Broadcom Inc. is holding a conference call to discuss their fourth quarter and fiscal year 2023 financial results. Ji Yoo, Head of Investor Relations, will be leading the call with CEO Hock Tan, CFO Kirsten Spears, and President of Semiconductor Solutions Group Charlie Kawwas. The company's press release and financial tables can be accessed on their website. The call will be webcasted and an audio replay will be available for one year. Hock and Kirsten will provide details on the results, guidance for fiscal year 2024, and commentary on the business environment. Non-GAAP financial measures will also be discussed.

In fiscal Q4 2023, the company saw a 4% increase in consolidated net revenue, with semiconductor solutions revenue up 3% and infrastructure software revenue up 7%. However, there was a slowdown in the semiconductor sector for enterprises and telcos, while hyperscalers remained strong. For the full fiscal year, revenue reached a record $35.8 billion, with a 9% increase in operating profit and 8% increase in free cash flow. The company also returned $13.5 billion to shareholders. The recent acquisition of VMware is expected to contribute to a projected $50 billion in consolidated revenue for fiscal year 2024, with a 60% adjusted EBITDA margin. Integration of VMware is expected to take a year and require $1 billion in transition spending.

In the fourth quarter, VMware revenue was not included and the infrastructure software business of CA, Symantec, and Brocade grew 7% year-on-year to $2 billion. Renewal rates averaged 119% for expiring contracts and 130% in strategic accounts. Over 90% of the renewal value was from recurring subscriptions and maintenance. For the full year, renewal rates averaged 116% and 124% in strategic accounts. Revenue for the year was $7.6 billion and is expected to be $8 billion in fiscal 2024. VMware is now included in the outlook and is expected to contribute $12 billion in revenue. The focus going forward is on enabling global enterprises to run their applications across data centers and public clouds using VMware's software stack. Noncore businesses will be divested. In the semiconductor segment, networking revenue grew 23% year-on-year, representing 42% of total semiconductor revenue.

In the fourth quarter, the company experienced strong demand for its custom AI accelerators and networking products from hyperscalers. Networking revenue grew by 21% and is expected to grow by 30% in fiscal 2024. Wireless revenue increased by 23% sequentially but remained relatively flat year-on-year due to deep and strategic partnerships with North American customers. Server storage revenue declined by 17% year-on-year and is expected to decline further in fiscal 2024 due to cyclical weakness. Broadband revenue also declined by 9% year-on-year in the fourth quarter but increased by 8% in fiscal 2023.

In fiscal year 2023, semiconductor solutions revenue increased by 9% to $28.2 billion, with generative AI representing 15% of revenue. However, in fiscal year 2024, broadband and industrial sales are expected to decrease. Overall, the company forecasts a 40% year-on-year growth in revenue to $50 billion, driven by the consolidation of VMware and mid-high single digit growth in the semiconductor segment. In the fourth quarter of fiscal year 2023, consolidated revenue was $9.3 billion, with gross margins at 74.3% and operating expenses and R&D remaining stable. Operating income and adjusted EBITDA both increased by 4% from the previous year.

The P&L for the semiconductor and infrastructure software segments were reviewed. Semiconductor revenue was $7.3 billion, up 3% year-on-year, with operating margins of 58%. Infrastructure software revenue was $2 billion, up 7% year-on-year, with operating margins at 75%. Free cash flow was $4.7 billion, representing 51% of revenues in Q4. Inventory was $1.9 billion, with 76 days on hand. Fiscal 2023 saw record revenue of $35.8 billion, with semiconductor revenue at $28.2 billion and infrastructure software revenue at $7.6 billion. Gross margin was 74.7%, down 90 basis points from the previous year, and operating expenses were $4.6 billion, down 4% year-on-year.

Fiscal 2023 operating income and adjusted EBITDA increased by 9% and 10% respectively, representing 62% and 65% of net revenue. Capital expenditures were $452 million and free cash flow grew by 8%. $15.3 billion was spent on capital allocation, including dividends and share repurchases. The company has resumed repurchasing shares under their existing program and expects the non-GAAP diluted share count to be approximately 494 million in fiscal year 2024. The quarterly common stock cash dividend has been increased by 14% and is expected to be maintained throughout fiscal 2024. This marks the 13th consecutive increase in annual dividends since 2011. Guidance for fiscal 2024 will be provided for the full year instead of quarterly.

In fiscal year 2024, Broadcom expects consolidated revenues of $50 billion, with mid- to high-single-digit growth in semiconductor revenue and $20 billion in infrastructure software segment revenue. This includes $12 billion from VMware, with an additional $2 billion from divested businesses. The company plans to transition VMware to a subscription model, incurring $1 billion in spending for this transition in fiscal year 2024. Broadcom expects adjusted EBITDA to be approximately 60% of projected revenue in fiscal year 2024. During the Q&A portion of the call, a question is asked about the market for AI accelerators, with a peer suggesting it could be as large as $400 billion. The questioner asks for Broadcom's thoughts on this number and how the company plans to participate in this market beyond their current ASIC project.

Broadcom's CEO, Hock Tan, discusses the growth of the AI accelerator market and its impact on the company's Ethernet networking business. He notes that the market is dynamic and constantly evolving, with changing architectures and requirements for compute silicon. Tan also mentions the opportunity for custom AI compute engines tailored to specific applications and LLM models, which is reflected in the company's forecast of $4 billion in networking revenue in 2024. He emphasizes that networking is a key area of growth for Broadcom.

The speaker discusses the growth of AI accelerators and the increasing demand for large language models. They also mention the acceleration of demand for VMware Cloud Foundation and the focus on converting customers to this higher value stack on a subscription basis.

The speaker discusses the potential for accelerated growth in their subscription-based software, which may bring down revenues in the short term. They plan to provide annual guidance for 2024 and will report quarterly results. The team is targeting $8.5 billion in EBITDA for VMware. The speaker also mentions the increasing demand for accelerated compute and generative AI, which may benefit their silicon franchise. However, it seems that currently, these workloads are primarily being run on bare metal, GPU, and TPU servers.

Hock Tan, the CEO of VMware, discusses the company's partnership with NVIDIA to offer a software-defined data center solution that virtualizes the NVIDIA GPU. This allows enterprises to easily adopt AI analytics on their on-prem data centers. Tan also confirms the company's goal of reaching $8.5 billion in EBITDA by fiscal year 2024. Analyst Stacy Rasgon asks about the beginning and exit rates for EBITDA margin for the full year, relative to the 60% margin for the company.

Hock Tan and Kirsten Spears discuss VMware's OpEx and revenue trajectory following the company's acquisition. Tan explains that while the revenue will continue to grow, expenses will decrease, resulting in a steady state EBITDA margin of 60-65%. Spears clarifies that the $1.4 billion per quarter for VMware OpEx is the right exit rate.

The operator introduces a question from Timothy Arcuri about the recently closed VMware deal and its impact on Broadcom's capital allocation strategy. Hock Tan responds that the restrictive conditions outlined by Chinese authorities do not change their view on synergies and Kirsten Spears adds that they will continue with their share repurchase program and focus on deleveraging while still considering potential acquisitions.

The company is flexible enough to give dividends to new shareholders from VMware and also fulfill their commitment to buy back shares. They did not offer guidance for next quarter due to the recent acquisition and changes in the business model, but have confidence in their full year numbers. The company is going through a cyclical correction in the semiconductor business, specifically in non-AI areas for networking and server storage connectivity.

Hock Tan, CEO of the company, states that historically, they have a good understanding of customer inventory and their products' inventory is in good shape. However, customers are cautious about buying due to excess inventory from other companies. He cannot predict the timing or shape of the recovery in 2024. The reason for divesting EUC and Carbon Black is not discussed.

Hock Tan discusses the decision to sell End-User Computing and Carbon Black, stating that the focus is on core areas such as data centers and core networks. He explains that the plan is to invest and focus on VMware Cloud Foundation, and that there are many interested parties for the assets. He also mentions the plan to convert the VMware customer base to subscription models, contrasting it with the approach taken with CA and Symantec.

Hock Tan discusses the differences between the acquisition of CA and Symantec compared to VMware. While CA and Symantec focused on a core customer base and legacy technology, VMware is a growth product that allows for virtualization in the data center. This creates a similar experience for companies with workloads already running on VMware products.

Hock Tan, the CEO of Broadcom, discusses the company's plan to give enterprises the opportunity to have a hyperscaler on-prem. He also mentions that the company has seen an increase in customers and projects for accelerated compute, specifically in the AI and large language model space. Tan believes that the evolution of AI and the need for customized hardware for different models has contributed to this growth. Regarding the recently closed VMware deal, Tan is pleased with the progress and expects the integration to be the most challenging aspect in the next 12 months.

Hock Tan, CEO of Broadcom, discusses the journey of closing their deal with VMware and the opportunity it presents. He highlights the value of VMware's core product and how it is desired by many CIOs. Tan also mentions the importance of focusing on execution and the potential impact of the acquisition on their financials. Broadcom plans to report their first quarter earnings for fiscal year 2024 in March 2024.

A public webcast of Broadcom's earnings conference call will take place at 2:00 p.m. Pacific. The call will end after the webcast, and the operator will disconnect the call.

This summary was generated with AI and may contain some inaccuracies.