many of those AI networks in the hypercloud. And of course, 5 gs continues to be goes through cycles And happened to be a cycle of 5 gs deployment and backhaul is strong and we ship a lot of Qumrans.

Speaker 2

So it varies, but if you take it from a macro point of view, not hasn't changed from 6 months ago, Ross, Which is the under shipment from the level of bookings we are seeing.

Speaker 8

The OpEx side, Kirsten?

Speaker 3

Sure. Hi, Ross. So what I would expect the way I look at OpEx, I'll comment on a consolidated view For the company, you're going to see a step up in Q1, definitely. And then remember in Q2, we have the payroll taxes that we pay In Q2. So we have another step up in Q2.

Speaker 3

And then for the rest of the year, I'd look at that continuing out, how I would model that.

Speaker 7

Great. Thank

Operator

you. Thank you. Our next question comes from the line of John Pitzer with Credit Suisse. Your line is open.

Speaker 9

Yes, good afternoon guys. Thanks for letting me ask the question and congratulations on the strong results. Hock, maybe just a follow on to Ross' Question about the R and D commentary that Kirsten had in the prepared comments. With the growth that you're expecting in the semi R and D, do you think that that will out Strip, the semiconductor revenue growth for the year or not and not having had the time yet to go back I can look, is this an unusual spend year? And if so, what's driving it?

Speaker 9

Is it concerned about increased competition? Is it the opportunity set Getting a lot bigger and kind of what areas are you focused on? And then I have a follow-up.

Speaker 2

I think we have continued To have been spending on R and D in the silicon side on a fairly consistent basis. And so we have. But in some other areas and it's not so much about worry about competition as See, the underlying part of our business model across our various franchises is simply that we always I'll invest, I'll engineer anybody else in the verticals we in those franchise verticals we are in. And So from our point of view, hey, now is a great because during COVID-nineteen in 'twenty And in part of 'twenty one, things are were not as moving as fast As perhaps we believe a normal cadence of product cycle turnovers should be Product life cycle. So we are now jumping in 'twenty two to basically bring it back up to where it should be in terms of normal product cycle cadences.

Speaker 2

And in that sense, you're right. It's not because of competition, it's because we believe we need to deliver this new generation products with better features, better bandwidth, low latency to our customers who are now ready and willing to take it on. And And having said that, we invest now, you don't see the impact of that probably until 'twenty three, 'twenty four. So but we feel that There is some hiatus of new technology being absorbed in 2021. So now is the time to really accelerate new technology, new generation of products for its absorption As much as we could in 2022 and definitely in 2023.

Speaker 2

So it's logical that spending would go up and we are Setting up for that.

Speaker 9

And Hock, is the message that R and D could grow faster than semi revenue growth this year or you're not ready to make that statement yet?

Speaker 2

I don't think so. We never tend to do that. We're very well behaved and very disciplined.

Speaker 9

That's helpful. And then as my follow-up, Hock, you guys have set up a really consistent track record around the dividend. Buybacks Have been a little bit more episodic, especially given the M and A strategy. Just with the authorization today, is the intent to do all of that within the next 12 months. Why not an ASR component around that authorization today just to give investors confidence that you will follow through On the buyback?

Speaker 2

Good morning. But we intend to follow through on We intend to do this $10,000,000,000 And the reason we're doing it, as you guys can gather, is we haven't done a deal in we did not do a deal in 'twenty, did not do a deal in 'twenty one and got tons of cash and we have piled up a ton of cash And that has actually somewhat the growth that has actually declined somewhat while our cash position is building out. And while we may still do a deal in 'twenty two, it's just that we will still be generating a lot more cash in 'twenty two. So when you add up this whole thing, it's just a very logical conclusion for us to not just sit on the cash Hoarded in some ways, you may call it. But just returning to you guys, as we continue to accumulate cash, And keep in mind, we still have a lot of debt and grow expanding debt capacity as our EBITDA expands And still be within investment grade, of course.

Speaker 3

And this is Carol. And we have consistently said that we would Return capital to shareholders if we didn't announce an M and A by December. And so this is in line with what we've been saying and we plan to follow through on it. The $10,000,000,000 authorization will be executed pursuant to a trading plan and it will be thoughtful and in line with what we said we'd do.

Speaker 9

Perfect. Thanks, Christian. Great color.

Operator

Thank you. Our next question comes from the line of Srini Your line is open.

Speaker 10

Thank you. And let me also echo my congrats on the solid numbers. Hark, you called out your ASIC business. I think you said it's roughly 20% of the networking business and also said it's going to be about 2,000,000,000 I'm just curious if you could maybe provide us some additional color as to what's going on with that business. I mean, you've been a leader in this market historically.

Speaker 10

And are you seeing more interest given what's going on with the hyperscale customers and their interest in developing in house silicon? Or is this Is that continuation of a trend or any additional color you could provide? I think that will be helpful.

Speaker 2

Right. Thank you for that. And by the way, our ASIC business is actually larger than the $2,000,000,000 we indicated. It's only that part of the ASIC business sitting in networking that we highlighted. It's actually there are a couple of other areas where we do ASIC and it's done on a platform under 1 and a particular franchise That business that we run fairly separately as well as the product divisions.

Speaker 2

But you're right though, the larger part of it sits in networking And a big behind this, half of it, roughly, I would say, maybe growing more than half now, It's to the hyper cloud in the it's to OEMs, still remain very much OEM related business as well. And You're right. But your point is well taken. This is a steady, stable business We are growing over time that we have had for many, many years. And it has, as I said long 10 ago, 20, 15 years ago, 10 years ago, been very much on networking, merchant silicon showed up in networking And in which is switching and routing, and it has not grown as much in net booking.

Speaker 2

But in its place, having said that, Other opportunities show up and most of it a lot of it is what I call collectively offload computing, Which is very much tied to HyperCloud. And that's a business that has been slowly but steadily growing. But it's slow. It's not something that should sum exponentially overnight because A lot of the hyper cloud guys, much as they have ambition to do their own designs, I like to make that point very clear. It's a very difficult thing for them to do because no, they can go out and hire silicon architects and designers.

Speaker 2

It doesn't mean you can define a chip, so SoC silicon chip on a system on a chip that addresses what they're looking for, Whether it's in transcoding, whether it's in security or even in virtualization or even in AI, it's hard When you don't do it on a full time basis. So we have been working with this hypercloud guys for the last 5 years. There's been fits and starts in many, many situations for among these hyper cloud guys. But the message I want to say is, We're never given up. We continue to work with them.

Speaker 2

And more slowly, more and more, after many tries, Some of them become successful, more and more successful and you see the trend of growth In our ASIC business for offload computing. I mean, if those of you who have followed me consistently for the last 3, 4, 5 years, You have heard me talk about it 3, 4, 5 years ago. Then 2 years ago, I just shut up because Takes a while to get it going and it's starting to translate into revenues and ramps down And it will be a nice driver to growth, I believe, for us over the next year, 2 years, I would say. So I'm bringing it back up again, But it's always been there.

Speaker 10

Got it. And then just to follow-up on wireless, Hock. Obviously, the Current demand looks pretty healthy and supply is very tight. But I guess if you take maybe a couple of your view out there, It looks like there's somewhat of a concern about 5 gs cycle peaking. So I'm just curious about how you're thinking about wireless, especially in in terms of your content opportunities for the next couple of years?

Speaker 10

Thank you.

Speaker 2

Wireless is a great franchise And it continues to choke along very well. And that's probably I've been I'm definitely wearing rose tinted Glasses in this environment because demand is good and it's holding up still very well. Beyond that, I really don't know The answer to what you say, I do see content increasing over the next several years Because we have various products, multiple products, not just one particular product. We have multiple we have various products into every one of those very high end smartphones. And that gives us Opportunity to expand fully and to strengthen and increase our content.

Speaker 2

And we never really plan for unit increases actually in all our plans. We just plan on Some content increase year after year, but never on any unit increase. So I guess I don't I stopped thinking of worrying about Whether the number of phones is going to decline in 5 gs in the next 1 or 2 years as much as will the content decline And we have not really seen it on a in any fashion that will make us worry.

Speaker 10

Thank you. Very helpful.

Operator

Thank you. Our Question comes from the line of Timothy Arcuri with UBS. Your line is open.

Speaker 11

Thanks a lot. Hock, I had 2. The first is on customer behavior. And I'm wondering if you've seen any change there. So I guess the question really is around, are you seeing any change in the portion of customers that want product inside a lead time and are willing to pay your expedite fees.

Speaker 11

And I guess does that sort of inform you To the degree to which your shipments or the orders are sort of matching underlying consumption? And then I had a second question too.

Speaker 2

Not really. It's because I think we have gone through it now for 1 year. And I think our customers have most of them anyway, and I can't say all of them, have started to plan their needs accordingly. Now it doesn't mean they are perfect in their planning And so occasionally it happens, they come running in and ask for all the expedite deliveries Within lead times, and we see that and we work through that. But by and large, our customers are planning Better and better, because they have practice at doing that.

Speaker 2

I mean, it's perfect. And in some cases, where we can't do it, They probably will look for if they can find alternatives. And to the extent there are alternatives, My competition gets some benefit on those spot situations and that will happen Because we I love to be perfect, but we cannot be and sometimes our customer misses, we miss And that happens in situations and because of previous commitments, we cannot obviously pull in the demand. But those are getting those are still happening. Is there a change since then?

Speaker 2

No, not for months. I think, as I say, customers are much better at doing it now at least when it comes to dealing with us.

Speaker 11

Got it, Hock. Thank you. And then I guess the last question really is around wireless. And now that you're into December, you should, I think have a pretty good handle on how much your content is going to grow for fiscal 2022. So I was just wondering if you can sort of give us a sense of maybe how much content is growing.

Speaker 11

Is it growing, And I'll say 10% this year type of thing? Thank you.

Speaker 2

About 5%, 10%, Very consistent with what we thought it would be 6 months ago.

Speaker 11

Perfect. Okay, Hal. Thank you so much.

Speaker 2

Thanks.

Operator

Thank you. I would now like to turn the call back over to Ji Yu for closing remarks.

Speaker 1

Thank you, operator. That will conclude our earnings call today. Thank you all for joining. Operator, you may end the call.

Operator

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

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Earnings Conference Call
Sempra Q4 2021
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