The operator introduces the conference call for Broadcom Inc.'s first quarter fiscal year 2024 financial results and introduces the speakers. Ji Yoo, Head of Investor Relations, provides information on how to access the press release and financial tables, and mentions that the call is being webcast and will have a Q&A session. Hock Tan, President and CEO, discusses the company's financial results, guidance, and business environment, and refers to non-GAAP financial measures. The company's consolidated net revenue for the quarter was $12 billion, a 34% increase from the previous year.

In the first quarter, excluding VMware, consolidated revenue increased by 11%. Semiconductor solutions revenue grew by 4%, while infrastructure software revenue saw a significant jump of 153% due to the inclusion of VMware. The company expects strong bookings at VMware to drive revenue growth for the rest of fiscal 2024. In the software segment, revenue was up 156% year-on-year, with VMware contributing $2.1 billion. Bookings are expected to reach over $3 billion in the second quarter, with VMware's revenue growing double-digit percentage sequentially throughout the fiscal year. The company's strategy with VMware is focused on upselling customers to upgrade to VMware Cloud Foundation, which offers a complete software stack for virtualizing and modernizing data centers. The partnership with NVIDIA allows customers to deploy AI models on-premises without compromising on privacy and data control.

In the third paragraph, the speaker discusses the strong demand for VCF from enterprises looking to run AI workloads on-prem. They also reiterate their fiscal 2024 guidance for software revenue of $20 billion. In terms of semiconductors, networking revenue grew 46% year-on-year due to demand for custom AI accelerators and other components at hyperscale customers. Wireless revenue decreased slightly but is expected to remain flat for fiscal 2024. Server storage connectivity revenue saw a decline in the first half but is expected to recover in the second half. Broadband revenue also declined but is expected to rebound in the future.

Broadcom is experiencing a decline in broadband revenue due to weakened telco spending, but their strong growth in AI is offsetting this weakness. They expect their revenue from AI to make up 35% of their semiconductor revenue in fiscal 2024. They also reiterate their guidance for consolidated revenue and adjusted EBITDA for the year. Additionally, they recently published their fourth annual ESG report, highlighting their sustainability initiatives.

In the first quarter, the company saw a 34% increase in revenue, with a 11% increase when excluding the contribution from VMware. Gross margins were 75.4% and operating expenses and R&D were up year-on-year due to the contribution from VMware. Operating income, including VMware, was up 26% with an operating margin of 57% of revenue. The Semiconductor Solutions segment had a revenue of $7.4 billion, while the Infrastructure Software segment had a revenue of $4.6 billion, representing 62% and 38% of total revenue respectively. Gross margins for infrastructure software were 88% and operating expenses were $1.3 billion, resulting in an operating margin of 59%. Free cash flow in the quarter was $4.7 billion, representing 39% of revenues.

In the first quarter, excluding restructuring and integration costs, free cash flows were 45% of revenue and capital expenditures were $122 million. Days sales outstanding were 41 days, compared to 31 days in the previous quarter due to the VMware acquisition. Inventory increased by 1% and the company remains disciplined in managing it. The company has $11.9 billion in cash and $75.9 billion in gross debt. The weighted average coupon rate and years to maturity of fixed rate debt is 3.5% and 8.4 years, respectively, while the same for floating rate debt is 6.6% and three years. The company repaid $934 million of fixed rate debt and plans to continue quarterly repayment of debt until fiscal 2024. In the first quarter, the company paid $2.4 billion in cash dividends and completed its remaining share buyback authorization, repurchasing $7.2 billion of common stock and eliminating $1.1 billion of stock for taxes. The company issued 54 million shares for the VMware acquisition, resulting in a sequential increase in share count to 478 million. For the second quarter, the non-GAAP diluted share count is expected to increase to approximately 492 million.

The company reiterates its guidance for fiscal year 2024 and discusses the divestment of its end-user computing division and merger of Carbon Black with Symantec. The Q1 financials show a significant increase in software bookings, which is attributed to the success of their private cloud platform and upselling to customers. The company is only a few months into the deal and expects further growth.

The company has been successful in their push for private cloud, VCF, and has seen an increase in AI outlook from $7.5 billion to $10 billion plus. The increase is mainly due to AI accelerators and networking components, and there has been a similar acceleration in the forward design win pipeline and customer engagements. The CEO does not disclose specific customer information.

The analyst asks a question about the growth in the core software business, specifically regarding the recent acquisition of VMware and the performance of other software companies under Broadcom. They note that the rest of the software business seems to have grown significantly, and they ask for clarification on the numbers and the factors driving this growth.

The speaker, Hock Tan, is being asked about the growth of the core business in VMware. He cautions against getting too excited about certain product contracts and instead highlights the strong contract renewals and accelerating bookings and backlog in VMware. The speaker also mentions that the core business strength in this quarter may be a one-time occurrence and that the overall software business is expected to grow at a 20% rate. The question then shifts to the go-to-market strategy for VMware and how it compares to previous software acquisitions. The speaker explains that they have not had the asset for very long, only about three months, so it is still too early to fully assess their approach.

The company is seeing progress in their go-to-market strategy and is focusing on engineering and selling an improved VCF stack to their top 2,000 strategic customers. These customers have a mix of legacy and modernized workloads and are looking for a hybrid solution that can handle both on-prem and public cloud applications. The company's VMware Cloud Foundation offers the same level of availability and resilience as public cloud, which has been well-received by customers, resulting in strong bookings in the last three months. A question was asked about the potential AI upside from a customer perspective.

Hock Tan explains that the AI market can be divided into two segments: large hyperscalers with a huge subscriber base and a focus on generating a better experience for subscribers and advertising clients, and smaller players who focus on selling AI accelerators and networking. The first segment is where the company is currently focused, as they see a high ROI and are able to invest heavily in custom silicon and AI accelerators. The second segment, while still growing, is smaller in comparison.

The enterprise segment in AI is smaller but growing, with large companies investing in AI initiatives. They are trying to run these initiatives on-prem using standard silicon for AI accelerators. This is a different market from the networking side, where they buy switches and other components. The company has seen a significant increase in bookings recently, indicating that the market may be near its trough and could see sequential growth in the second half of the year. The company has a 52-week lead time and is sticking to it.

The operator introduces Christopher Rolland's question about Broadcom's presence in the optical market and its potential growth due to the rise of AI networking. Hock Tan clarifies that while Broadcom is vertically integrating in this market and has a lead in 100-gig data center lasers, it is still small compared to their sales in switches and routers, and even smaller compared to AI accelerators. He also notes that the demand for optical components is driven by AI, and traditional enterprise networking is currently experiencing a slowdown.

Hock Tan, CEO of Broadcom, discussed the company's AI revenue and its breakdown into AI accelerators and other components. He mentioned that within the "everything else" category, switches and routers make up about 20% while the rest are retirement DSP components. Tan also addressed a competitor's claims about potentially taking share in a large customer's future designs, stating that he cannot control what others say but is confident in maintaining and potentially extending their position due to their strong relationships with customers. The next question from Vijay Rakesh of Mizuho was not included in the summary.

The speaker is responding to a question about their company's dominance in the custom silicon market and the slow adoption of custom silicon by other companies. They clarify that they do not dominate the market and that it takes a lot of time and effort to develop custom silicon for AI applications. They have only two major customers and it takes years to create and optimize the software and hardware for their specific needs. The process is constantly evolving and it has taken years to reach a point where they can deliver production-worthy custom silicon for their two customers.

The speaker, Hock Tan, discusses the challenges and patience required in the custom silicon market, and mentions that Broadcom has a philosophy of focusing on what they are good at rather than entering markets where others are already excelling. The questioner asks about the potential for custom networking products from Broadcom, and a second question is directed to Kirsten about the company's financials.

The business model for custom silicon involves taking upfront payments and selling the end product at a lower gross margin but a higher operating margin. This is different from the model used for AI accelerators, which require specialized high-bandwidth memory and therefore cannot have the same high gross margins as traditional silicon products. As a result, the consolidated gross margin for AI accelerators is lower than traditional silicon products.

The company's focus on memory and logic products leads to lower margins. The second customer contributes to the growth of custom silicon products, but the company does not disclose individual customer information. The company's recent acquisition of VMware marks a shift in their software strategy to a larger customer base.

The speaker discusses the expected increase in operational expenses as the company shifts its focus to go-to-market and support for its VMware product. He explains that, unlike previous acquisitions, this increase in spending will be offset by the fast growth of the business. The speaker also addresses the change in plans to divest certain divisions, stating that the company now believes it can generate more value for shareholders by keeping them.

The speaker discusses the potential acquisition of Carbon Black and how it would generate more value for shareholders than a divestiture. They also mention an upcoming investor meeting and the date for their next earnings report. The call concludes after thanking participants and the operator.

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