Broadcom Inc (AVGO) — Q4 2019 Earnings Call Transcript

Thank you, operator, and good afternoon, everyone. Joining me today are Hock Tan, President and CEO; and Tom Krause, Chief Financial Officer of Broadcom. After the market closed, Broadcom distributed a press release and financial tables describing our financial performance for the fourth quarter and fiscal year 2019. If you did not receive a copy, you may obtain the information from the Investors section of Broadcom's website at broadcom.com. This conference call is being webcast live, and a recording will be available via telephone playback for one week. It will also be archived in the Investors section of our website at broadcom.com. During the prepared comments section of this call, Hock and Tom will be providing details of our fourth quarter and fiscal year 2019 results, guidance for fiscal year 2020 and 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 actual results to differ materially from the forward-looking statements made on this call. In addition to U.S. GAAP reporting, Broadcom reports certain financial measures on a non-GAAP basis. The 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. With that, I'll turn the call over to Hock.

Thank you, Bea. Good afternoon, everyone, and thank you for joining today. Now we concluded fiscal year 2019 with record revenue of $22.6 billion, growing 8% year-over-year despite a challenging environment. Our semiconductor solutions segment declined 8% year-over-year, but this was more than offset by our infrastructure software segment benefiting from the integration and healthy results from the CA business. In semiconductors, almost all product lines were down year-on-year, with one clear exception, and that's networking, where the existing growth drivers continue their strong momentum. In infrastructure software, renewals in our core accounts grew double digits, which more than offset the expected attrition in our noncore accounts. Now as we embark on fiscal 2020, I want to provide you some insight into our latest strategic assessment of our semiconductor businesses and our current view of the market. I also want to give you an update on our software business, including our latest Symantec acquisition. I'm sure you have seen the guidance in our earnings release today that we are headed towards $25 billion in revenue in 2020. And I'll let Tom go through the details on how we get there. But before I turn this over to him, let me now give you the broader picture. So when we look at our semiconductor segment today, we are increasingly thinking about it as a core and fabless semiconductor business that consists of networking, broadband and storage connectivity products, focused on enterprise service providers and cloud infrastructure. Here, we get a lot of strategic synergies and scale across our end markets with our customers and with our core silicon technology. This in turn drives efficiencies in our sales, R&D and supply chain activities. Our infrastructure software businesses, which focus primarily on large enterprises are, in fact, quite complementary and enhance these core semiconductor businesses by bringing us closer to our end customers. This gives us a natural barrier to entry and gives us comfort that we can drive sustainable revenue growth and improve profitability long term. Alongside these core semiconductor businesses, we have several valuable semiconductor businesses that are much more stand-alone in nature due to their unique customers, technology and supply chain characteristics. Now this will include our wireless businesses and our industrial businesses. We don't have the same kind of synergies with this as we do in our core semiconductor business. Increasingly, we view this business as more financial assets, especially in terms of capital allocation, balance sheet optimization and how we choose to leverage resources and manage the company. Turning to our current assessment for our core semiconductor business, it's extremely positive. We believe we are uniquely positioned with an industry-leading portfolio, extending connectivity across enterprise, telcos and cloud, in data center switching and routing. We're enabling the cloud with the transition to 400-gigabit per second. We also just announced 800-gigabit per second, which further demonstrates our leadership in this space by far. In 5G cellular infrastructure, we are leveraging our ethernet technology to bring the network to the edge in open RAN or radio access networks through a combination of custom and standard products across both analog and digital domains. And as we know, as Moore's Law for computing starts to slow down as it has, we continue to gain momentum in developing and delivering hardware accelerators to offload computing for the cloud service providers across an increasing variety of workloads, initially with virtualization, hypervisors and expanding today to AI, security, encryption and video transcoding. And in wireless access in enterprise and home gateways, we are of course leading the market transition to WiFi 6. And finally, we actually do have now an organic integrated silicon photonics effort underway, combining our capabilities in switching with our strong legacy in fiber optics for next-generation cloud and networking architectures. So in summary, we plan to increase our investment in our core semiconductor businesses to position ourselves for expected future growth opportunities, where we can leverage our scale of investment, industry-leading focused execution and breadth of IP. Now we all know it has been a tough year for semiconductors in general, with our semiconductor segment down approximately 8% as I indicated. But if you look at our core semiconductor business, as I define it, it has held up reasonably well. To put some numbers around it, this business did a little over $11 billion in sales in 2019, which was down just less than 4% from 2018. We think this business is stabilizing. And we believe given the growth drivers I just highlighted over the next several years that this business can actually grow 6% to 8% annually. Turning to infrastructure software. We started a few years ago with Brocade, a storage area networking switch business. Then we acquired CA, which is a leading independent provider of mainframe tools, and we just closed on Symantec, the leading enterprise security software provider in November. Our Brocade acquisition was predicated on the view that a fiber channel SAN switching market for large enterprises was sustainable and that we could just grow our leadership position with additional investment. And after a couple of years now, it's fairly clear this investment thesis was right. Similarly, we bought CA because we felt the mainframe market for the launch of enterprises was stable and, in fact, growing, and that CA was critical to customers who rely on mainframes to run their businesses. It's still early innings one year now, just over one year, but mainframe compute is growing with our target customers. We are increasing investments in mainframes to support our leadership position. The CA customer transition continues with core accounts growing double digits while noncore accounts attrite as we had planned. We expect Symantec to start with $1.8 billion of core sustainable incremental annual run rate revenue that we believe we can grow to over $2 billion over the next 3 years. Our infrastructure software segment is becoming more predictable with ratable recurring revenue contribution from CA and now also with Symantec. And we anticipate over $7 billion infrastructure software revenue in fiscal 2020. In summary, therefore, our long-term plan for this company is to invest in organic growth in our core semiconductor business while continuing to scale up our infrastructure software business through disciplined and highly accretive acquisitions. Now let me turn the call over to Tom.

Thank you, Hock. Let me start with a review of our fourth quarter and fiscal 2019 results. I'll then spend some time discussing our outlook for fiscal 2020, after which we will open up the call for questions. Consolidated net revenue for the fourth quarter was $5.8 billion, a 6% increase from a year ago. Semiconductor solutions revenue was $4.6 billion and represented 79% of our total revenue this quarter. This was down 7% year-on-year and up 5% quarter-over-quarter. On a sequential basis, networking sustained driven by an uptick in our custom silicon solutions. Storage also held up driven by increased demand for high-capacity drives. This was offset by increased volatility in broadband, especially as the market prepares for the WiFi 6 transition. And as is typical in our fourth fiscal quarter, wireless was seasonally up. Revenue for the infrastructure software segment was $1.2 billion and represented 21% of revenue. The CA business continues to perform well. SAN switching demand remains muted as our partner OEM supply chain continues to compress. That being said, the SAN switching business was up from the Q3 low points, and the market for these products looks to be stabilizing. Looking down the P&L sequentially. Gross margins dropped given the seasonal mix shift to wireless in our semiconductor business, while operating expenses remained relatively flat at just over $1 billion. Operating income from continuous operations was $3 billion and represented 52.3% of net revenue. Adjusted EBITDA was $3.2 billion and represented 54.8% of net revenue. This figure excludes $143 million of depreciation. I would also note that we accrued $119 million of restructuring/integration expenses and made $150 million of cash restructuring/integration payments in the quarter. These expenses and payments are primarily related to CA. We spent $96 million on capital expenditures, and free cash flow represented 41% of revenue or $2.4 billion. In the quarter, we returned $1.6 billion to our common stockholders, including $1.1 billion of cash dividends. As we previewed when we announced the Symantec deal, in Q4, we initiated the transition from stock buybacks to debt repayment. In the quarter, we invested $587 million for the repurchase and elimination of 2.1 million AVGO shares. However, we also paid down $4.8 billion of debt with proceeds from our preferred stock offering and excess cash flow. We ended the quarter with $5.1 billion of cash, $32.8 billion of total debt, 398 million outstanding common shares and 444 million fully diluted shares for the quarter. Now let's recap performance for the full fiscal year 2019. Our revenue hit a new record of $22.6 billion, growing 8% year-on-year. Semiconductor solutions revenue was $17.4 billion, down 8% year-over-year. As Hock reviewed, revenue from our core semiconductor business, which does not include wireless and industrial, was down 4%. Infrastructure software revenue was $5.2 billion, which included $3.4 billion from CA mainframe and enterprise and $1.8 billion from Brocade SAN switching. Gross margin for the year was a record high 71%, up from 67% a year ago. The addition of CA as well as the beneficial mix in semiconductor product sales drove the gross margin expansion. Additionally, operating expenses expanded to $4.1 billion with the addition of CA, offset by lower annual performance bonus amounts relative to 2018. Operating income from continuing operations was $11.9 billion, up 14.4% year-over-year and represented 52.8% of net revenue. Adjusted EBITDA was $12.6 billion, up 13.5% year-over-year and represented 55.7% of net revenue. This figure excludes $569 million of depreciation. I would also note that we accrued $1.1 billion of restructuring/integration expenses and made $883 million of cash restructuring/integration payments in fiscal 2019. We spent $432 million on capital expenditures, and free cash flow represented 41% of revenue or $9.3 billion. Free cash flow grew 12.4% year-over-year. For the year, we returned $10.6 billion to our common stockholders, consisting of $4.2 billion in the form of cash dividends and $6.4 billion for the repurchase and elimination of 24.5 million AVGO shares. Okay. So now let's look ahead to fiscal 2020. The outlook for our business is as follows. In the semiconductor solutions segment, we expect to achieve approximately $18 billion in revenue. Let me unpack this a bit. We expect our core semiconductor business to deliver approximately $12 billion in revenues in 2020, which would represent approximately 7% growth compared to 2019. Our wireless businesses which, let me remind everybody, consists of 3 primary product lines: one is RF; the other is WiFi/Bluetooth combos; and finally, our mixed signal custom products, which we sell almost exclusively to one of our large smartphone customers. RF, which represented approximately $2.2 billion of revenues in fiscal 2019 is expected to grow high single digits given the initial ramp in 5G phones. WiFi/Bluetooth combos, which was approximately $2.2 billion in fiscal 2019, is expected to be down low single digits. The adoption of new WiFi 6 solutions at our 2 large smartphone customers will be offset by the completion of our movement away from noncore, lower-margin legacy WiFi business, which will adversely impact this product line's 2022 revenues. Finally, our mixed signal custom product line, which was approximately $1.1 billion in fiscal 2019, is expected to drop to less than $500 million in fiscal 2020. The reduction in revenues here is driven by a change in architecture at our primary smartphone customer as well as our decision to reduce our investment in this area and focus our engineering resources on more sustainable and profitable activities in our core semiconductor business. Finally, industrial, which consists primarily of optoelectronic power management and sensing product lines, we expect business will stabilize and recover in fiscal 2020 after a challenging fiscal 2019 and to contribute approximately $1 billion in revenues. Switching to the software segment. As Hock reviewed, we expect the business to grow to approximately $7 billion. Symantec is expected to contribute approximately $1.8 billion, including the effects of purchase accounting, while CA and Brocade are expected to be relatively flat to up slightly. So on a consolidated basis, we are forecasting net revenue to be approximately $25 billion, plus or minus $500 million for fiscal 2020. One housekeeping item, our IP or intellectual property segment will be included in our semiconductor solutions segment going forward given this business represented a material amount of revenue. We'll therefore have 2 reporting segments in fiscal 2020, semiconductor solutions and infrastructure software. Turning to our fiscal year 2020 guidance. On a non-GAAP basis, operating margins and adjusted EBITDA margins are expected to be relatively flat in fiscal 2020. There are a number of specific headwinds. As Hock discussed, we are increasing our investment near term in our core semiconductor business to take advantage of growth opportunities we see there. We're also in a transition year with Symantec given effects of purchase accounting near term and onetime expenses tied to the transition services agreement in place with Norton LifeLock. And finally, we will have a headwind from our bonus accrual. We'll be setting a target, which impacts 2020. Looking beyond fiscal 2020, we expect to continue to expand our operating margins organically and are targeting 55% by fiscal 2022. Now on to capital allocation. We remain committed to returning approximately 50% of our prior year free cash flow to stockholders in the form of cash dividends. With that, on the dividend, based on approximately $9 billion of free cash flow after M&A and related items that we generated in fiscal 2019, we are increasing our target quarterly common stock cash dividend starting this quarter to $3.25 per share. This constitutes an increase of 23%. We plan to maintain this dividend payout throughout the year, subject to quarterly Board approval, which means we plan to pay out just over $5 billion in cash dividends in fiscal 2020. Consistent with our capital allocation policy, we will reassess the dividend this time next year based on our fiscal 2020 free cash flow from operations results. In addition, we plan to pay down approximately $4 billion in debt in fiscal 2020 as part of our commitment to maintain our investment-grade credit rating. That concludes my prepared remarks. Operator, please open up the call for questions.

One of the areas obviously which has been a strong growth driver for the team in 2019, as you mentioned, Hock, has been cloud and hyperscale data center networking and compute acceleration. You got Tomahawk, Trident, Jericho, your compute and security acceleration, ASICs and the new optical connectivity portfolio. There was a bit of pause in cloud spending in the first half of this year, but it looks like that is starting to reaccelerate and looking to be strong in 2020. You also have the start of the 400-gig upgrade cycle. So for fiscal 2020, how do you see the data center part of your semiconductor franchise performing relative to 2019? Is this going to be another strong year? And then just secondarily, one of your customers, Cisco, just announced that they're getting into the merchant silicon market for cloud networking. You guys have a strong position here and, in fact, have helped these guys, both merchant and ASIC on their networking platforms. It would be great to get your views on this customer now as a potential competitor.

Let's begin with the first part of your question regarding our expectations for networking in 2020. As you know, there are two segments to consider: the cloud service providers and the more traditional enterprise sector. We anticipate increased spending from cloud providers in 2020, as you've noted. Some of this trend has already emerged towards the end of 2019, particularly in storage investments. We expect networking expenditures to begin increasing in 2020 as well, especially in 200-gigabit and 400-gigabit technologies, particularly in the latter half of the year. This should benefit us significantly because of our strong product offerings, including Tomahawk 3 and Trident 4, along with our spine products. Therefore, we view 2020 as a year of continued growth momentum in our data center business, particularly in the cloud segment. On the enterprise side, the situation is less clear. There was a noticeable slowdown in enterprise spending in the second half of 2019, and we anticipate that this stagnation may persist into 2020 before we possibly witness a gradual recovery in the latter half of the year. There is a clear contrast in spending patterns between the two segments. Regarding one of our prominent clients entering the merchant silicon space, we view this as a positive development. It reinforces several trends we've been advocating for years, particularly the disaggregation of software, such as operating systems, from hardware, specifically the silicon and chips that support them. This movement towards disaggregation has been accelerated by cloud companies and hypercloud providers, and we have successfully enabled this transition. Cisco's entry into this space validates our model and the direction we've been promoting. We welcome the competition and want to emphasize that this movement towards disaggregation is not limited to the cloud sector. It is also happening within traditional enterprises, especially among several large telecommunications companies in both North America and Europe. Many of these telcos are making significant progress in collaboration with us, particularly utilizing our Jericho 2 router. Speaking of the Jericho 2 router, which has been in shipment for over a year, it supports 10 terabits per second, equivalent to the bandwidth of Silicon One announced recently. Earlier this week, we also unveiled a future successor capable of 25.6 terabits per second in switching and routing, showcasing our commitment to advancing performance by 2.5 times compared to recent releases.

A question on the Symantec business, the $1.8 billion starting point. Can you talk about if there's any impact there of any divestitures you might be considering? And then once getting past that, just comment around do you think you can grow it from that level? What are some of the growth drivers that you see in the Symantec side of the business?

Craig, it's Tom. I think we talked about this in the past. We take the original run rate, which is about a $2.4 billion run rate on the enterprise business. We're going to focus on core accounts in terms of investment and where we're going to try to drive our combined strategy with CA and Symantec. We're also going to rationalize the portfolio around some of the noncore businesses, especially in the areas of services. So when we take that into account as well as some of the effects on purchase accounting, which is a couple of hundred million dollars, we're going to start a run rate of about $1.8 billion. And then we think we can grow that. It's obviously a growing market. We've talked a lot about the growth of the market. We've talked about the three core franchises, the endpoint protection, DLP and the web proxy area. We think those three areas focused on core large accounts will allow us to continue to grow the business over the next several years, and we should comfortably exit year 3 at a run rate over $2 billion.

I actually wanted to dig into the fiscal '20 guidance and the 2 aspects of what, Hock, are you baking in for trade tensions and kind of the return of shipments to Huawei or other Chinese customers? And the other aspect, you are now classifying wireless as a financial asset rather than what has been kind of a core strategic asset. And I'm not sure what the implications are longer term for Broadcom.

To address your question, in the short term, there haven't been any changes. The asset remains available, and we continue to invest in it to ensure its sustainability. We are emphasizing that it differs from our core semiconductor product portfolio, as these are distinct franchises. This distinction highlights how powerful these technologies and franchises are, capable of standing independently and being significant players in their markets. When we evaluate our portfolio companies, they represent assets and franchises, particularly noting this in our review as we analyze costs and shortcomings. There are considerable synergies and significant focus on data centers and networking, encompassing both cloud and enterprise solutions, including hardware and increasingly software operating systems, and potentially even infrastructure software. We want to emphasize this distinction, especially in core data center areas where we haven't declined as much as the market; unlike in 2019, where we saw an organic year-on-year drop of only 4%. We anticipate a recovery in 2020, expecting growth to return swiftly to mid- to high single digits year-on-year. This market environment is favorable, and we lead by a significant margin in providing the necessary technology. An interesting aspect is the difference between selling systems and components. The components, whether software or semiconductor solutions, are heavily influenced by strong technology, which allows customers to develop differentiated systems. In contrast, selling systems and software relies more on relationships and embedded service and support, rather than solely on technology. This is the distinction we aim to convey, highlighting the strength of our core semiconductor network franchise.

I guess a two pronged question. The 7% growth you're talking about and what you're now calling core, from an answer to an earlier question, it seems like networking is a big portion of that. But can you talk through a little bit about the other moving parts, broadband, et cetera? And then within the WiFi/Bluetooth combo side of the, I guess wireless business, can you give us a little more color on what's happening with why that's going down low single digits year-over-year? And when you bought that asset, people thought you might have gotten rid of it and divested it. Then you seem to really like the differentiation, the sustainability. Now it seems like it might be somewhere between those 2 viewpoints. So a little color would be helpful.

That's a great observation. Regarding our core semiconductor business, networking, particularly merchant silicon, has been a significant contributor. This was especially true in the latter half of 2019 when enterprise spending slowed and has since stabilized. Cloud spending is beginning to recover, and our diverse product portfolio helps us mitigate the impact of this slowdown. A key factor in alleviating any slowdown in networking is compute offload, which is heavily tied to cloud expenditure. Artificial intelligence remains a major area of mitigation; we are currently shipping several hundred million dollars' worth of AI chips annually, and this segment is growing. We are also beginning to expand into areas like virtualization and hypervisors, commonly known as Smart NICs, which are also gaining traction in the cloud space. In the enterprise sector, the transition to a higher bandwidth and performance mix is benefiting clients. There are multiple factors within data centers that help offset each other. However, in the latter half of 2019, the broadband sector, where we hold a strong position, saw a slowdown in video delivery through DSL copper and fiber-to-the-home services. As we near the end of the year, we are witnessing substantial momentum as telecommunications companies seem to be recovering their broadband investment, leading to a pronounced recovery. Overall, we view the broadband market as stable, which experiences cycles, but continues to grow especially with the deployment of next-generation WiFi 6 access gateways. While broadband is generally stable and can sometimes offset declines, the data center networking business exhibits secular growth, which is why we are emphasizing increasing our investments in this area. We are raising our investment levels as a percentage of revenue in this sector, including our efforts in silicon photonics. This would facilitate the integration of silicon switches with fiber optic connections as we transition from 25.6-gigabit per second routing to the upcoming 51-terabit per second standard within the next two years, necessitating this level of integration as we move forward.

I kind of wanted to go into the operating margin side of the equation, you guys are talking about 55%. But given the fact that you guys have got more software assets and it seems like your integration is going well as well, is there any reason why that couldn't be higher? I guess, why is it so, I guess, muted relative to the mix improving on the software side?

I believe a target of 55% is quite reasonable. We are increasing from approximately 52% and aiming to reach 55% in the next three years. It's a trajectory we're confident in. Although we might exceed 55%, we consider this a solid milestone. It's possible we could achieve it in two years instead of three.

Hock, regarding the Symantec acquisition, it appears you have structured this differently. Many of the cost savings will be realized before the acquisition is completed by downsizing some of the unnecessary assets. Should we anticipate that the synergies from this will materialize sooner than they did with CA and other acquisitions? I understand you’re not providing guidance; I’m just trying to gauge how you perceive the synergies developing for CA. You mentioned the revenue aspect as well, but I’m interested in what we can expect, as I’m currently working on quarterly models and trying to understand the potential impact on cash flow for the second half of your fiscal year.

That's a very good question, and there is a clear distinction between CA and Symantec. Firstly, with CA, we acquired the entire company, and that means you will see us going through a restructuring process, which takes time to reach completion, and we are still in that process but getting closer. In contrast, Symantec involves acquiring only a specific asset, which will enable us to reach our final objectives more quickly as we expand. However, in the short term, we need to manage transition services agreements from the remaining company, Norton LifeLock, during this period. We anticipate having about six months of these transition services before we fully move forward. Once we streamline our operations by selecting only the assets and personnel we want, we expect to make faster progress.

Hock, in some of your comments, you talked about the new Cisco platform and the performance level that your switching and routing solutions have that are significantly higher than that. I wonder if you might talk a little bit about the mix of business in your switching and routing business, which pieces of revenue are at the highest performance points and what the tiering looks like within that stack, just to understand a little bit about what percentage of your business there might be competition with and which parts are super differentiated at those highest performance points?

I'm not a specialist in technology to provide the depth you’re looking for, but I can give a general response. We have a diverse range of products in our switching and routing business. The distinction between switching and routing is becoming less significant as we integrate more features into both areas. For instance, the differences between our Tomahawk and Trident product lines reflect the features offered, not a confusion of categories. Overall, our portfolio spans from high-end spine routing solutions to top-tier switching with exceptional throughput, down to lower-end campus options. We have a wide array of products designed to cater to each market segment, covering everything from advanced hyper-cloud setups and routing for operators, like the Jericho 2 and beyond, to simpler lower-end campus switching solutions. Our strength lies in our ability to utilize this entire portfolio effectively.

I guess wanted to just revisit the operating margin side. And if you could speak to, I guess the moving parts in terms of how fast you expect to kind of cost down on Symantec and perhaps what increased investments might look like on the OpEx side to help us really understand the drivers of that flat guide?

Tom here. To address your question, there are three main factors to consider. First, we're facing a couple hundred million dollar headwind in our annual performance bonus target because we under accrued in 2019 due to not meeting our numbers. Second, we are increasing investments by a couple hundred million dollars in the semiconductor business, which presents another challenge. Lastly, regarding Symantec, when we acquired it, it was generating a couple hundred million dollars of EBITDA. This year, we will start with a significantly higher EBITDA figure, which we will report next quarter. However, when you factor in the TSA elements and other restructuring costs, there are additional couple hundred million dollars we need to account for throughout the year. I would categorize these challenges into three equal parts. If you consider these factors alongside the organic growth in our core semiconductors, we still anticipate margin expansion. We've frequently discussed the potential for enhancing gross margins in our core semiconductor business and how that translates into improved operating margins. This is how we aim to reach our 55% target over the next three years.

Great. I want to mention that I like the 55% margin target. However, my question pertains to 5G. Hock, you previously discussed the growth rate related to 5G and handsets. Could you elaborate on your exposure to 5G infrastructure?

Oh, absolutely. Yes. There's been a lot of discussion about 5G handsets, and as Tom mentioned, we are very involved, especially on the RF side. We expect to grow 19 to 20 because of increased content. Regarding infrastructure, we're gaining significant traction. I mentioned in my opening remarks that the base station serves as a prime example. It’s referred to as the radio access network or base station. For 5G networks, the goal is to enhance latency and density throughput. Operators are pushing the network and backhaul right to the edge, which means we’re integrating ethernet into the base stations. We plan to push as much as we can into the radios, enabling us to run the entire line end-to-end on ethernet. Even the CPRI protocol, usually used between radios, is being minimized in favor of standard higher bandwidth ethernet, which aligns with our strengths in switching and routing. We’re actively collaborating with OEMs on the infrastructure side to develop, test, and work on the crucial elements within the base station. This effort represents a significant push into 5G infrastructure, which is closely tied to the increased investment in core semiconductors that Tom mentioned, amounting to at least $200 million a year, with a large portion dedicated to this area.