Broadcom Inc (AVGO) — Q4 2023 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; and Charlie Kawwas, President, Semiconductor Solutions Group. Broadcom distributed a press release and financial tables after the market closed, describing our financial performance for the fourth quarter fiscal year 2023. 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 an audio replay of the call can be accessed for one year through the Investors section of Broadcom’s website. During the prepared comments, Hock and Kirsten will be providing details of our fourth quarter and fiscal year 2023 results, guidance for our fiscal year 2024, 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’ll now turn the call over to Hock.

Thank you, Ji, and thank you, everyone, for joining us today. In our fiscal Q4 2023, consolidated net revenue was $9.3 billion, up 4% year-on-year and very much as we had guided at the last conference call. Semiconductor solutions revenue increased 3% year-on-year to $7.3 billion, and infrastructure software revenue grew 7% year-on-year to $2 billion. Overall, while infrastructure software remains very stable, semiconductor is continuing the cyclical slowdown at enterprises and telcos that we have been seeing over the past six months. However, hyperscalers remain strong. Generative AI revenue, driven by Ethernet solutions and custom AI accelerators, represented close to $1.5 billion in Q4 or 20% of semiconductor revenue, while the rest of the semiconductor revenue continued to be rather stable at around $6 billion. Moving on to results for the year. For fiscal 2023, consolidated revenue hit a record $35.8 billion, growing 8% year-on-year. And since 2020, even though we have not made an acquisition, we have shown a robust trajectory of growth, driven by semiconductor growing at an 18% CAGR over the past three years. In fiscal 2023, operating profit grew by 9% year-on-year, and our free cash flow grew 8% year-on-year to $17.6 billion or 49% of revenue. We returned $13.5 billion in cash to our shareholders through dividends and stock buybacks. As you well know, we just closed the acquisition of VMware on November 22, just about four weeks into Broadcom’s fiscal 2024. We are now refocusing VMware on its core business of creating private and hybrid cloud environments among large enterprises globally and divesting noncore assets. Reflecting the consolidation of a restructured VMware into our 2024 outlook, we forecast our fiscal year ‘24 consolidated revenue to be $50 billion. We expect the integration to take about a year and will require close to $1 billion in transition spending, which will largely be done as we exit fiscal ‘24. Regardless, we expect our fiscal year 2024 adjusted EBITDA to be approximately 60% of revenue. Kirsten will give you more details in her section. Now, let me give you more color on our two reporting segments, and I’ll start with software. In Q4, as you know, there’s no VMware revenue and the infrastructure software business of CA, Symantec and Brocade grew 7% year-on-year to $2 billion. Consolidated renewal rates averaged 119% over expiring contracts. And in our strategic accounts, we actually averaged 130%. Over 90% of the renewal value represented recurring subscription and maintenance. For the year, renewal rates averaged 116% over expiring contracts and in strategic accounts, we averaged 124%. Revenue in fiscal 2023 was $7.6 billion, up 3% year-on-year and our expectation for fiscal ‘24 is for this revenue to be $8 billion, which is 4% year-on-year. For the 2024 outlook, we are excited to now include VMware. As we all know, VMware has the leading technology to virtualize entire data centers, not just compute, and by doing so, create private cloud on-prem. Our strategy going forward is simply to enable global enterprises to run their applications across the other data centers as well as on public clouds by consuming VMware’s higher-value software stack. And to attract and keep these workloads across the environment, we are investing in a rich catalog of microservices tools. This will be our focus. And the noncore businesses of end-user computing and Carbon Black will be divested. So for 2024, based on 11 months of contribution from VMware, we expect VMware to contribute $12 billion in revenue. And on a consolidated basis, we expect our infrastructure software revenue in 2024 to be $20 billion. Turning now to the semiconductor segment. Let me give you more color by end markets. Q4 networking revenue of $3.1 billion grew 23% year-on-year, representing 42% of our semiconductor revenue. This was primarily driven by strong demand from hyperscalers for our custom AI accelerators and for our networking switches, routers and NICs, Network Interface Cards, dedicated towards scaling our AI data centers. As you know, even as Ethernet is the standard protocol in front-end networks, hyperscalers are also deploying Ethernet predominantly in their AI networks. In fiscal ‘23, networking revenue grew 21% year-on-year to $10.8 billion. If we exclude the AI accelerators, networking connectivity represented about $8 billion, and this is purely silicon, not systems, not cable nor subsystems. In fiscal 2024, we expect networking revenue to grow 30% year-on-year, driven by accelerating deployment of networking connectivity and expansion of AI accelerators in hyperscalers. Moving to wireless. Consistent with the seasonal launch by our North American customers, Q4 wireless revenue of $2 billion increased 23% sequentially and declined 3% year-on-year, representing 27% of semiconductor revenue. In fiscal ‘23, wireless revenue was relatively flat at $7.3 billion, just down 2% year-on-year. The engagement with our North American customers continues to be deep, strategic and multiyear. And accordingly, in fiscal ‘24, we expect wireless revenue to again remain stable year-on-year. Next, our Q4 server storage connectivity revenue was $1 billion or 14% of semiconductor revenue and down 17% year-on-year. In fiscal ‘23, server storage connectivity was $4.5 billion, up 11% year-on-year. And going to fiscal ‘24, we expect server storage revenue to decline mid- to high-teens percentage year-on-year, driven by the cyclical weakness that began late ‘23. And moving on to broadband. Q4 revenue declined 9% year-on-year to $950 million, in line with expectations and represented 13% of semiconductor revenue. And in fiscal ‘23, broadband revenue was $4.5 billion and up 8% year-on-year. Moving on to fiscal ‘24, we expect broadband revenue to be down low- to mid-teens percentage year-on-year and reflecting, again, the further slowdown as the cyclical weakness at service providers that began in late ‘23 continues into fiscal ‘24. And finally, Q4 industrial sales of $236 million was stable year-on-year. In fiscal ‘23, industrial resales were $962 million. In fiscal ‘24, we expect industrial resales to be down low single digits year-on-year. So in summary, fiscal ‘23 semiconductor solutions revenue was up 9% year-on-year to $28.2 billion. Revenue from generative AI in fiscal ‘23 reached 15% of semiconductor revenue, in line with our expectation. And moving on to fiscal ‘24, we forecast semiconductor solutions revenue to be up mid- to high-single-digit percent year-on-year. We expect revenue from generative AI to represent more than 25% of the semiconductor revenue, consistent with prior guidance, which more than offsets the lack of growth from non-AI semiconductor revenue. With the consolidation of VMware, bringing our Infrastructure Software segment revenue to $20 billion and the semiconductor segment holding at mid-high single-digit growth year-on-year, we are therefore guiding our fiscal ‘24 revenue to be $50 billion, which represents 40% year-on-year growth from fiscal ‘23. With that, let me turn the call over to Kirsten.

Thank you, Hock. Let me now provide additional detail on our Q4 financial performance. Consolidated revenue was $9.3 billion for the quarter, up 4% from a year ago. Gross margins were 74.3% of revenue in the quarter, in line with our expectations. Operating expenses were $1.2 billion, flat year-on-year. R&D of $940 million was also stable year-on-year. Operating income for the quarter was $5.7 billion and was up 4% from a year ago, with operating margin at 62% of revenue. Adjusted EBITDA was $6 billion or 65% of revenue, in line with expectations. This figure excludes $124 million of depreciation. Now, a review of the P&L for our two segments, starting with our semiconductor segment. Revenue for our semiconductor solutions segment was $7.3 billion and represented 79% of total revenue in the quarter. This was up 3% year-on-year. Gross margins for our semiconductor solutions segment were approximately 70%, down 110 basis points year-on-year driven primarily by product mix within our semiconductor end markets. Operating expenses were stable year-on-year at $822 million, resulting in operating profit growth of 2% year-on-year and semiconductor operating margins of 58%. Now, moving on to our infrastructure software segment. Revenue for infrastructure software was $2 billion, up 7% year-on-year and represented 21% of revenue. Gross margins for infrastructure software were 92% in the quarter, and operating expenses were $339 million in the quarter. Q4 operating profit grew 12% year-on-year with infrastructure software operating margin at 75%. Now moving on to cash flow. Free cash flow in the quarter was $4.7 billion and represented 51% of revenues in Q4. We spent $105 million on capital expenditures. Days sales outstanding were 31 days in the fourth quarter compared to 30 days in the third. We ended the fourth quarter with inventory of $1.9 billion, up 3% sequentially. We continue to remain disciplined on how we manage inventory across the ecosystem. We exited the quarter with 76 days of inventory on hand, down from 80 days in Q3. We ended the fourth quarter with $14.2 billion of cash and $39.2 billion of gross debt, of which $1.6 billion is short term. Now let me recap our financial performance for fiscal 2023. Our revenue hit a record $35.8 billion, growing 8% year-on-year. Semiconductor revenue was $28.2 billion, up 9% year-over-year. Infrastructure software revenue was $7.6 billion, up 3% year-on-year. Gross margin for the year was 74.7%, down 90 basis points from a year ago. Operating expenses were $4.6 billion, down 4% year-on-year. Fiscal 2023 operating income was $22.1 billion, up 9% year-over-year and represented 62% of net revenue. Adjusted EBITDA was $23.2 billion, up 10% year-over-year and represented 65% of net revenue. This figure excludes $502 million of depreciation. We spent $452 million on capital expenditures, and free cash flow grew 8% year-on-year to $17.6 billion or 49% of fiscal 2023 revenue. Now, turning to capital allocation. For fiscal 2023, we spent $15.3 billion, consisting of $7.6 billion in cash dividends and $7.7 billion in share repurchases and eliminations. We ended the year with $7.2 billion of authorized share repurchase programs remaining. With the VMware deal closed, we have resumed repurchasing shares under our existing program. In fiscal year 2024, including the incremental shares from the acquisition of VMware and excluding the potential impact of any share repurchases, we expect the non-GAAP diluted share count to be approximately 494 million. Aligned with our ability to generate increased cash flows in the preceding year and now off of a larger share count base from the acquisition of VMware, we are announcing an increase in our quarterly common stock cash dividend in Q1 fiscal 2024 to $5.25 per share, an increase of 14% from the prior quarter. We intend to maintain this target quarterly dividend throughout fiscal ‘24 subject to quarterly Board approval. This implies our fiscal 2024 annual common stock dividend to be a record $21 per share. I would like to highlight that this represents the 13th consecutive increase in annual dividends since we initiated dividends in fiscal 2011. Now on to guidance. As Hock discussed, with the recent closing of our VMware acquisition and the integration process, which will take at least one year, for fiscal 2024, we will provide our outlook for the full year instead of quarterly guidance. Based on current business trends and conditions, our guidance for fiscal year 2024 is for consolidated revenues of $50 billion. Within this, our fiscal year 2024 semiconductor revenue is expected to grow mid- to high-single-digit percent year-on-year. Our fiscal year 2024 infrastructure software segment revenue from continuing operations is expected to be $20 billion, including $8 billion from CA, Symantec Enterprise and Brocade and $12 billion from VMware. With regard to VMware, our forecast for fiscal ‘24 revenue of $12 billion reflects 11 months of contribution from VMware. This does not include revenue from EUC and Carbon Black of approximately $2 billion, which we plan to divest. We are also converting an installed base of licenses that is over 60% perpetual today to one that will be mostly subscription by the end of fiscal 2024. Offsetting these, our new strategy for VMware will accelerate revenue growth over the next three years. During fiscal ‘24, we expect to incur about $1 billion of spend related to transitioning VMware into the new Broadcom model. This transition spending will be largely completed by the end of the fiscal year as our VMware spending run rate exits fiscal ‘24 at approximately $1.4 billion per quarter, down 40% from a year ago. So, in fiscal year 2024, including VMware, we expect consolidated adjusted EBITDA of approximately 60% of projected revenue. That concludes my prepared remarks. Operator, please open up the call for questions.

Hock, so yesterday, one of your peers suggested that the market for AI accelerators could be as large as $400 billion. So kind of three related questions. What do you think about that number? And then number two, how does Broadcom participate in that, just beyond your large kind of ASIC project on the compute offload side? And then what does this larger AI accelerator market imply for your Ethernet networking business? I assume that they are correlated, but what is the right way to think about what is presumably a much larger market for accelerators and how it impacts Broadcom’s growth prospect?

Thank you for those interesting questions. Starting with the first part, we’re seeing a market that continues to grow and accelerate. It's also clear that it's very dynamic as the architectures of large language models and software models continue to evolve rapidly. We are observing changes in the requirements for compute silicon, which is both interesting and fascinating for us. This presents a significant opportunity. If a customer has a substantial business model and the resources to support it, it may make sense for them to design AI compute engines that incorporate both memory and the compute engine itself, customized for their specific application needs and LLM model. We are witnessing continuous changes in LLM models and the evolution of generative AI, where training and inference are beginning to converge and chip designs are adapting accordingly. This is evident in how we develop specific custom chips for hyperscalers, which is a compelling opportunity for us. As I mentioned earlier, we project that our networking revenue, which includes AI networks, will reach $4 billion and nearly double throughout 2024. We have communicated this before, and we are reinforcing that guidance. Networking is particularly noteworthy as it is growing in line with our AI accelerators and compute engines. We see this growth continuing, especially with the continuous training of very large language models with diverse and extensive parameters. There is no slowdown in the expansion of AI networks; in fact, we are observing an average doubling in the size of those networks across the board. To answer your question, I fully agree with AMD's assessment that demand appears to be accelerating rather than remaining stable or slowing down.

Just a quick clarification on the question. The clarification is, is the fiscal year guidance going to be the new protocol, or is that just this quarter? And then the real question, Hock, is on the VMware side of things, Kirsten talked about it potentially accelerating off of that $12 billion base. Can you just talk about the linearity of it maybe throughout the year, or more importantly, how is it going to be accelerating as people start to look at what the VMware Street estimates were before. We know we have to take out the two divested operations. But what are the drivers of acceleration? And how should we consider the magnitude of that as we look forward?

Yes. We are currently in an exciting situation as we transition into the next chapter of VMware. Our focus is on VMware Cloud Foundation, which is the complete software stack that virtualizes data centers on-premises and not entirely in a cloud environment. We are progressively converting more customers to this higher value stack on a subscription basis as they come up for renewal. While subscription models typically lead to a decrease in revenues due to revenue recognition practices, we anticipate a trajectory of accelerated growth through 2024. This growth is supported by the mathematics of our strategy, and to address your question, we are indeed accelerating from a $12 billion base and expect to see double-digit growth over the next three years, driven by the sale of this higher value virtualization stack compared to the less focused sales approach we had previously, especially in compute-only sales.

And on the fiscal year side, is this a one quarter thing, or is this the new way you guys are going to be doing it?

That's a good question. To provide some insight, in 2024, since we are experiencing an accelerating trend, we believe it is more suitable to shift to annual guidance for that year. We will continue to report our results quarterly and will update our annual guidance for 2024 each time we share the quarterly results.

One quick housekeeping item question. So, even off the lower revenue base starting in fiscal ‘24 for VMware, is the team still targeting $8.5 billion-plus of EBITDA in three years? And then for my main question, Hock. As you mentioned, right, one of the fastest growing workloads in accelerated compute is accelerated compute and generative AI. And all of these workloads are increasing at an exponential rate. You talked about the benefits to your silicon franchise. But given the significant performance requirements of these workloads, right, training, inference, it appears that more of the near-term adoption of running these workloads is on bare metal, GPU, TPU, accelerated servers. So, how is the team exploiting a software-defined data center solutions via either cloud foundations or Tanzu to try to help customers focus on AI sort of drive better utilization, better economics, faster deployments on this very fast growing part of the market?

At the recent VM Explore in Las Vegas, VMware announced the VMware Private AI Cloud Foundation in partnership with NVIDIA. Essentially, the VMware Cloud Foundation Software Stack, which operates on NVIDIA coders and GPUs, forms the basis of this partnership. For enterprises, transitioning to generative AI analytics becomes straightforward since the on-premises data centers running VCF will inherently support the NVIDIA GPU software stack. This means it can effectively virtualize the NVIDIA GPU alongside the VMware software stack. This creates a compelling incentive for many enterprises to consider adopting the entire VCF setup. Not only does it enhance the resilience and manageability of on-premises data centers while reducing management costs, but it also allows for the immediate execution of AI workloads.

And then, just on my first question, are you guys still targeting $8.5 billion of EBITDA in three years on VMware?

As Kirsten indicated, as we exit fiscal ‘24, we are practically at a run rate of $8.5 billion EBITDA.

Kirsten, considering your expectation of a 60% EBITDA margin for the Company this year, how should we interpret the initial and final EBITDA margin rates in relation to that yearly target? Additionally, I believe you mentioned that VMware's operating expenses would decrease by 40% by the end of the year compared to the start. I'm somewhat surprised it's not a larger reduction, possibly due to reinvestments. Is $1.4 billion per quarter the correct exit rate for VMware's operating expenses, and should we base our estimates on that?

That’s VMware spending. So that’s total spending.

Yes, it will be. But let me tell you, Stacy, you're missing the biggest point. As I indicated to an earlier question by Vivek, our revenue during this process, even over 12 months or 4 quarters, is on a growth trajectory due to the way the math works. As we sell more and recognize revenue on a ratable basis, our quarterly revenue is on a growth trajectory. That will continue and will extend beyond 2024. However, 2024 on its own won’t see a rapid increase in revenue. What you need to visualize is a revenue trajectory in 2024 that is expanding while operating expenses are declining due to reduced transition expenses. That's why we are telling you that by the end of fiscal 2024, we will essentially reach the guidance we provided when we announced this deal.

So what’s the total company EBITDA margin, say, exiting the year then, just to level set?

Well, that’s a total we will get pretty close to where we are supposed to, before we started this whole exercise.

What was that 65%? I can’t remember.

It’s somewhere between 60% and 65%. How does that sound, Stacy?

I mean you did say 65% on it. I think I recall you saying you were going to run VMware at 65%. So I guess, 65% is the right exit rate?

At steady state, you’re right. At steady state, we’ll get to pretty close to 65% on VMware.

Hock, in the language for the approvals from China, they noted some restrictive conditions and there were some protections around some sensitive information from your competitors. Can you detail what these are? And does this change your view on the synergies you can drive, either cost or more importantly, revenue? Thanks.

No. I think those conditions are pretty well laid out on the website of the relevant authorities. I frankly don’t think that it’s very appropriate for me to sit here and repeat all those conditions again. It’s right on the website, and that’s what it is.

Okay. And it doesn’t make you think any differently about the synergies that you can drive from the business?

No.

Thank you for the question. Congratulations on the quarter and on closing the VMware deal. It seems that the cost of capital has increased since the announcement of the deal. Now that this is finalized, does this impact your approach to capital allocation moving forward? It appears that you have increased the dividend and restarted share repurchases now that the deal is closed. Will you be prioritizing repurchases more, or is Broadcom still focused on acquisitions as you work to reduce debt?

We are continuing our share repurchase program as promised, so we are definitely buying back shares. As Broadcom, we will quickly reduce our debt and keep all options in mind.

Chris, to elaborate on that, we financed part of the VMware acquisition with cash because it took longer than expected. This flexibility allows us to provide dividends to the new shareholders from VMware while also fulfilling our commitment to the shareholders to buy back $7 million of shares for the remainder of calendar 2023.

Great. Thanks. And maybe a quick follow-up. Thoughts on just why you didn’t offer next quarter in favor of the full year? And if you had any thoughts on the shape of revenue for next year, whether it’s back half loaded significantly or pretty linear?

We recently acquired a significant company and are in the process of restructuring its business model to a subscription-based model, as mentioned by Kirsten. This change points to a clear growth trajectory for revenue driven by the transition to subscriptions and the introduction of higher-value products. Given these factors, it makes more sense for us to provide a full year forecast rather than a three-month outlook. Transition-related spending could fluctuate, and revenue may accelerate or slow down; thus, setting a three-month timeline for guidance might not be in the best interest of our shareholders. However, we feel much more confident in our ability to reach our targets by the end of the year.

Hock, I had a question on the semiconductor business and specifically on the non-AI side of things for both networking and server storage connectivity. As you noted, you’re obviously going through a cyclical correction. Historically, you’ve had a pretty good understanding of where customer inventory is. And when we simply look at their balance sheets for the public companies, inventory is pretty elevated, particularly on the networking side. What is your interpretation of where inventory is for your products? And how should we think about the timing and pace of recovery as you look into 2024? Thank you.

On our books, you can see inventory for our products is pretty good, right, especially compared to our peers, and that’s because we keep it tight. Out in customers, and we don’t sell through channels, we don’t sell much through channels. We usually do a lot of it direct to our logic customers. We feel they are in good shape, relatively speaking. We are still in good shape. Now, if you ask me, maybe server storage, that could be a little excessive, but not broadband and certainly not in networking. So overall, on our products, we still feel rather good about it. And the best indication is the level of our own inventory on our own books. But what we do see is customers are perhaps much more cautious about buying more stuff, not just because they have too much of my inventory, I think because they have too much of everybody else’s inventory out there. We tend to see some caution in the way they choose to buy. Having said that, we’re still keeping to our lead times.

And Hock, any comment on sort of the timing or the shape of the recovery in ‘24?

If only I know. I mean, I’ll be speculating to say second half of ‘24 things will start looking better compared to the first half of ‘24.

Hock, I was hoping you may discuss the reason for divesting EUC and Carbon Black. And maybe more importantly, as you think about the growth rate off this $12 billion, Kirsten, could you discuss the opportunity you see in front of you as DRAM memory pooling brought in from the adoption of CXL within data centers that would seem to be a very big opportunity for VMware? Thank you.

What was the first question again? Sorry. Okay. Why did we choose to sell End-User Computing and Carbon Black? They are good assets, no doubt about it. They are stable and sustaining. The reason for their sale aligns with our strategy. We concentrate on acquisitions that deliver the most value to our business model and avoid distractions from noncore focus. For us, VMware is centered on core areas like data centers, core networks, and core computing. Therefore, we plan to invest in and direct our sales and R&D efforts toward those core areas of VMware Cloud Foundation. While End-User Computing and Carbon Black are good assets, we prefer to divest them now. We will find suitable new owners since there are many interested parties willing to take these assets. We will be careful about where we place these assets because many customers of these two segments are also customers of VMware Cloud Foundation.

Hock, I want to start by mentioning that I come from a semiconductor background rather than software. I'm curious about the strategy to transition VMware's customer base to subscription models and how this compares to your experiences with CA and Symantec. Do you think the conversion process will take a similar amount of time and achieve the same level of success, or are there notable differences in aspects such as the customer base, the duration of the long tail beyond the Fortune 1000, or the types of technologies involved? Are there any key similarities or differences in the approach that we should consider regarding the pace of this business conversion? Thank you.

No. These are very different assets. I'm not saying one is necessarily better than the other, just different. In CA, particularly where we have a presence in mainframe and some distributors, we focus heavily on our core customer base, which represented about 70% of our overall revenue at that time. We prioritize supporting these customers and provide them with excellent support along with growing feature requests in the area. We also focus on Symantec, which serves a small group of core customers. A significant aspect of CA's technology, especially in mainframe, is that it handles many legacy applications that remain very relevant today. Customers prefer to operate these applications using mainframe tools because modernizing or changing them does not make sense for their specific reasons. On the other hand, VMware offers a product that is both contemporary and forward-looking. It allows the creation of a virtualized cloud environment within a company’s own data center, making it suitable for any global business. Transitioning to a public cloud is fully virtualized and highly resilient when utilizing a software-defined environment. With VMware, we are providing a similar virtualization experience for on-premises data centers tailored for companies that already have workloads running on VMware products, specifically those built on VMware Cloud Foundation. This approach gives enterprises the chance to implement a hyperscaler within their own premises. That’s our straightforward plan.

Hock, in the past, I think we’ve all been aware that there’s one major customer on the accelerated compute side. I suspect that he’s broadened and deepened perhaps and hoping you can give us some characterization of that, maybe the number of customers or projects, how diversified it is at this point, that would really help. Thank you.

Yes, it has. This aligns with what I mentioned earlier about how merchant silicon will succeed. However, with the rapid evolution of AI, particularly in large language models and generative AI, it's clear that in hardware, one size does not fit all. Different models require tailored solutions. For some of the hyperscalers that have the necessary resources and scale to develop customized hardware that aligns with their foundational and application models, we are starting to observe the impact of that. Beyond this, I'd prefer not to share further details at this time as we are under a non-disclosure agreement.

Congratulations on closing the VMware deal, Hock. I know you've been working on that for a while. Your management has had a lot of time to evaluate this deal during the closing process. I'm curious about what you have found most satisfying so far and what you consider will be the biggest challenge in the integration over the next 12 months.

Over the past 18 months, we have been working towards closing this deal since the announcement. You are correct that we had a significant opportunity, and I want to express my appreciation for the supportive management team at VMware that has engaged with us exceptionally well. This has involved a lot of planning and contemplation. It has also afforded me the chance to connect personally with at least 150 CIOs globally from VMware's largest customers over the last 12 to 16 months. One clear takeaway is that the VMware core product, particularly the VMware Cloud Foundation software stack, which facilitates the virtualization of not just computing but also storage, networking, and the orchestration and management layer across the entire stack, is highly sought after by CIOs and heads of infrastructure at many large companies. They want the capability to deploy solutions that manage their diverse data centers, which currently feature a mix of virtualization, compute, and various hardware vendors, under a single abstraction layer. This approach not only reduces hardware expenses but also leads to significant cost savings in management. This illustrates the value of the technology VMware offers. The products are in place, and our focus is on execution, as highlighted in the numbers Kirsten has presented regarding the first year following the completion of this acquisition.

Thank you, operator. In closing, Broadcom currently plans to report its earnings for the first quarter of fiscal ‘24 after close of market on Thursday, March 7, 2024. A public webcast of Broadcom’s earnings conference call will follow at 2:00 p.m. Pacific. That will conclude our earnings call today. Thank you all for joining. Operator, you may end the call.