Broadcom Inc (AVGO) — Q4 2021 Earnings Call Transcript

Thank you, Operator, and good afternoon, everyone. Joining me on today's call are Hock Tan, President, and CEO; Kirsten Spears, Chief Financial Officer; Tom Croft, President, Broadcom Software Group; and Charlie Kawwas, Chief Operating Officer. Broadcom also distributed a press release and financial tables after the market closed, describing our financial performance for the fourth quarter and fiscal year 2021. If you did not receive a copy, you may obtain the information from the investor 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, Hock and Kirsten will be providing details of our fourth quarter and fiscal year 2021 results, guidance for our first 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. GAAP reporting, Broadcom reports certain financial measures on a non-GAAP basis. 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 will now turn the call over to Hock.

Thank you, Ji, and thank you, everyone, for joining us today. So in the environment we have today enterprise demand rebounded sharply over 30% year-on-year. HyperCloud and Service Provider demand continued to be strong and strong wireless growth in Q4 was driven by the seasonal launch of next-generation smartphones by our North American OEM. Meanwhile, our core software business continues to be steady with a focus on strategic customers. On the supply side, lead times remain extended and stable, inventory in our channels and our customers remains very lean. Accordingly in Q4 semiconductor solutions revenue grew 17% year-on-year to $5.6 billion and with infrastructure software revenue growing 8% year-on-year to $1.8 billion. Consolidated net revenue was a record $7.4 billion up 15% year-on-year. Let me now provide more color by end markets. Let's start with networking. Networking revenue of $1.9 billion was up 13% year-on-year in line with our forecasts for low double-digit growth and represented 34% of our semiconductor revenue. Double-digit year-on-year growth was primarily driven by strong demand from campus switching both from our merchant silicon as well as ASIC solutions through OEMs, like Cisco and HP. We also experienced similar double-digit growth with the deployment of Jericho routers within large scale AI networks in the cloud, as well as Qumran in 5G infrastructure and DCI. Our unique capability here to deliver ultra-low latency Ethernet networks enables large-scale deployment of AI compute for the cloud. Meanwhile, in the core of these large data centers, we have begun to run Trident 4 and Tomahawk 4, the world's first 25.6 terabit per second switch to several hyperscale cloud customers as they address their ever-growing need for bandwidth demand in scaling out their massive data centers. Now within hyperscale cloud, we continue to lead in delivering A6 silicon for multiple compute offload accelerators, which has manifested into being 20% of our networking revenue. Expect continued growth in the next fiscal years here to over $2 billion. The key to our success here lies with our robust design methodology, which integrates a broad and substantial silicon IP and rapidly delivers world-class customized silicon SoCs to enable AI virtualization, orchestration, video transcoding, and security. We have now extended our footprint here, beyond TPUs at multiple cloud customers. In Q1, networking is firing on all cylinders. And we expect networking revenue growth to accelerate to close to 30% year-on-year. Next, our server storage connectivity revenue was $815 million, up 21% year-on-year, in sharp contrast to the first half of 2021 and represented 15% of semiconductor revenue. The better than expected results were driven by robust demand for storage controllers, and host bus adapters from renewed spend by enterprises, upgrading their compute and storage infrastructure. Additionally, hypercloud storage we saw accelerated migration to eight terabytes, and the start of 20 terabyte hard disk drives, which drove our nearline storage revenue. To put things in perspective, today, our Nearline storage business is close to a billion dollars on an annualized basis. We continue to gain share in server storage connectivity as we expand our leadership in next-generation SAS 4, PCI Express Gen 5, and NVMe. Spending for enterprise continues to recover and we expect this will accelerate growth in our server storage connectivity revenue in Q1 to approximately 30% year-on-year growth. Moving on to Broadband. Revenue of $872 million grew 29% year-on-year and represented 16% of semiconductor revenue. This was driven by the continued strong growth in deployment by service providers globally of next generation PON with Wi-Fi 6 and 6C access gateways. We continue to lead the industry with a portfolio of end-to-end integrated solutions across access protocols. PON, cable modem and DSL, all SoC controllers, each with integrated Wi-Fi managed through our software stacks to reliably deliver more bandwidth, faster data speeds from the call service provider networks to the homes. And the critical element in our broadband platform is leading-edge Wi-Fi; Wi-Fi 6 and 6C today and Wi-Fi 7 tomorrow. Having leading-edge wireless is important for service provider customers to reach digital homes from their networks. By the same token in campus switching in enterprises, it's also critical that our OEMs can connect enterprise data centers through campus switches to the access points with leading-edge Wi-Fi. In both markets, our platforms, which encompass wired and wireless silicon and software uniquely differentiate Broadcom and sustain our market leadership. So in Q1, we expect this double-digit percent year-on-year growth rate in broadband to continue, as we have seen for the last few years. Moving on to wireless, consistent with the launch of our customers' next-generation phone during the quarter, Q4 revenue of $1.8 billion represented 32% of semiconductor revenue and was up 21% against a softer Q4 quarter a year ago. Nevertheless, we expect continuing strong demand into Q1, which will drive wireless revenue to be up sequentially single-digit and be flat to up low single-digit percentage year-on-year from the peak of a year ago. Finally, industrial revenue up $197 million represented approximately 3% of our Q4 semiconductor solutions revenue. Having said this, resales of industrial up $232 million grew 36% year-over-year in Q4, driven by strong demand from OEMs for electric vehicles, robotics, factory automation, and healthcare. As a result, our inventory in the channel declined further to below a month. And turning to Q1, we expect resales to continue to be strong at the levels we saw in Q4. In summary, Q4 semiconductor solutions revenue was up 17% year-on-year. And in Q1, we expect the momentum to continue and revenue growth to be up double digits again year-on-year. This implies that Q1 semiconductor revenue will be up low single digits sequentially. Turning to software Q4, infrastructure software revenue of $1.8 billion grew 8% year-on-year represented 24% of total revenue with this Brocade showed strong growth of 19% year-on-year, consistent with strong enterprise recovery during the quarter, and deployment of our next Generation 7 fiber channel stem products. Now excluding Brocade, our core software revenue grew 6% year-on-year in dollar terms, consolidated renewal rates averaged 116% over expiring contracts. While within our strategic accounts, we actually averaged 127% consistent with prior quarters. Over 90% of the value represented recurring subscription and maintenance. Stepping back and following the Software Investor Day last month, let me provide an update on the entire fiscal '21 for core software. Total backlog at the end of the year totaled $14.9 billion up 15% from a year ago, with average duration of contracts extending from 2.6 to 2.9 years. This backlog translates into an ARR or annual recurring revenue of $5.2 billion, which was up 5% from a year ago. 74% of this ARR comes from our approximately 600 strategic accounts, which in fiscal '21 we renewed at 129% or $2.4 billion of annualized booking value. $1.9 billion of this represented renewal on expiring contracts and roughly $500 million represented cross-selling including PLAs of our portfolio products to these strategic customers. For the year, we booked over 300 contracts generating greater than a million dollars of revenue annually with over 30 contracts generating over $10 million annually. With such stability in Q1, we expect our infrastructure software revenue to continue to sustain around mid-single-digit percentage growth year-over-year. So, let me summarize, with the continued strength in our semiconductor segment and steady growth in our software segment, total Q4 net revenue grew 15% year-on-year. Turning to Q1, semiconductor revenue excluding wireless is expected to be up 28% year-on-year. Wireless is expected to grow flat to low single-digit percentage compared to the peak of a year ago. So semiconductor revenue in total is expected to grow 17% year-on-year again, and consolidated revenue is expected to grow 14% year-on-year. Sequentially, this will drive revenue to grow from $7.4 billion in Q4 to $7.6 billion in Q1. We are very well positioned in every one of our franchise markets in fiscal '22 and beyond. We continue to significantly out-invest anyone else across our platforms in switching and routing, offload compute, silicon photonics, and wireless connectivity to accelerate our next-generation roadmaps as we continue to gain market share. With that, let me turn the call over to Kirsten.

Thank you Hock. Let me now provide additional detail on our financial performance. Revenue was $7.4 billion for the quarter, up 15% from a year ago. Gross margins were 75% of revenue in the quarter and up approximately 105 basis points year-on-year. Operating expenses were $1.1 billion, up 3% year-on-year driven by investment in R&D. Operating income for the quarter was $4.4 billion and was up 20% from a year ago. Operating margin was 59% of revenue, up approximately 286 basis points year-on-year. Adjusted EBITDA was $4.5 billion or 61% of revenue. This figure excludes $134 million of depreciation. Now an overview of the P&L for our two segments. Revenue for our semiconductor solutions segment was $5.6 billion and represented 76% of total revenue in the quarter. This was up 17% year-on-year. Gross margins for our semiconductor solutions segment were approximately 70% up 170 basis points year-on-year driven by favorable product mix and content growth in next-generation products across our extensive product portfolio. Note that we have been able to continue to expand our semiconductor gross margin despite a higher wireless revenue mix. Operating expenses were $790 million in Q4, up 3% year-on-year. R&D was $701 million in the quarter, up 6% year-on-year. As a side note for fiscal '22, we are planning to increase R&D spend in semiconductors by mid-to-high single-digit percent year-on-year. As Hock indicated in his remarks, we are committed to investing heavily in our next-generation products to maintain and even increase our leadership across all our franchises. Q4 operating margins increased to 56%, up 350 basis points year-on-year. So while semiconductor revenue was up 17%, operating profit grew 24%. Moving to the P&L for our infrastructure software segment, revenue for infrastructure software was $1.8 billion and represented 24% of revenue. This was at 8% year-on-year. Gross margins for infrastructure software were 90% in the quarter, up 19 basis points year-over-year. Operating expenses were $353 million in the quarter, up 1% year-over-year, R&D spending at $220 million is up 9% year-over-year and SG&A of $133 million is down 10% year-over-year. Operating margin was 70% in Q4, up 166 basis points year-over-year and operating profit grew 11%. Moving to cash flow, free cash flow in the quarter was $3.5 billion representing 47% of revenue. We spent $88 million on capital expenditures. Day sales outstanding were 25 days in the fourth quarter, compared to 32 days a year ago. We ended the fourth quarter with inventory of $1.3 billion, an increase of $137 million or 12% from the end of the prior quarter in preparation to meet customer demand in Q1. We ended the fourth quarter with $12.2 billion of cash and $39.7 billion of total debt, of which $290 million is short-term. Turning to capital allocation. In the quarter, we paid stockholders $1.2 billion of cash dividends. We also paid $266 million in withholding taxes due on vesting of employee equity, resulting in the elimination of 525,000 AVGO shares. We ended the quarter with 413 million outstanding common shares and 448 million diluted shares. Based on current business trends and conditions, our guidance for the first quarter of fiscal 2022 is for consolidated revenues up $7.6 billion and adjusted EBITDA of approximately 61.5% of projected revenue. Let me recap our financial performance for fiscal year 2021. Our revenue hit a new record of $27.5 billion, growing 15% year-on-year, semiconductor solutions revenue was $20.4 billion up 18% year-over-year. Infrastructure software revenue was $7.1 billion up 7% year-on-year. Gross margin for the year was 75% up 100 basis points from a year ago. Operating expenses were $4.5 billion down 2% year-on-year as we completed the integration of Symantec. Operating income from continuing operations was $15.9 billion, up 23% year-over-year and represented 58% of net revenue. Adjusted EBITDA was $16.6 billion, up 21% year-over-year, and represented 60% of net revenue. This figure excludes $539 million of depreciation. We spent $443 million on capital expenditures, and free cash flow represented 49% of revenue, or $13.3 billion, free cash flow grew 15% year-over-year. For the year, we returned $7.5 billion to our stockholders, consisting of $6.2 billion in the form of cash dividends and $1.3 billion for the elimination of 2.8 million AVGO shares. We have extended our weighted average debt maturity to approximately 10.6 years, with a weighted average interest rate of approximately 3.6%. Looking ahead to fiscal 2022, we remain committed to returning approximately 50% of our prior year free cash flow to stockholders in the form of cash dividends. Consistent with that, we are increasing our quarterly common stock cash dividend in Q1 fiscal '22 to $4.10 per share, an increase of 14% from the prior quarter. We intend to maintain this target quarterly dividend throughout this year, subject to quarterly board approval. Today, as part of our commitment to return capital to shareholders, we announced that the company's Board of Directors has authorized the repurchase of about $10 billion of our common stock under Broadcom's new share repurchase program. The authorization is effective until December 31, 2022. This new share repurchase program reflects our confidence in the company's ability to generate strong and sustainable cash flow. Note that we expect the diluted share count to be 448 million in Q1. This excludes the potential impact of any share repurchase. That concludes my prepared remarks. Operator, please open up the call for questions.

Hi, thank you so much for taking the question. And congrats on the very solid results. Hock, I know you guys don't guide for the full year, but I was hoping you could kind of walk us through how you're thinking about fiscal year '22 on the semiconductor side. Obviously, bookings have been strong, continued to be strong across most of your buckets, or end markets within semis. But if you can talk about bookings trends in the quarter, what you're seeing there, that would be super helpful. And then as you sort of answer the fiscal '22 question, if you can touch on supply, and to what extent supply could be a gating factor over the next 12 months? That'll be helpful. Thank you.

That's a really great question. Let me break it down into different parts. We're currently experiencing a significant recovery in enterprise spending, especially on the semiconductor side, where we continue to see strong demand for bookings. A large portion of this demand is coming from enterprise spending, which directly impacts the end markets, particularly driving our broadband efforts. This trend has been robust throughout most of 2021 and continues to support the enterprise aspect of our networking business. Additionally, server storage and industrial sectors are performing exceptionally well. In terms of hypercloud spending, a significant portion is still within our networking business, and demand remains very high. When we look at the overall picture, our booking rates have remained elevated week after week. Currently, we are booked solid well into 2022 and even into 2023, given a typical 50-week lead time for orders. This isn’t surprising as customers are planning much further ahead, and we are maintaining a disciplined approach to ensuring timely product delivery. However, I must admit we are not in a position to provide guidance for the entire fiscal year just yet.

Hi, guys. Thanks for taking my question. Hock, I wanted to follow up on those lead times. You said obviously, on the industrial space, your channels lean it sounds like your bookings overall is very strong. At the same time, we know you've been taking efforts to limit like worries around stockpiling and over shipping, whether it's parsing orders, expedite these. I was wondering if you could just talk a little bit about what you are doing in that space. How are you feeling right now in terms of your shipments versus where end demand is? And how meaningful those like long with 50-plus week lead time actually are? Do they actually represent demand even if it's that far out? Like if you could just talk about your efforts there? That'd be that'd be helpful.

Yes, we have been managing our operations for 50 weeks since the beginning of 2021, focusing on meeting our lead times as effectively as possible. I believe this approach is bringing some order to a hectic booking situation regarding our shipping capabilities. By maintaining stable and predictable lead times, we are clearly communicating to our end users how they should strategize their business planning. I think this is allowing us to avoid overshooting and building up unnecessary inventory within our ecosystem, which includes distributors, channels, and customers. All of this has been done with purpose, and there will come a time when deliveries need to happen smoothly, and we want to ensure that transition is gentle. I believe we are on the right track. In certain sectors, we are currently reporting growth rates of around 20% to 30%. Although this growth appears intense, we are proactively working to ensure that our products are being utilized rather than sitting unused for future needs. Consequently, I believe the growth in areas like networking and broadband service storage, showing increases of 20% to 30% year-on-year, reflects genuine end demand.

Got it. That's helpful. Just a quick follow up along those lines on enterprise, you gave some numbers for year-over-year growth for things like networking and storage and those year-over-year numbers, does that imply a sequential decline? Especially for networking and storage or just I'm not sure if my year ago numbers are trending or not? But do you expect those businesses to decline sequentially within the comp guidance within the guidance?

It may, depending then we're talking mathematical numbers now and how we shipped because some of the shipments are lumpy. And you may see them from quarter-to-quarter, when you talk about sequential quarter, you may sometimes see them and what I'm trying to say. And we may also choose to deploy supplying to one market versus another as you go quarter-by-quarter. So looking at it sequentially in specific verticals might sometimes for our case, our point of view be rather misleading, unintentionally, I may add, simply because we may choose to deploy our ship more to sponsors sometimes to server storage, because there is a hotter need there versus to networking. And you may see them because of that networking, see some sequential weakness in one particular quarter, which is why we report as much as we can on a year-on-year basis, where then you take out the effects of this short term, lumpiness, and short-term discontinuities.

Good afternoon. And congratulations on the strong results and execution. Hock, in your networking business, you've been somewhat conservative on your view on the sustainability of the strong cloud and hyperscale growth, but yet, in cloud, I mean, you guys are ramping 7-nanometer Tomahawk 4 and Trident 4. They're in the early innings as they ramp. Demand is strong. You talked about Jericho and Qumran being strong in routing. Your cloud ASIC customers ramping their 7-nanometer TPU. And you have more programs firing next year, as you mentioned. And then on the enterprise side, your large enterprise OEM customers are benefiting from the strong recovery. So you're starting off the fiscal year in networking with strong double-digit growth. But do you see your networking business continuing to drive double-digits year-over-year growth for the full year? And will the growth be driven by all three of your end markets cloud, enterprise, and service provider?

Harlan that's a hell of a question. And the only way I can answer that is, this is a weird time for me to bad to ask me to guide you on networking for the year in working, I'm not doing that. But you're right though. There are a lot of levels. And I articulate quite a few of them and maybe I'm oversee in some cases. And they seem to be as I use the expression as we sit here today and going into '22, firing on all cylinders. And by that, I mean more than just forecasting. We actually seen the backlog, we have the backlog and they keep building up. And you're right hypercloud guys, if you have asked me six months ago, I would not believe the level of spending they're embarking on in right now in '22 but they appear to be. So you are right, enterprise been strong. And you've seen the rate of growth of enterprise year-on-year of 30% across broadly. And cloud at their current elevated levels, we are seeing in networking has not suffered, has not weakened. We are still sustaining. Now, it's not recovering, obviously, year-on-year basis as fast as enterprise is showing simply because enterprise starting from a lower point. But Cloud is still growing, we are seeing hypercloud growing. And it's growing from not just network switching and routing that's our traditional strength is growing now for us on, for one of a better expression collectively called offload computing applications from virtualization orchestration to add more and more AI beyond just a single lead customer we have in TPUs today. So we're seeing multiple, as I said, multiple levels all moving in the right direction for fiscal '22. And good possibilities, what we've seen today in Q1, would run for a large part of fiscal '22.

Thank you for taking my question. And congratulations on the strong results and the guidance. So Hock, I find two things interesting. One is you didn't use the word metaphors in your commentary. But that's not my question. The question is on the buyback announcement. What changed your view? Because for some time, you were not as favorable towards buybacks. So the 10 billion announcement, is that more a statement about business trend? Is it lack of M&A targets, are you going to be more consistent in buybacks? So that's part A of the question. And part B is that if I take that, 6 billion or 7 billion in dividends that you will pay next year and add the 10 billion in buybacks and apply the free cash flow range you have. It suggests sales of somewhere in the low to mid 30 billion, right, using that math? And I know you're not giving a guidance, but does that math make sense? Thank you.

Hey, you're very good at these numbers. I shall just bow to those better judgment and wisdom. Yes. Thank you. Next question. You have another follow through? Please.

Yes. Thank you. Yes. So wireless, is your most seasonal business. Is there a way you're thinking about wireless? So you said it could be up somewhat right in the January quarter? How are you thinking about seasonality for that business going into the April quarter?

The April quarter quota is difficult to predict because it involves consumers, and I believe my customers are likely better at forecasting than I am. However, I think they are facing their own challenges. Interestingly, demand for our components in the January quarter appears to be strong. Even comparing year-over-year to an all-time peak last year, we are still relatively stable, with a slight increase from Q4. You are correct that Q4 is expected to return to normalcy, and it’s typically a strong quarter. We anticipate that our Q1 shipments will surpass those of Q4 based on our current forecasts. While the year-over-year comparison in percentage terms may not be as thrilling as other sectors within semiconductors, our performance remains solid.

Hi, thanks for letting me ask the question. I guess I'll ask the two questions and then I'll listen to the answers for both the question and the follow-up. So, first, Hock, I want to revisit kind of the quality of demand and may be ask it a different way. You've talked about under-shipping what the actual demand or what your bookings are because you believe you can ship to actual demand. So that delta between what you're shipping and what is being booked, is that changing, is it shrinking, growing, basically trying to get at any change in customer behavior? And then the second question would be a separated one for Kirsten, you mentioned about the OpEx in the semiconductor side rising going forward, any more color about the linearity of OpEx as we go throughout the year and any color on kind of the areas that would be focuses of that investment?

That's a very clever question, Ross. To address whether anything has changed between our bookings and shipments, the demand by verticals has shifted somewhat. For instance, enterprise is becoming very active and is urgently requesting products. Consequently, we are seeing increased shipments to OEMs that support these enterprises. Specifically, we are witnessing strong demand in server storage and networking, which has bolstered our campus switching and Wi-Fi business. Enterprises now need a wireless strategy component integrated with their campus switching. Our Wi-Fi access gateways for enterprises are experiencing significant growth. Meanwhile, our classification of cloud includes telcos and service providers, which have remained stable, although in different ways. Cloud operators are increasingly focused on compute offload, leading to deployments that drive more growth beyond traditional switching and routing, which were very robust in 2021. We've also noted a substantial demand in large-scale machine learning and AI networks that require unique performance characteristics. I mentioned Jericho being utilized in many of these AI networks in hypercloud, and 5G deployments and backhaul continue to be strong, with considerable shipments of Qumrans. Overall, from a macro perspective, the situation hasn't changed compared to six months ago, as we are still experiencing under-shipments relative to our booking levels.

Hi, Ross. Sure. Hi, Ross. So what I would expect, the way I'd look at OpEx, I'll comment on our consolidated view for the company. You're going to see a step-up in Q1 definitely. And then, remember in Q2, we have the payroll taxes that we pay in Q2. So we have another step-up in Q2 and then for the rest of the year, I'd look at that continuing out, how I would model that.

Yes. Good afternoon, guys. Thanks for letting me ask the question and congratulations on the strong results. Hock, maybe just a follow-on to Ross's question about the R&D commentary that Kirsten had in the prepared comments. With the growth that you're expecting in the semi R&D, do you think that, that will outstrip the semiconductor revenue growth for the year or not? And not having had the time yet to go back and look, is this an unusual spend year, and if so, what's driving it? Is it concern about increased competition, is it the opportunity set getting a lot bigger and kind of what areas are you focused on? And then I have a follow-up.

We have been consistently investing in R&D in the silicon sector. It's not about worrying over competition; rather, our business model relies on out-investing and out-engineering others in our franchise verticals. Currently, we see this as a great opportunity. During COVID-19 in 2020 and part of 2021, product cycles didn't progress as quickly as we expected. Now, in 2022, we're making efforts to realign with a normal product cycle cadence. Our focus is on delivering a new generation of products with better features, bandwidth, and lower latency to our customers, who are ready for it. While we are increasing our investments now, the effects may not be seen until 2023 or 2024. However, we believe there's been a pause in adopting new technology in 2021, making this the right time to accelerate our new technology offerings and product generation in 2022 and definitely in 2023. Therefore, it's reasonable for us to increase our spending as we prepare for this shift.

And Hock, is the message that R&D could grow faster than semi revenue growth this year or you're not ready to make that statement yet?

I don't think so. We never tend to do that. We are very well behaved, very disciplined.

That's helpful. And then as my follow-up Hock, you guys have set up a really consistent track record around the dividend, but buybacks have been a little bit more episodic, especially given the M&A strategy. Just with the authorization today, is the intent to do all of that within the next 12 months, why not an ASR component around that authorization today just to give investors confidence that, that you will follow through on the buyback?

Good point. We intend to proceed with the $10 billion investment. The reason for this is that we haven't completed any deals recently; we did not do a deal in 2020 or 2021, and we've accumulated a significant amount of cash. Our debt growth has actually slowed down, and although our cash reserves are increasing, we are still focused on generating more cash in 2022. Therefore, it makes sense for us to return this cash to you rather than simply holding onto it. Also, we have a considerable amount of debt, but we are expanding our debt capacity while maintaining an investment-grade status.

And this is Kirsten. We have consistently said that we would return capital to shareholders if we didn't announce an M&A by December. And so this is in line with what we've been saying and we plan to follow through on it. The $10 billion authorization will be executed pursuant to a trading plan and it will be thoughtful and it's in line with what we said we'd do.

Thank you. And let me also echo my congrats on the solid numbers. Hock, you called out your ASIC business, I think you said it's roughly 20% of the networking business and also said, it's going to be about $2 billion. I'm just curious if you could maybe provide us some additional color as to what's going on with that business. I mean you've been a leader in this market historically. And are you seeing more interest given what's going on with the hyperscale customers and their interest in developing in-house silicon or is this a continuation of a trend or any additional color you could provide, I think that would be helpful?

Thank you for your question. Our ASIC business is actually bigger than the $2 billion we previously mentioned. The segment we discussed in networking is just one part of a broader ASIC operation which includes other areas and is managed under a specific product division. While the bulk of our ASIC business is indeed within networking, a significant portion—over half—is tied to hypercloud opportunities. Although OEMs play a crucial role, it's important to recognize that this business has been stable and growing steadily for many years. Historically, our presence in networking merchant silicon focused on aspects like switching and routing, which haven't expanded as much recently. However, we've identified various other opportunities, particularly in offload computing linked to hypercloud developments. This market has been gradually expanding, though the growth is not exponential and unfolds at a slower pace. Many hypercloud companies aspire to create their own designs, but it's a challenging endeavor. Building a silicon chip or SoC that meets their specific needs, whether in transcoding, security, virtualization, or AI, is quite complex without full-time expertise. Over the past five years, we've been collaborating with these hypercloud companies, experiencing some ups and downs. The key message is that we remain committed to this partnership, and while progress has been slow, we are witnessing more successful outcomes as we advance. For those who have followed my insights over the last few years, I had noted this growth trajectory before becoming less vocal as we worked through the challenges. Now that we’re beginning to see revenue generation from these efforts, I believe this will be a significant growth driver for us over the next couple of years.

Got it. And then just to follow up on wireless, Hock, obviously the current demand looks pretty healthy and supply is very tight. But I guess, if you take maybe a couple of year view out there, it looks like there is somewhat of a concern about 5G cycle peaking. So I'm just curious about how you think about wireless, especially in terms of your content opportunities for the next couple of years? Thank you.

Wireless remains a strong franchise and continues to perform well. Demand is solid, and the market remains stable. I can foresee an increase in content over the next several years due to our wide range of products, not just one specific item, which allows for growth and enhancement of our offerings. However, our plans do not factor in unit increases; we focus on content growth year after year without anticipating a rise in unit sales. Therefore, I'm not overly concerned about a potential decline in the number of 5G phones in the next couple of years; rather, I'm more focused on whether content will experience a decline, and we haven't observed any significant issues in that area.

Thanks a lot. Hock, I had two. The first is on customer behavior, and I'm wondering if you've seen any change there? So, I guess the question really is around, are you seeing any change in the portion of customers that want product inside of lead time and are willing to pay you expedite fees, and I guess does that sort of inform you to the degree to which your shipments or the orders are sort of matching underlying consumption? And then I had a second question too.

Not really. I think we've gone through this for a year now, and most of our customers have started planning their needs accordingly. While their planning isn't perfect and sometimes they come to us requesting expedited deliveries within lead times, we've been able to manage those situations. Overall, our customers are improving in their planning as they've had practice. It's not flawless, and in certain instances where alternatives exist, competitors may benefit from those last-minute requests. We aim for perfection, but it's not always achievable; sometimes customers miss deadlines, and we miss as well, which can affect our commitments. However, customers are definitely getting better at working with us now compared to before.

Got it, Hock. Thank you. And then I guess the last question really is around wireless, and now that you ended December, you should, I think you have a pretty good handle on how much your content is going to grow for fiscal '22. So I was just wondering if you can sort of give us a sense of maybe how much content is growing, is it growing say, let's say 10% this year type of thing? Thank you.

About 5%, 10%, very consistently what we thought it would be six months ago.

Thank you, operator. That will conclude our earnings call today. Thank you all for joining. Operator, you may end the call.