Broadcom Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
March 2, 2023

There are 12 speakers on the call.

Operator

Welcome to Broadcom's Inc. 1st Quarter Fiscal Year 2023 Financial Results Conference Call. At this time, for opening remarks and introductions, I would like to turn the call over to Ji Yu, Head of Investor Relations of Broadcom Inc.

Speaker 1

Thank you, operator, and good afternoon, everyone. Joining me on today's call are Hock Tan, President and CEO Kirsten Spears, Chief Financial Officer and Charlie Khowaz, President, Semiconductor Solutions Group. Broadcom distributed a press release and financial tables after the market closed describing our financial performance for the Q1 Fiscal year 2023. If you did not receive a copy, you may obtain the information from the Investors section of Broadcom's website atbroadcom.com. This conference call is being webcast live, and an audio replay of the call can be accessed for 1 year through the Investors section of Broadcom's website.

Speaker 1

During the prepared comments, Haak and Kirsten will be providing details of our Q1 fiscal year 2023 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. S.

Speaker 1

GAAP reporting, Broadcom reports certain financial measures on a non GAAP 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. In our fiscal Q1 2023 consolidated net revenue, That was revenue was $8,900,000,000 up 16% year on year. Semiconductor Solutions revenue increased 21% year on year to $7,100,000,000 While as we expected, infrastructure software declined 1% year on year to $1,800,000,000 even as our Core software sustained growth of 5% year on year. Stepping back, Let me sum up what happened in Q1. From our view, infrastructure spending continued to be up, particularly in service providers, even as hyperscale and enterprise sustain.

Speaker 2

Spending in technology for infrastructure has been strong, showing double digit growth for 9 consecutive quarters. We continue to be booked for fiscal 2023 and our lead times And visibility on semiconductors remain largely at 50 weeks. While there have been a small number of requests to push out We note that these are the exceptions and they have not had a material impact on our business. Because we shipped linearly throughout the quarter to our customers, inventory on our books Has been consistent around 80 days, and the overall inventory of Broadcom products across the ecosystem Remains very well managed. We continue, needless to say, to be very disciplined in shipping our backlog Only as and when needed by our end customers.

Speaker 2

With that, let me now provide more Color on each of our end markets, starting with networking. Networking revenue was 2 point $3,000,000,000 and was up 20% year on year, in line with guidance, representing 32% of our semiconductor revenue. We see continued deployment of our Advanced Tomahawk switches by hyperscalers in their leaf and spine architectures. Even as we deliver on increased bandwidth for the hyperscalers, having said that, power remains a major challenge. So just this week, we announced the industry's 1st integrated silicon photonics networking solution, code name Bailey, which integrates the active optical interconnects with our next generation Tomahawk 5 switch at 51.2 terabit per second.

Speaker 2

Barely doubles switching performance, But it will reduce total system power. Keep in mind that at hyperscalers, A growing portion of our switches have been deployed within their AI networks, which are separate from the traditional X86 CPU scale out running existing workloads. Now this is today. Tomorrow, we generated AI using large scale, Large language, I should say, models with billions of parameters. We have to run thousands of AI engines in Enabling large and synchronized burst of data at speeds of 408 100 gig.

Speaker 2

The networks to support this massive processor density is critical and as important As the AI engines, such networks have to be lossless, low latency and be able to scale. So as you know, such AI networks are already been deployed at certain hyperscalers through our Jericho 2 switches and Ramon fabric. In fact, in 2022, We estimated our Ethernet switch shipments deployed in AI was over $200,000,000 With the expected exponential demand from our hyperscale customers, we forecast that this could grow to well over $800,000,000 in 2023. We anticipate this trend will continue to accelerate and mindful that we need even more higher performance Networks in the future, we have been investing in a new generation of this lossless low latency Ethernet Fabry designed specifically to handle such data and compute intensive AI workloads. Of course, additionally, the exciting growth prospects for generative AI are driving our compute offload accelerated business at hyperscalers.

Speaker 2

As we have indicated to you last quarter, this business achieved over $2,000,000,000 In revenue in 2022, we are on track to exceed $3,000,000,000 in revenue in our fiscal 2023. In Q2, looking forward short term, we These tailwinds to drive our networking revenue to grow about another 20% year over year. Moving on next to our server storage connectivity revenue, there was a record $1,300,000,000 All 18% of semiconductor revenue and up 57% year on year. Once again, as we discussed in preceding quarters, the rapid transition to next generation mega rate solutions drove this substantial year on year content increase. After 4 consecutive quarters of such increases, This transition, however, is significantly complete and we expect that in Q2 on a year on year basis, Service storage connectivity revenue were moderate towards 20% year on year growth.

Speaker 2

Moving on to broadband. Revenue grew 34% year on year to a record 1,200,000,000 And represented 17% of semiconductor revenue. During this quarter, our broadband business Particularly benefited from robust deployments of by telcos of 10 gs PON and cable operators of DOCSIS 3.1. These gateways Have high attach rates of WiFi 6 and 6E. And in Q2, we expect The secular drivers behind broadband to sustain momentum on a sequential basis and year on year Broadband will grow a solid 10%.

Speaker 2

Moving on to wireless, Q1 Consumer drove wireless revenue up 4% year on year, reflecting content increases, which we had previously indicated last quarter. Sequentially, wireless was flattish compared to Q4. And seasonally, we expect wireless to be down sequentially in Q2 and down high single digit percentage year on year. Finally, Q1 industrial resale of 229,000,000 decreased 4% year over year as softness in China offset strength in Renewable Energy and Medical. And in Q2, we forecast industrial resales To be down low single digit percentage year on year on continuing softness in China.

Speaker 2

So in summary, Q1 Semiconductor Solutions revenue was up 21% year on year. And in Q2, we expect semiconductor revenue growth of high single digit percentage year on year. Turning to software. In Q1, infrastructure software revenue of $1,800,000,000 declined 1% year on year Ren represented 20% of total revenue, while core software revenue grew 5% year on year. The Brocade business declined because of lumpiness in enterprise consumption In this very narrow vertical of sand storage, for core software, consolidated renewal rates Average 119 percent over expiring contracts and within our strategic accounts, We averaged 129 percent and within the strategic accounts, annualized bookings of $536,000,000 included $197,000,000 which represent 37% of cross selling of our portfolio of products to these same Call strategic customers.

Speaker 2

Over 90% of the renewal value represented recurring subscription and maintenance. Now by way of comparison over the last 12 months, Consolidated renewal rates averaged 119% over expiring contracts. And in our strategic accounts, we averaged 134%. Because of these, our ARR, the indicator of forward revenue at the end of Q1 was 5 point $3,000,000,000 which was up 3% from a year ago. In Q2, we expect our infrastructure software Segment revenue to be up low to mid single digit percentage year on year as the stable core software growth Continues to be partially offset now by weakness in brocade.

Speaker 2

So in summary, we are guiding consolidated Q2 revenue for the company to be $8,700,000,000 up 8% year on year. Before Kiersten tells you more about our financial performance for the quarter, Let me provide a brief update on our pending acquisitions of VMware. We continue To make progress with our various regulatory filings around the world, having now received Legal merger clearance in Brazil, South Africa and Canada and foreign investment control clearance in Germany, France, Austria, Denmark, Italy and New Zealand. As we stated on our last earnings call, we continue to that the timeline for the review process will be extended in other key regions, especially given the size of this transaction. Having said that, We continue to expect the transaction to close within our fiscal 2023.

Speaker 2

We believe 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. And we are confident regulators will see this when they conclude their review. Finally, Broadcom recently published its 3rd annual ESG report available on our corporate Citizenship website, which discusses the company's ESG initiatives. As a global technology leader, We recognize Broadcom's responsibility to have a positive impact on our customers, employees and communities Through our product and technology innovation and operational excellence, we remain committed to this mission. Present, let me turn the call over to Kiersten.

Speaker 3

Thank you, Hock. Let me now provide additional detail Broadcom had another great quarter with robust financials. Consolidated revenue was $8,900,000,000 for the quarter, up 16% from a year ago. Gross margins were 74% of revenue in the quarter, about 10 basis points higher than we expected. Operating expenses were $1,100,000,000 down 1% year on year.

Speaker 3

R and D of 929,000,000 was also down 1% year on year primarily from streamlined project and other variable spending offset in part by higher people costs resulting from increased headcount as we are hiring. Operating income for the quarter was $5,400,000,000 and was up 17% from a year ago. Operating margin was 61% of revenue, up approximately 50 basis points year on year. Adjusted EBITDA was $5,700,000,000 or 64% of revenue. This figure excludes $127,000,000 of depreciation.

Speaker 3

Now a review of the P and L for our 2 reportable segments. Revenue for our Semiconductor Solutions segment was $7,100,000,000 and represented 80% of total revenue in the quarter. This was up 21% year on year. As Hock discussed, this came from strength across all of our semiconductor end markets. Gross margins for our Semiconductor Solutions segment were approximately 69%, down approximately 160 basis points year on year driven primarily by product mix within our semiconductor end markets.

Speaker 3

Operating expenses were $802,000,000 in Q1, down 2% year on year. R and D was $716,000,000 in the quarter, down 1% year on year. Q1 Semiconductor operating margins were 58%. So while semiconductor revenue was up 21%, operating profit grew 23% year on year. Moving to the P and L for our Infrastructure Software Reportable segment.

Speaker 3

Revenue for Infrastructure Software was 1,800,000,000 down 1% year on year and represented 20% of revenue. Gross margins for Infrastructure Software were 91% in the quarter and operating expenses were $346,000,000 in the quarter, down 1% year over year. Infrastructure Software operating margin was 72% in Q1 and operating profit was stable year on year. Moving to cash flow. Free cash flow in the quarter was $3,900,000,000 representing a 16% increase year over year.

Speaker 3

Free cash flow represented 44% of revenues in Q1 2023 Consistent with what we achieved the same quarter last year, we spent $103,000,000 on capital expenditures. Day sales outstanding were 33 days in the Q1 compared to 30 days in the Q4. We ended the Q1 with inventory of $1,900,000,000 down 1% from the end of the prior quarter or 78 days on hand. Overall, inventory of Broadcom's products Across the ecosystem, as Hock indicated, remains well managed. We ended the Q1 with $12,600,000,000 of cash and $39,300,000,000 of gross debt, of which $1,100,000,000 is short term.

Speaker 3

During the quarter, we repaid 2 $50,000,000 in senior notes that were due on maturity. The weighted average coupon rate and years to maturity of our fixed rate debt is 3 0.61% 10.2 years, respectively. Turning to capital allocation. In the quarter, we paid stockholders $1,900,000,000 of cash dividends. Consistent with our commitment to return excess cash to shareholders, We repurchased $1,200,000,000 of our common stock and eliminated $333,000,000 of common stock for taxes due on vesting of employee equity, resulting in the repurchase and elimination of approximately 2,700,000 AVGO shares.

Speaker 3

The non GAAP diluted share count in Q1 was 434,000,000. As of the end of Q1, $11,800,000,000 was remaining under the share repurchase authorization. Excluding the potential impact of any share repurchases, In Q2, we expect the non GAAP diluted share count to be 438,000,000. Based on current business trends and conditions, our guidance for the Q2 of fiscal 2023 is for consolidated revenues of $8,700,000,000 and adjusted EBITDA of approximately 64.5 percent of projected revenue. In forecasting such profitability, we expect gross margins to be up approximately 150 basis points sequentially on product mix and R and D spending to be up sequentially on continuing hiring of engineers and seasonal payroll tax step ups.

Speaker 3

That concludes my prepared remarks. Operator, please open up the call for questions.

Operator

Our first question will come from the line of Harsh Kumar with Piper Sandler, your line is open.

Speaker 4

Yes. Hey, guys. Congratulations on yet another solid quarter and guide And thanks for all the color you guys provided. Hock, you mentioned generative models in your commentary. I wanted to understand The difference between what you're doing in AI so far versus maybe what our understanding of generative is, you talked about $200,000,000 in Ethernet Related to AI, is that largely generated?

Speaker 4

Because we've heard other companies say that for a large part, the generated models are using at Cerda BAN. And then you talked about $2,000,000,000 in compute offload going to sort of $3,000,000,000 My understanding was that was mostly for video processing. Maybe help us Think about how we think of Avago's place or Broadcom's place in the generative process?

Speaker 2

Well, Jan, thank you for that question and opportunity to clarify why we highlighted why I highlighted it very purposefully. In 2022, generative is barely it's just barely starting to kick off. But there exists AI networks within the hyperscalers particularly in fairly significant volume. And what we're trying to say is very similar to CPUs, Traditional CPUs in traditional workloads in those same data centers, we've Constrained on performance of those silicon CPUs and on Moore's Law, We're starting to see scale out by positioning rows and rows of servers, CPUs And networking them together to work closely in parallel. As we step up To large language models in AI, generative AI in particular coming to play.

Speaker 2

GPUs are starting to be strung together in 100, soon to be thousands of racks And working in parallel. And you don't know how that goes. And basically those GPUs work in parallel In a fairly synchronous manner to basically run and Do what you call bulk parametric exchange. Basically, you run GPUs together All AI engines together, whether they're GPUs, AI, TPUs or other AI engines, you run them together, becomes network. The network becomes now potentially a critical part of this whole AI phenomenon In the hard way.

Speaker 2

To make it work, you got to put together many racks of AI engines in parallel, very similar to what we have been doing, hyperscalers have been doing on CPUs To make them run faster, high performance as Moore's Law come to an end and doesn't make any difference here In the form of AI engine, they come from silicon, they have they face similar constraints. So network becomes a problem becomes a constraint, Network becomes a very key part of fulfilling generative AI dream. And what we are saying here what I'm saying in my comments is last year, 2022, These are more what you call the AI workloads that are running in hyperscale And the advent of generative AI is still relatively fresh and new. We are doing $200,000,000 as far as we could estimate of silicon Ethernet switches and fabric That goes into those AI networks as far as we could identify in hyperscalers. With generative AI And the urgency and excitement of it coming in that we are seeing today, we are seeing that Increased very, very dramatically.

Speaker 2

And we're seeing urgency In our hyperscale customers coming to us to secure products, to secure Ability to put in place those very, very low lossless, I would call, Very low latency networks that can scale. And Ethernet is what makes Dose network scale.

Speaker 4

Understood. Thanks, Hart.

Operator

Thank you. One moment for our next question. And that will come from the line of Harlan Sur with JPMorgan. Your line is open.

Speaker 5

Good afternoon. Thanks for taking my question. Hock, as your cloud customers are now aggressively focused on generative AI development and deployment Across their data center footprints, right, this is driving strong AI focused Ethernet switch port demand and Demand for your compute offload ASICs like TPU for this year as you mentioned. But from a new product ramp and design win funnel perspective, Is this also causing your cloud customers to want to pull forward some of your future programs like Tomahawk 5 or Jericho 3 next gen switching and routing products and or pulling the design and tape out of their next generation compute offload AI ASIC programs.

Speaker 2

Yes. We are seeing all of the foregoing, by the way. And that happened over the last 90 days. We have seen a lot of that urgency, a lot of that You might call it excitement, but you hit it right on. Yes, which is accounting for the color in my commentary about Both net generative AI based networks and pushing us to develop A new generation altogether of Ethernet switching that can support This kind of very compute and data intensive workloads.

Speaker 2

So that's one side of it. And the other side of it, Yes. You are right. We have typically not want to talk much about compute offload, which is another way of saying, Yes. These are very related to some of the engines that certain that are fairly customized, dedicated to So then hyperscalers.

Speaker 5

Thank you, Hawk.

Operator

Thank you. One moment for our next question. And that will come from the line of Vivek Arya with Bank of America. Your line is open.

Speaker 6

Thank you for taking my question. Hock, I'm just curious to understand just the views about the second half. If I look at The last few years Broadcom has managed to grow semiconductor sales right anywhere between 5 to kind of double digit second half, half over half. Just a broader business environment, so it's kind of more of a broader business environment question, not guidance per se. What could change that trend for Broadcom in a

Speaker 2

In a sort of broadly conceptual, Not a guidance, as you said, but trend this way. We're kind of getting rather hopeful That it would be a soft landing. There will be moderation as we are indicating this future in this Q2 quarter moderating growth, but we see it nonetheless as probably Leading to a soft landing of still a year on year improvement in the second half.

Speaker 6

Understood. Thank you.

Operator

Thank you. One moment for our next question. And that will come from the line of Stacy Rasgon with Bernstein. Your line is open.

Speaker 7

Hi, guys. Thanks for taking my question. I just wanted to verify and close-up, did you say that you started hearing Urgency from your hyperscale customers around the AI in the last 90 days. And that's true, given that, How do I think about that in the context of lead times that are still 50 weeks? You've got like sounds like $1,600,000,000 in incremental Networking growth in year over year in 2023 from these AI across both Ethernet and the ASICs.

Speaker 7

I guess given the lead times, is that more of a second half When that contributes to the model, does it contribute more linearly to the year? Or I guess just how do I think about the timing of this in the wake of the strong demand right now, just given the broader lead

Speaker 2

Stacy, thank you for your question. Very perceptive. And as I say, we're not we're trying not to we are not guiding you guys what Beyond the second quarter, not the second half of this year. You did

Speaker 5

give us some guidance for the

Speaker 7

year on this, right? So

Speaker 2

No guidance. Sorry, I give you a conceptual trend. How is that? But having said that, No. We're still working through timing of when our customers need those urgent Those products in a fairly urgent manner and our ability to obviously want to be very, very helpful to help customers Launched aggressively to generative AI.

Speaker 2

So we're in the midst of that. Okay.

Speaker 7

Because like the networking implied guide for Q2 has got to be up like, call it mid teens sequentially. Is that some of that contributing or do I get even more, I guess as we go beyond because we're already once you get through this quarter, we're already through the first half, right? So I guess, it has to hit in the second half, right?

Speaker 2

Stacy, I wish you guys would not do too much analysis, but I know that won't happen. I'm only guiding Q2. I'll let you figure out what happens Just a second. I think you're probably better off at it than I am.

Speaker 7

Got it. Okay. Thank you so much, Hug.

Speaker 2

Thank you.

Operator

Thank you. One moment for our next question. And that will come from the line of C. J. Muse with Evercore ISI.

Operator

Your line is open.

Speaker 8

Yes, good afternoon. Thank you for taking the question. And I know that it might be difficult to share too much on the ongoing review I was hoping maybe you could speak a little bit about where they're concerned, I. E. Mix, fiber channel, host bus adapters and other storage adapters.

Speaker 8

Do you view these as core businesses within Broadcom? Are they easy to extract out of your portfolio? And is there IP that is critical for these businesses that are clearly used by your other larger core businesses, anything to kind of help us understand would be grateful. Thank you.

Speaker 2

CJ, I appreciate the fact that you have been definitely reading a lot of those Reuters and Bloomberg and Lexicon reports, appreciate that fact. And you equally know that I cannot and will not comment on any of this as we are working very, very positively And progressively with regulators on all the issues related to our clearance. So sorry, I can't comment. But just to let you know, we're making good progress.

Speaker 9

Thank you.

Operator

Thank you. One moment for our next question. And that will come from the line of Vijay Rakesh with Mizuho. Your line is open.

Speaker 6

Yes. Hi, Hock. Just a Quick question on you talked about generative AI. Just wondering as you look at the workload, what percent of workload would be on generative AI Exiting calendar 2023 or 2024. And also want to hit on the silicon photonics side.

Speaker 2

I think you briefly mentioned

Speaker 6

the silicon photonics cable with integrated switch, the 51.2 terabyte switch. When do you see this ramping and what's the power advantage on that? Thanks.

Speaker 2

Okay. Well, it's we all I'm sure I don't need to elaborate on what we all hear about on generative AI. And I think it's still early innings on generative AI, but we obviously are also indicating We are seeing a very strong and a strong sense of urgency among Our customers, especially in the hyperscale environment, to be to not miss out Not to be late in this trend. And what with generative AI, as I said, With many more much more billions of parameters that come into the models That they are doing. You're talking about scale out of data centers Driving AI Engines network together in a manner that We probably have not seen before.

Speaker 2

It's not a problem that's Solvable, it is very, very clearly solvable as evidenced by the fact that we have and deployed Technology to support AI Networks even today to certain hyperscalers, where we're talking about At least 100, if not 1000 of AI engines, AI servers network together and working In a synchronous manner. So this is about ability to scale out in a fairly substantial manner And that was the color I was providing. And it's really about trying to make sure that happens and not be the bottleneck To our ability to get the best system performance, and I emphasize the word System performance of the of an AI data center. And where it's coming from right now It's frankly how to network them and how to do those massive Parametric exchange, so to speak. When you run large numbers of engines or machines In parallel, as you grind through this huge database and that we need to do.

Speaker 2

So that's We are in early innings and which is why we think we have time to come to start to work on even a new generation of switches in Ethernet that are dedicated that are specifically designed dedicated To this kind of workloads, which are very different from the normal workloads that we see today traditionally in data centers. And we have to address that. They have to be, as I say, literally lossless, virtually lossless, Very low latency and be able to scale into 1,000 Of engines. And that's the main three criteria we're aware of and we're driving solutions, Silicon solutions that enabled that. We have it, but we think we need to improve the performance of what we have to And in anticipation of a trend that we foresee over the next several years.

Speaker 2

And so we're putting a lot of investment in that direction.

Speaker 6

On the silicon photonics cable, just wondering when the Time of ramp and Paul, I don't want to be there. Thanks.

Speaker 2

Well, we intend to launch Tomahawk 5 early 'twenty four, As we indicated previously, and that's a conventional silicon based with pluggable optics Switch, top of the rack switch, come out 5, 51.2 terabit per second. Bailey, which is the fully integrated silicon photonic version, fully integrate The active components of those pluggable optics into the switch, we anticipate launching that Shortly thereafter. Power wise, you can see silicon photonics, That's a lot. Tomahawk 5 compared to what we have today is 2x the performance of Tomahawk 4 And but we believe we can do Tomahawk 5 at the same power, close to the same power, if not lower than the Tomahawk 4.

Speaker 6

Great. Thank you.

Speaker 2

Sure.

Operator

Thank you. One moment for our next question. And that will come from the line of Ross Seymore with Deutsche Bank. Your line is open.

Speaker 10

Thanks for letting me ask the question. I wanted to go into the compute offload number that you talked about Hock, the $2,000,000,000 last fiscal year going to $3,000,000,000 this year. I know it's a touchy subject and so no customer specifics, of course. But generally speaking, can you just talk about the breadth And types of compute offload and how that's changing in the mix from the $2,000,000,000 last year to $3,000,000,000 this year?

Speaker 2

Well, I rather not answer that question, Ross. Highly sensitive to some of my very limited customer base. But as I said, it includes Some of them engines, the compute engines and some are related components that support these engines.

Speaker 10

Is the concentration changing? So are you broadening customers in that growth?

Speaker 2

No, no, very concentrated.

Speaker 9

Okay. Thank you.

Speaker 2

Thank you.

Operator

Thank you. One moment for our next question. And that will come from the line of Edward Snyder with Charter Equity. Your line is open.

Speaker 11

Thank you very much. Good quarter, Hock. So apparently over the last quarter, you were getting out of wireless or getting into wireless or handset guys are going to be start doing wireless. So I wanted to get a couple

Speaker 9

of updates, so maybe you

Speaker 11

could set the record straight. First of all, even if you see a sea change And let's say silicon mix silicon baseband providers in the next year or 2, does that fundamentally change your opinion of your wireless group? And either way actually, does it get better or does it get worse? Because obviously, if architectures change, it has a big impact on supply chain. And I know Historically, you've worked very closely with key players in helping develop all the other pieces of the puzzle like transceivers that are required if you're going to do your own.

Speaker 11

So maybe you could just kind of reset the bar on what you expect for without guidance, but in general, The wireless division in the next year or 2, does it atrophy or get greater? Thanks.

Speaker 2

Thanks. Good question, Ed. As you know, our wireless Group, as you call it, not division. It's really not one single product line or one single division. It's not one homogeneous group either.

Speaker 2

It is a few key products That comprises this wireless division, all selling, you're right, you're correct, to the same application And very high end flagship status handsets and largely focused on One key customer, our North American, our much beloved North American OEM customer. So in that sense, it's one single focus area. And to answer your question, while we're among these multiple products and they tend to keep progress as each new generation happens, May not be every year, but it happens pretty with fairly regular frequency on a cadence that is Pretty predictable after a while, each on its own cadence. It's a very, very good business for us. And to answer your question directly, no, nothing Significant meaningful has changed.

Speaker 2

Our relationship, our strategic engagement Continues very much the same as it has for the last multiple years. And we see that to continue in a fairly predictable stable manner.

Speaker 11

And then just to remind if we could, 3 year roadmap, I mean you see stuff pretty far out, right?

Speaker 2

Yes.

Speaker 11

Great. Thank you.

Speaker 2

Thank you.

Operator

Thank you. One moment for our next question. That will come from the line of Pierre Ferragu with New Street Research. Your line is open.

Speaker 9

Hey, thank you for taking my question. Can you hear me well?

Speaker 2

Yes. Yes.

Speaker 9

Great. So I'm trying to put together a perspective of what's happening at hyperscale clients this year. So if I look at your networking division, if you grow like at least $600,000,000 this year In AI and if your computer slot division grows by €1,000,000,000 that might well represent all your growth In that in networking, so that would mean The only thing that is really growing and that is growing a lot this year in that space is AI. And when I look at outside of So, Boscom, what we've seen is memory and like the x86 CPU servers are having a very difficult time at the moment, expect Recovering the second half, while like the GPU segment of the market is actually in very, very good shape and Growing very well and accelerating again. So my question at the end of the day is, is it fair to say that In these large data centers this year, only AI is growing.

Speaker 9

And is that a sign of What the future will be? Or do you think the general purpose part of the infrastructure like centered around x86 or similar general purpose CPUs still is a very good growth market.

Speaker 2

You've posed very, very interesting and good questions, Pierre. The problem is I do not get my customers, hyperscale customers do not necessarily honor me by sharing All those insights that you are and on those questions you are asking, I do not know. I do not know. All I know and what I do know Because I don't sell them CPUs. I don't even sell them GPUs, by the way.

Speaker 2

But I know what you know out there, which is In certain areas of their business, we're seeing some of these hyperscalers bringing on a sense of Urgency and focus and of course spending to be up to speed If not to not be left behind as we see the excitement, hype perhaps in pushing applications and put our workloads in Generative AI, that's what we see driving a lot of this excitement. And we are always saying is We're seeing some of that effect on our networking business with those hyperscalers. That's what it is. Beyond that, we unfortunately, other than the backlog we get In normal networking switches, routers and key components, We see that. And as I indicated in our this last quarter's results, we continue to see sustained strength.

Speaker 2

Now last quarter and continuing as we indicate this particular quarter Q2. Beyond that, We don't get to see we do not want to guide what we're going to see beyond that. But right now, last quarter, this quarter, yes, Traditional data centers, scale out in networking and deployment in networking Continues to be strong and sustained in hyperscalers as well, I might indicate, in enterprise.

Speaker 9

Okay, great. And just to clarify specifically on what you are doing, is that fair to assume that The majority, a very large majority of your growth this year in networking is going to come from AI, which you have EUR 600,000,000 coming from Yes, it's an SEK 1,000,000,000 coming from Oslo Chips or is that not the right way to think about it? Just for your business, I'm not looking at anything else.

Speaker 2

I will not think about it at this point. It might be a bit too premature. Don't forget, generating AI is still early stage.

Speaker 9

Yes. Okay. That's very clear. Thanks a lot. Thank you.

Operator

Thank you. And we do have time for one final question, and that will come from the line of Karl Ackerman with BNP Paribas. Your line is open.

Speaker 10

Yes. Thank you for taking my question. There were many great questions, quite frankly, on the networking business, which I think is quite significant for you. Maybe if I could, a clarification on that and then a broader question that I want to address on broadband. On the networking piece, I was curious if you could discuss the growth opportunity in your Tomahawk portfolio now that a peer has elected to stop investing in their Switch division.

Speaker 10

And then as it relates to broadband, several companies across the broadband ecosystem have guided a softer outlook Due to a buildup of inventory, but quite frankly, that's been on the customer premise side. You obviously have more weighting towards fiber and sell into the infrastructure portion. And so I was hoping you could discuss how you're thinking about the growth of your fiber business within broadband, both from an infrastructure side and a consumer equipment As governments begin to deploy funds for broadband infrastructure. Thank you.

Speaker 2

Thank you for that question. Yes, Broadband is to us a very, very good business and very sustaining. It used to be boring. Boring is good at this point. And last quarter, Q1, as I reported, we actually grew 34% year on year, Anna.

Speaker 2

In my view, that's rather exceptional even though In broadband, we have been seeing year on year growth now at least for the past 4, 5 quarters, but still 34% was rather exceptional. And sure enough, Q2, it normalizes to a more sedate level, but still growing. And the growth in that is simply because We are very well positioned with respect to next generation PON, 10 gig PON, which has been deployed in big volumes now by telcos, supported by their governments, countries all over Europe And even in the North America, not to mention other countries other nations beyond that. Basically, it is about reaching This key utility broadband service to every household and we see a lot of deployment. And then more vertical market, we also see simultaneous with PON or fiber as you call it, A large a strong continued deployment of cable, DOCSIS, coaxial, To the home, because the cable operators, a few of them, who are on the scale Of the telcos and we need to maintain competitiveness as the telcos launch 10 gigabit Pawn, that Cable has to update DOCSIS to be able to compete And not lose subscribers in the same market they compete against each other.

Speaker 2

So we see strength Both in cable, DOCSIS 3.1, as I call it, and potentially next generation, not yet happening, but hopefully Within the next couple of years, DOCSIS 4.0. Meanwhile, PON is happening, which accounts for the strength we saw last quarter and continuing strength over the last several quarters. And Content increases come to not just unit deployment of those gateways and infrastructure, but also the fact that a lot of these Deployments come with very high attach rates of Wi Fi 6 and 6E. And that Provides additional boost content increases more, what I'll call it, to our revenue growth in broadband. So that's Quietly still chugging along very nicely, Voz.

Speaker 2

All right.

Operator

Thank you. As I'm showing no further questions in the queue at this time, I would now like to turn the call back over to Ji

Speaker 1

Thank you, Sherry. In closing, we would like to highlight that Broadcom will be attending the Morgan Stanley Technology, Media and Telecom Conference on Tuesday, March 7. Broadcom currently plans to report its earnings for the Q2 of fiscal 2023 after close of market on Thursday, June 1, 2023. A public webcast Broadcom's earnings conference call will follow at 2 p. M.

Speaker 1

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

Operator

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

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Earnings Conference Call
Broadcom Q1 2023
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