Broadcom Inc (AVGO) — Q4 2024 Earnings Call Transcript

Thank you, Cherie, 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 and fiscal year 2024. 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 then audio replay of the conference call can be accessed for one year through the investor section of Broadcom's website. During the prepared comments, Hock and Kirsten will be providing details of our fourth quarter and fiscal year 2024 results, guidance for our first quarter of fiscal year 2025, 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. Well, this has been a transformative year for Broadcom. Our fiscal year 2024 consolidated revenue grew 44% year-over-year to a record $51.6 billion. Now, excluding VMware, our revenue grew over 9% organically. So fiscal 2024 operating profit, excluding transition costs grew 42% year-over-year. And we returned a record $22 billion in cash to our shareholders, up 45% year-on-year through dividends, buyback and eliminations. There were two significant drivers of this transformation this year. First, we closed the acquisition of VMware in the early weeks of fiscal 2024 and have focused VMware on its technology leadership in data center virtualization. The integration of VMware is largely complete. Revenue is on a growth trajectory and operating margin reached 70% exiting 2024. We are well on the path to delivering incremental adjusted EBITDA at a level that significantly exceeds the $8.5 billion we communicated when we announced the deal. We are planning to achieve this much earlier than our initial target of three years. The second driver in 2024 was AI. Our AI revenue, which came from strength in custom AI accelerators or XPUs and networking, grew 220% from $3.8 billion in fiscal 2023 to $12.2 billion in fiscal 2024 and represented 41% of our semiconductor revenue. This drove semiconductor revenue up to a record $30.1 billion during the year. Okay, now let's move on to the fourth quarter and give you more color. Consolidated net revenue of $14.1 billion was up 51% year-on-year, excluding VMware. Organic growth was 11%, and operating profit of $8.8 billion was up 53% year-on-year. For the details on infrastructure software in Q4, this infrastructure software segment revenue was $5.8 billion, up 196% year-on-year, flat sequentially, even as multiple deals slip over into Q1. In VMware, we booked $21 million total CPU costs in a quarter versus $19 million a quarter ago. Of these, about 70% represented VMware Cloud Foundation or VCF, the full software stack virtualizing the entire data center. And this translated into Annualized Booking Value, or ABV as we call it, of $2.7 billion for VMware in Q4 up from 2.5 billion in Q3. Since closing the acquisition just over a year ago, we've signed up over 4,500 of our largest 10,000 customers for VCF. VCF enabled customers to deploy private cloud environments on-prem, as an alternative to running their applications in the public cloud. And in doing all this, we continued to drive down spending in VMware. We brought spending down to $1.2 billion in Q4, down from $1.3 billion in Q3. By reference, VMware spending was averaging over $2.4 billion per quarter prior to the acquisition with operating margin less than 30%. Moving on to Q1 outlook for infrastructure software, we expect Q1 revenue to grow to $6.5 billion, up 11% sequentially and 41% up year-on-year. For VMware, ABV is expected to exceed $3 billion compared to $2.7 billion in the preceding quarter. Turning to semiconductors, let me give you more details by end markets. Networking Q4 revenue of $4.5 billion grew 45% year-on-year. AI networking revenue, which represented 76% of networking, grew 158% year-on-year. This was driven by a doubling of our AI XPU shipments to our three hyperscale customers and four times growth in AI connectivity revenue driven by our Tomahawk and Jericho shipments globally. In Q1, we expect the momentum in AI connectivity to be as strong as more hyperscalers deploy Jericho3-AI in their fabrics. Our next generation XPUs are in 3 nanometers and will be the first of its kind to market in that process node. We are on track for volume shipment at our hyperscale customers in the second half of fiscal 2025. Turning on to server storage. From its bottom six months ago, Q4 server storage connectivity revenue has recovered some 20% to $992 million. And in Q4, we expect server storage revenue to continue to grow. Turning to wireless, as we expected, seasonal launches by our North American customer drove Q4 wireless revenue to $2.2 billion, up 30% sequentially. This was up 7% year-on-year because of higher content. We continue to be very engaged with this customer in multi-year roadmaps across various technologies we have leadership in, including RF, WiFi, Bluetooth, sensing, and touch. In Q1, reflecting seasonality, we expect wireless to be down sequentially, but still be flat year-on-year. In Q4, Broadband reached bottom at $465 million, down 51% year-on-year. We have seen significant orders across multiple service providers during this quarter. And reflecting this trend, we now expect broadband to show recovery beginning in Q1. Finally, on to industrial, which only represents 1% of the total revenues. Measured on resales, Q4 industrial resales of $173 million declined 27% year-on-year. We only expect a recovery in the second half of 2025. Before I sum up and provide you Q1 fiscal 2025 guidance, let me outline a longer-term perspective on how we see our semiconductor business evolving over the next three years. On the broad portfolio of non-AI semiconductors with its multiple end markets, we saw a cyclical bottom in fiscal 2024 at $17.8 billion. We expect a recovery from this level at the industry's historical growth rate of mid-single digits. In sharp contrast, we see our opportunity over the next three years in AI as massive. Specific hyperscalers have begun their respective journeys to develop their own custom AI accelerators or XPUs, as well as network these XPUs with open and scalable Ethernet connectivity. For each of them, this represents a multi-year, not a quarter-to-quarter journey. As you know, we currently have three hyper-scale customers who have developed their own multi-generational AI XPU roadmap to be deployed at varying rates over the next three years. In 2027, we believe each of them plans to deploy 1 million XPU clusters across a single fabric. We expect this to represent an AI revenue Serviceable Addressable Market, or SAM, for XPUs and networking in the range of $60 billion to $90 billion in fiscal 2027 alone. We are very well positioned to achieve a leading market share in this opportunity and expect this will drive a strong ramp from our 2024 AI revenue base of $12.2 billion. Keep in mind, though, this will not be a linear ramp. We'll show quarterly variability. To compound this, we have been selected by two additional hyperscalers and are in advanced development for their own next-generation AI XPUs. We have line of sight to develop these prospects into revenue-generating customers before 2027 and could therefore expand the SAM significantly. So the reality going forward for this company is that the AI semiconductor business will rapidly outgrow the non-AI semiconductor business. Recognizing this, we will now shift to guiding our semiconductor business by AI and non-AI revenue segments. So summarizing Q4. Semiconductor revenue of $8.2 billion grew 12% year-on-year and 13% sequentially. Q4 AI revenue grew a strong 150% year-on-year to $3.7 billion. Non-AI semiconductor revenue declined by 23% year-on-year to $4.5 billion, but still a 10% recovery from the bottom of six months ago. Now moving on to our outlook for Q1. We expect semiconductor revenue to grow approximately 10% year-on-year to $8.1 billion. AI demand remained strong and we expect AI revenue to grow 65% year-on-year to $3.8 billion. We expect non-AI semiconductor revenue to be down about mid-teens percent year-on-year. And so in total, summing this all up, we're guiding consolidated Q1 revenue to be approximately $14.6 billion, up 22% year-on-year, and we expect this will drive Q1 adjusted EBITDA to approximately 66% of revenue.

Thank you, Hock. Let me now provide additional detail on our Q4 financial performance. Consolidated revenue was $14.1 billion for the quarter, up 51% from a year ago. Excluding the contribution from VMware, Q4 revenue increased 11% year-on-year. Gross margins were 76.9% of revenue in the quarter, up 260 basis points from the year-ago quarter. R&D was $1.4 billion, and consolidated operating expenses were $2 billion, up year-on-year primarily due to the acquisition and consolidation of VMware. Q4 operating income was $8.8 billion and was up 53% from a year ago, with operating margin at 63% of revenue. Adjusted EBITDA was $9.1 billion or 65% of revenue. This figure excludes $156 million of depreciation. Now a review of the P&L for our two segments, starting with semiconductors. Revenue for our Semiconductor Solutions segment was $8.2 billion and represented 59% of total revenue in the quarter. This was up 12% year-on-year. Gross margins for our Semiconductor Solutions segment were approximately 67%, down 220 basis points year-on-year, driven primarily by a higher mix of AI XPUs. Operating expenses increased 11% year-on-year to $914 million on increased investment in R&D, resulting in semiconductor operating margins of 56%. Now moving on to infrastructure software. Revenue for infrastructure software was $5.8 billion, up 196% year-on-year primarily due to the contribution of VMware and represented 41% of revenue. Gross margins for infrastructure software were 91% in the quarter, and operating expenses were $1.1 billion in the quarter, resulting in infrastructure software operating margin of 72%. Excluding transition costs, operating margin was 73%. Moving on to cash flow. Free cash flow in the quarter was $5.5 billion and represented 39% of revenues. Excluding cash used for restructuring and integration of $506 million, free cash flows of $6 billion were up 22% year-on-year and represented 43% of revenue. Free cash flow as a percentage of revenue has declined from the same quarter a year ago, due to higher cash interest expense from debt related to the VMware acquisition, higher cash taxes due to a higher mix of U.S. taxable income, the continued delay in the reenactment of Section 174, and recent proposed regulations on corporate AMT. We spent $122 million on capital expenditures. Days sales outstanding were 29 days in the fourth quarter compared to 31 days a year ago. We ended the fourth quarter with inventory of $1.8 billion, down 7% sequentially. We continue to remain disciplined on how we manage inventory across the ecosystem. We ended the fourth quarter with $9.3 billion of cash and $69.8 billion of gross principal debt. During the quarter, we replaced $5 billion of floating rate debt with new senior notes. We use cash on hand to pay a mix of senior notes, which came due in Q4 and additional floating rate debt, reducing debt by $2.5 billion. Following these actions, the weighted average coupon rate and years to maturity of our $56 billion in fixed-rate debt is 3.7% and 7.6 years, respectively. The weighted average coupon rate and years to maturity of our $14 billion in floating rate debt is 5.9% and 3.2 years, respectively. We expect to repay approximately $495 million of fixed-rate senior notes coming due in Q1. Now let me recap our financial performance for fiscal year 2024. Our revenue hit a record $51.6 billion, growing 44% year-on-year, including VMware, and 9% organically, excluding VMware. Semiconductor revenue was $30.1 billion, up 7% year-over-year. Infrastructure software revenue was $21.5 billion, up 181% year-on-year and up 90% year-on-year, excluding VMware. Fiscal 2024 adjusted EBITDA was $31.9 billion and represented 62% of revenue. Free cash flow grew 10% year-on-year to $19.4 billion and up 22% year-on-year to $21.9 billion, excluding restructuring and integration costs.

Turning to capital allocation. For fiscal 2024, we spent $22.2 billion, consisting of $9.8 billion in the form of cash dividends and $12.4 billion in share repurchases and eliminations. Aligned with our ability to generate increased cash flows in the preceding year and 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 2025 to $0.59 per share on a split-adjusted basis, an increase of 11% from the prior quarter. We intend to maintain this target quarterly dividend throughout fiscal '25, subject to quarterly board approval. This implies that our fiscal 2025 annual common stock dividend is set to be a record $2.36 per share on a split-adjusted basis, an increase of 12% year-on-year. I would like to highlight that this represents the 14th consecutive increase in annual dividends since we initiated dividends in fiscal 2011. Now moving on to guidance. From a year-on-year comparable basis, keep in mind that Q1 of fiscal '24 was a 14-week quarter and Q1 of fiscal '25 is a 13-week quarter. As we are now past one year following the close of the VMware acquisition starting in Q1 of fiscal 2025, we will no longer break out VMware revenue and costs on a stand-alone basis. We will continue to report infrastructure software segment revenue and profitability which includes Brocade Fibre Channel SAN, CA Mainframe Enterprise Security, and VMware. Our guidance for Q1 is for consolidated revenue of $14.6 billion, with semiconductor revenue of $8.1 billion, up approximately 10% year-on-year and infrastructure software revenue of $6.5 billion, up 41% year-on-year. We expect Q1 adjusted EBITDA to be a record 66% and Q1 non-GAAP diluted share count to be approximately 4.9 billion shares. For modeling purposes, we expect Q1 consolidated gross margins to be up 100 basis points sequentially on the higher revenue mix of infrastructure software and product mix within semiconductors. Note that consolidated gross margins through the year will be impacted by the revenue mix of infrastructure software and semiconductors and product mix within semiconductors. We expect the non-GAAP tax rate in fiscal year 2025 to be approximately 14.5% as tax deductions related to interest expense are reduced, as we pay down and refinance debt under more favorable interest terms. GAAP net income and cash flows in Q1 will be impacted by higher taxes, restructuring and integration-related cash costs due to the VMware acquisition. That concludes my prepared remarks. Operator, please open up the call for questions.

Hi, thanks so much for taking my question. It's kind of a clarification question. I thought I heard you say that AI networking revenue was 76% of networking. I just couldn't get that math right, but maybe the broader question is you've seen growth off that low point in April in AI. Can you just talk about ASIC strength versus networking, the trends you're seeing in kind of October into January?

Well, that's a very interesting question. Both were growing, not at the same rate, but we've been shipping, I believe a lot more of network AI connectivity, networking components in the back half of this year, compared to the first half of this fiscal year. And we suspect a lot of that will continue in the first half of next fiscal year before more XPUs, as I indicated, more of the new generation of 3-nanometer XPUs will start ramping very much in the back half of '25.

Yeah, good afternoon. Thank you for taking my question. I guess, Hock I wanted to hit on the $60 billion to $90 billion revenue range for fiscal '27 for AI. I was hoping you could speak to the mix you see there between XPU and networking. And within that construct, are you including all kinds of the customers that you see out there in hyperscale and vertically integrated consumers? Or any sort of help in terms of what you're including in that potential mix would be very helpful. Thank you.

Thank you. Well, thanks for the question. Give me an opportunity here to clarify and be very specific. First, on the total dollars, the revenue opportunity for us is what I call Serviceable Addressable Market, as we all term SAM. Not TAM, SAM, and it is Serviceable Addressable Market for three of our hyperscale customers. That's it. It's a very narrow Serviceable Addressable Market we're talking about. And we're talking about XPUs and AI connectivity at that scale, AI connectivity could probably – we estimate to run approximately close to 15% to 20% of the dollar content.

Great. Thank you. I wonder if you could talk to the XPU market. How are your customers sort of reacting to some of the rack scale products from your merchant competitor from NVIDIA, how do they sort of get the connectivity to multiple XPUs inside the rack, just how does that present a competitive dynamic for you? Thanks.

Everyone is trying to understand how to connect a cluster using a single fabric of 10,000 XPUs or GPUs and scale that up to 100,000, 500,000, and eventually 1 million. This presents a new challenge in terms of architecture. When you set up these racks, you engage in what's known as scale-up, and as you connect racks together, which is necessary to reach numbers like 1 million or even 100,000, you refer to it as scale-out. This architecture is continuously evolving. However, I believe that our hyperscale customers have, at this stage, figured out how to achieve this. As a result, we have a roadmap that aims to expand from a 100,000 to a 1 million XPU cluster based on a similar architecture over the next three to four years.

Hi, good afternoon. Thanks for taking my question. Hock, I know the team has been putting out an AI guide for fiscal '25. And I appreciate the multi-year sort of SAM opportunity outlook. But for this year, can we look at what your customers on the networking and custom accelerators are thinking about from a data center CapEx spending perspective? So for example, our latest roll up is that the top four cloud and hyperscalers are going to grow their CapEx, 35%, 40% in fiscal '25. I would expect that your AI business would sort of closely mirror this trend, maybe even think about it as a base case when we think about Ethernet taking share from InfiniBand, ASICs growing faster than merchant GPUs, maybe the profile of your AI business can go even faster than the CapEx trend, either way, plus or minus, is that how we should think about the growth in the AI business roughly in-line with CapEx growth trends of your large cloud and hyperscale customers?

Harlan. No, it doesn't. I mean, I think the hyperscalers tend to give you an overall CapEx numbers. I'm not sure they really break out between what's AI and what's non-AI out there. And clearly, the spend in AI outstrips the spend in non-AI even on the CapEx. And so no, I won't necessarily stop at that.

Hi, everyone. Thank you for taking my question. I have a tactical question regarding the software pushouts into Q1. Should we expect those pushouts to roll off as we move into Q2 and the latter half of the year? What are the implications for the software shape for the year and gross margins? I'm speculating that in the latter half, software might be slightly weaker compared to Q2, while XPU could be stronger. Should we anticipate the gross margin trajectory from the current elevated base to ease as we reach the latter half of the year? Any insights you can provide on the software shape concerning the pushouts and their impact on revenues and gross margins would be appreciated.

It's simply a minor setback. I believe you're overanalyzing this project. It's just a small issue; when you look closely, you can see the differences in growth between Q4 and the reacceleration in Q1. That's all there is to it.

Should Q2 be lower because you had push out into Q1 is what I'm asking.

No, it doesn't. Not Q2. No. I don't think it will have a material impact on the rest of fiscal '25.

Do you think software can kind of hold at these levels or even grow off of these like $6.5 billion levels as we go through the year?

I'm not giving guidance. I might remind you for the rest of the year. I'm just giving you guidance for Q1. But I'm just telling you your analysis is kind of defective.

I've been told that before. Okay, thank you Hock.

Thank you.

Hi, thanks a lot. Great quarter, Hock. I wanted to ask you about the $60 billion to $90 billion with a bit more clarity. Previously, you mentioned a cumulative total addressable market from your customers. Is this a run rate total addressable market or a cumulative one? Should we take the $12.2 million, add some growth for the next two years, and consider it in that way? Or should we look at a share of a $75 billion total addressable market and your revenue yield? Also, could you clarify that you're not including those two new customers? Do those customers have the same $20 billion to $30 billion total addressable market each that the current three do, or do you believe they are smaller or larger? Sorry for the multipart question.

No, you asked a question that was similar to an earlier one, but I'm happy to clarify. The $60 billion to $90 billion figure is not referring to cumulative SAM or TAM anymore. Instead, we are presenting a specific destination or milestone, which is three years away, in 2027, possibly extending slightly into 2028. We anticipate that the deployment of those large-scale AI clusters, each operating on a single fabric to handle large LLM models, will generate between $60 billion and $90 billion during that one-year period across all three clusters. Regarding the second part of your question, it’s possible that at least one of them may fit that criterion. However, I advise against assuming that one plus one equals two in this context. We do not view those figures as validated in our model as customers, so please refrain from adding that to the $60 billion to $90 billion in SAM that I mentioned.

Hi, thanks for letting me ask a question. I want to talk about the cash return side of things, a great job on the dividend increase. The other 50%, is fiscal '25 a year where you're going to still be paying down debt? Share repurchases in the mix? Or Hock, you mentioned that VMware, the integration is largely now behind you? Usually that puts you on the prowl looking for deals. Is that something we should, in general, think about or the regulatory issues that are still a concern? Just trying to figure out what that other 50% is going to go towards this year.

To begin with, yes, the other half of the cash that will be generated, which is beyond dividends, will have limited uses. We have typically stated that one use is to strengthen the balance sheet for potential acquisitions. However, since we are acquiring large companies, it's fair to say that this 50% cash might not be sufficient. As Kirsten mentioned in her prepared comments, the most likely use of that cash will be to pay down debt. We do plan to allocate part of that 50% of free cash flow, which is not designated for dividends, to reduce our debt, especially given the size of the debt we have assumed since acquiring VMware.

Yes, Ross, it's Kirsten. We want to focus on reducing interest expense. So we'll go after those term loans. So yes, the focus will be on paying down debt.

Thanks for taking my question. Hock back to AI. What do you think is the SAM in 2024, so we can get a baseline view of what your $12.2 billion in sales represent and is your assumption that you maintain the share, right? You grow it? Or what happens to that share over time? And then sort of related question to that is what happens to your semiconductor gross margins if AI grows, right to such an extent? Because you gave us a mid-single digit for non-AI and I'm wondering if AI gets to be such a big part of semis, what happens to gross margin. So both kind of the baseline of what SAM was this year and what happens to your share and margins over time?

That's a very insightful question regarding our expectations for the baseline in three years, specifically concerning our three key customers. I estimate that for 2024, the revenue will be around $15 billion to $20 billion, which will help us grow towards the $60 billion to $90 billion range. As for margins, I would advise not to focus too much on gross margin, because while it may decrease in the semiconductor sector, the critical factor is that revenue will leverage significantly against the investments we make to generate it, leading to improved operating margins from our current position.

Yes. Hi. First of all, guys, huge congratulations on successfully integrating VMware so much ahead of your time frame. And Hock, I had a two-part question. Is there a simple dollar metric that we can think of for network attached to XPUs, for example, is $1 of networking to $1 of XPUs? And then for my question, in one of your posts, you talked about sovereign data centers and VMware. I guess my question is, is there a play for Broadcom outside of the software piece? In other words, are you noticing that sovereign guys are wanting to use XPUs or are they strictly sticking to merchant silicon?

Let me address your question in reverse order, starting with the easier one. The sovereign players are similar to the enterprise market, which primarily consists of merchant solutions. These sovereign entities typically lack the ability to develop not only the hardware but more crucially, the software framework necessary to enable transistors in hardware to interface with high-level languages, which are essential for the operation of large language models and AI applications. This will be accomplished primarily through XPUs. Regarding your first question about the ratio of AI connectivity and networking to XPUs versus compute, this is a dynamic figure due to changes in cluster costs. However, certain ratios are worth noting. A key aspect to consider is the distinction between scaling up and scaling out. As we grow into a larger single fabric cluster of XPUs or GPUs, the importance of scaling up becomes increasingly significant. The ratio we discuss as we scale up tends to increase almost exponentially. Currently, networking accounts for approximately 5% to 10% of AI content in silicon, but this is projected to rise to 15% to 20% as we approach clusters of 500,000 to 1 million XPUs or GPUs.

Hi, good afternoon. Thank you so much for taking the question. The $60 billion to $90 billion SAM forecast for fiscal '27, Hock, I'm curious if you guys have a view on the TAM. So just want to know how big the SAM is as a percentage of the total opportunity set? And then my main question is you talked about going for leading market share within your SAM, which makes sense. I assume you're not assuming 100% share. So, the value of that $60 billion to $90 billion that you won't be capturing, is that a function of some of your hyperscale customers wanting to capture value internally? Or is that always having a backup or a second source? Is there a low-margin business that you just simply won't pursue? How should we think about the part of the $60 billion to $90 billion that you won't be going after or won't be capturing? Thank you.

To address the broader question, I don't have a clear picture of the total addressable market. My focus isn't on macro trends; instead, I concentrate on individual customer interactions. I try to understand their overall plans, including their product development and consumption patterns, which informs our serviceable addressable market. It's a bottom-up and top-down approach. I only have insights into the customers we are closely collaborating with. Regarding market share, I can't provide specific numbers, but it's evident that there's a vast market opportunity with space for many competitors. Our goal is to capture our fair share, and we are well-positioned with leading technology in this field. We boast a superior combination of technology for XPUs and their connectivity. Our extensive silicon technology resources at Broadcom put us in a strong position with our key customers. We have been cultivating deep relationships with their engineering teams for some time now, working on a multiyear roadmap to help them achieve their ambitions. Our strengths lie in areas such as silicon design, packaging design, and optical technology.

Great. Thanks for taking my question. I want to add my congrats to all the great results this year and for the quarter and outlook. But Hock, this is sort of a stunning turn of events in the last year with what we've been accustomed to thinking of as a sort of mature, slow growth business at its core with all the M&A tacked on to it. And I wonder with the sudden acceleration of the organic business, given your exposure to these capabilities in ASICs to bring AI technologies to customers, does that change your interest level in M&A? And does it change your focus area of potential M&A going forward? Thank you.

No, it doesn't. We remain open, as we always have been, which has been a fundamental aspect of our strategy and business model for the last 10 years. We are always interested in adding valuable franchise assets to our portfolio, whether they are in semiconductors or infrastructure software. As long as these assets meet the rigorous criteria we have set, we would always consider acquiring them and incorporating them into our portfolio. So, no, it hasn't altered our perspective at all.

Hi, Hock. Great results here. I have a question regarding the AI custom silicon side. It appears that of the $17.5 billion total addressable market, you have about 70% share. If we maintain that 70% looking towards 2027, your custom silicon AI revenue could reach around $50 billion in fiscal 2027. Do we have a clear view into fiscal 2026, indicating a solid ramp to hit those numbers, potentially with our plans to produce 1 million XPUs? How do you see that? Thank you.

I don't have a clear enough view to share specific details with you, and we generally don't provide guidance beyond what we do once a year. However, we want to give you an idea of where this journey is leading us, particularly concerning our AI semiconductor revenue trajectory. We have officially decided to focus on AI revenue moving forward, so we want to outline the potential market for AI. While our non-AI revenue has been stable and growing in the mid-single-digit range, AI will not follow that pattern. Therefore, we are taking an unprecedented step now to define a roadmap for the potential AI market. Currently, our market consists of the customers we serve and the end markets we operate in. We are creating this serviceable addressable market, and what we can see extends to 2027. The progression of this journey with each of our customers will vary based on their adoption rates and their own XPUs, which will play a significant role in this. We expect some quarter-to-quarter variability due to having only three customers and the fact that deployments typically happen in large increments. So, my best response is that I can't provide any more clarity beyond what I've already shared.

Thank you, Sheri. Broadcom currently plans to report its earnings for the first quarter of fiscal year 2025 after close of market on Thursday, March 6, 2024. A public webcast of Broadcom's earnings conference call will follow at 2:00 p.m. Pacific Time. That will conclude our earnings call today. Thank you all for joining. Operator, you may end the call.