The operator introduces Ji Yoo, Head of Investor Relations, who welcomes listeners to the Broadcom Inc. Second Quarter Fiscal Year 2024 Financial Results Conference Call. Ji Yoo provides information on how to access the press release and financial tables, and mentions that the call is being webcast live and will have an audio replay available for one year. Hock Tan, President and CEO, and Kirsten Spears, CFO, will provide details on the second quarter results and guidance for fiscal year 2024. Non-GAAP financial measures will be discussed and there will be a Q&A session after the prepared comments. The operator also mentions the risk factors that could affect the company's actual results and provides a reconciliation between GAAP and non-GAAP measures. Hock Tan then gives an overview of the fiscal Q2 2024 results, with consolidated net revenue increasing by 43% year-on-year due to the contribution from VMware.

In the second quarter, consolidated revenue for Broadcom was up 12% year-on-year, with a significant contribution from AI revenue. The software segment saw a 175% increase in revenue, including a $2.7 billion contribution from VMware. The integration of VMware has resulted in simplified product offerings and go-to-market strategies, and the transition to subscription licensing is progressing well. Close to 3,000 of the top 10,000 customers have signed up for self-service virtual private clouds, resulting in a growth in Annualized Booking Value. The integration of SG&A has led to cost savings, with $2 billion spent on restructuring and integration so far. The spending run rate at VMware has decreased from $2.3 billion to $1.6 billion per quarter.

In the third paragraph, the article discusses the expected decline in spending towards $1.3 billion, better than the previous plan of $1.4 billion. It also mentions the expected stabilization at $1.2 billion post-integration. The article then turns to the semiconductor market, specifically the networking sector, which saw a 44% year-on-year growth in Q2. This growth was driven by demand from hyperscalers for AI networking and custom accelerators. The company also doubled the number of switches sold and is leading the transition to 800 gigabit bandwidth for optical interconnects in AI data centers. The company expects networking revenue to continue growing at a rate of 40% year-on-year due to the strength in AI. The article then briefly mentions the wireless market.

In the fourth quarter, Q2 wireless revenue grew 2% year-on-year and is expected to remain flat in fiscal '24. Server storage revenue is predicted to have bottomed out and will see a modest recovery in the second half of the year. Broadband revenue declined 39% year-on-year and is expected to bottom out in the second half of the year with a recovery in 2025. Industrial resale declined 10% year-on-year and is expected to continue to decline in fiscal '24. Overall, AI revenue is expected to be strong, while non-AI semiconductor revenue has bottomed and is expected to recover slightly. The integration of VMware is also contributing to growth in infrastructure software.

In the fifth paragraph, the speaker discusses the three key factors that have led to an increase in fiscal '24 revenue guidance to $51 billion. They then turn the call over to Kirsten, who provides more details on the Q2 financial performance. Consolidated revenue was $12.5 billion, up 43% from a year ago, with a full quarter contribution from VMware. Gross margins were 76.2% and operating expenses were $2.4 billion. Operating income was $7.1 billion, up 32% from a year ago. The P&L for the two segments, semiconductors and infrastructure software, is also reviewed, with semiconductors representing 58% of total revenue and infrastructure software representing 42%.

In the second quarter, Broadcom's free cash flow was $4.4 billion, representing 36% of revenues. Excluding restructuring and integration costs, free cash flow increased by 18% from the previous year and represented 42% of revenue. This decline in free cash flow as a percentage of revenue was due to higher cash interest expense and taxes. The company spent $132 million on capital expenditures and maintained a disciplined approach to managing inventory. They ended the quarter with $9.8 billion in cash and $74 billion in gross debt. The company also announced a 10-for-1 forward stock split to make ownership of Broadcom stock more accessible.

The company's stockholders will receive additional shares of common stock after a split on July 12, with trading expected to commence on July 15. The company has raised its guidance for fiscal year 2024 and will be impacted by restructuring and integration costs due to an acquisition. The CEO is asked about competition with Broadcom and NVIDIA in the areas of accelerators and Ethernet switching. He believes they operate on a different scale and that NVIDIA's GPUs are a powerful model in the merchant environment.

In the paragraph, the speaker discusses the company's position in the AI market and how they are not competing with other companies in the GPU space. They mention that they are focused on creating custom ASIC AI accelerators for selected hyperscalers and have been in the Ethernet networking market for over 25 years. They also mention their approach of enabling GPUs rather than competing with them. The question from the analyst is about the strong growth in AI and the speaker is asked to clarify if it is due to compute offload or connectivity.

The speaker is discussing the growth of the company in terms of AI and networking. They mention that it is difficult to predict the exact mix of these two areas, but currently, AI makes up about two-thirds of their business and they expect it to increase to 60% by the end of the year. When asked about the $11 billion AI guide, the speaker explains that quarterly shipments can be unpredictable and that the trajectory is improving.

Hock Tan, CEO of Broadcom, discussed the company's forecast for the back half of the year. He stated that the best forecast he has at this point is for revenue to be more than $11 billion, which is a conservative estimate. Harlan Sur of JPMorgan asked about Broadcom's cloud and AI networking silicon products, and Tan confirmed that their two-year cadence for new product introductions has been consistent for the past seven generations. He also hinted at the possibility of a new Tomahawk 6 product in late 2025, which would be two years after the Tomahawk 5 was introduced in 2023.

Hock Tan, CEO of Broadcom, discusses the company's strong growth in networking products driven by partnerships with GPU and TPU companies. He also mentions plans for the release of Tomahawk 5 and Tomahawk 6 in 2023 and 2025 respectively. In regards to VMware, Tan states that progress is going well and customer willingness to move to subscription is in line with expectations. The company is also cutting prices for Cloud Foundation and is making efforts to catch up to other companies in the subscription market.

Hock Tan discusses the difference between perpetual and subscription models, comparing it to receiving news online versus in print. He highlights the success of their product offering and the fact that they are not solely focused on server or compute virtualization. They have priced their technology competitively and have seen a lot of interest from customers in deploying their own private cloud. Tan reiterates that they are on track for a $4 billion quarter. Toshiya Hari then asks a question.

Hock Tan, CEO of Broadcom, was asked about the company's growth strategy beyond VMware. He stated that they have good visibility into hitting their $4 billion run rate and their operating margin converging to classic Broadcom levels. He also mentioned that while the company showed 12% organic growth year-on-year, they are open to the option of M&A to create value for shareholders. Regarding the networking business, Tan acknowledged the industry-wide inventory correction but did not provide further details.

The speaker is asked about the bottoming out of a business segment and the recovery of the overall semiconductor industry. They mention that they see a similar trajectory as server storage and networking, and that it is hard to predict due to the complexity of the market. They also mention that there is a rule of thumb for mapping GPU demand to AI networking opportunities, but it is too complex to create a model for.

Hock explains that while their company does not directly compete with the new entrant in the AI market, they do provide components for high-bandwidth optical connections that are used in conjunction with GPUs. He estimates that about 25-30% of the value of a GPU goes towards networking, and while their company does not provide the optical connections, they do provide some components for them. He also mentions that the deployment of GPUs and networking may not always happen simultaneously, which could affect revenue mix. A question is then asked about the company's custom ASIC AI business, and Hock is asked to differentiate their company from the new entrant in the market.

The speaker addresses concerns about profitability and competition in the custom AI accelerator business. They explain that the business is very profitable, but the margins are diluted when memory is included. Despite this, the overall revenue and R&D expenses are still favorable.

The speaker explains that their company's custom AI accelerators are highly profitable and attract investment. They also mention their unique networking switch portfolio, which allows for flexibility in building AI clusters. This has helped them gain a strong presence in the market, with seven out of the top eight hyperscalers using their portfolio.

The speaker discusses the success of their network operating system and portfolio of infrastructure switching, which has been deployed by many hyperscalers. They also mention the recent growth in their software business and address concerns about potential budget cuts in the IT industry. Overall, they do not see any impact on their business and believe their offerings are unique and not easily replicable by enterprises.

VMware is seeing a trend of companies creating data centers with separate categories for compute, networking, and storage, using best-of-breed solutions for each category. This mixed bag approach is not ideal for a resilient and secure data center, leading some CIOs to consider a common platform instead. This is more easily adopted in greenfield situations, but can be challenging in existing data centers. There is some competition in greenfield situations, but Brocade is still performing well. However, Brocade goes through cycles and this success may not be sustained.

Hock Tan, CEO of Broadcom, discussed the company's strong performance and outlook in AI during a recent earnings call. He also highlighted the success of their partnership with VMware, specifically in eliminating channel conflict and leveraging VMware's extensive network of partners. Tan emphasized the importance of investing in and working with VMware's 15,000 value-added resellers to reach their 300,000 customers, particularly the largest enterprises who require customized solutions.

The company has created a direct approach for customers and strengthened their network of resellers. They offer three options for customers to consume their technology: direct from VMware, through resellers, or as a service from managed service providers. This approach simplifies the process for customers and avoids channel conflicts.

Broadcom will release its third quarter fiscal '24 earnings on September 5, 2024, followed by a public webcast of their earnings conference call at 2:00 p.m. Pacific Time. The call concludes the earnings call for the day and participants may now disconnect.

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