BRCM

Broadcom Corporation (BRCM)

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Broadcom Corp (BRCM)

Q4 2009 Earnings Call

February 03, 2010 04:45 am ET

Executives

Peter Andrew - VP, Corporate Communications

Scott McGregor - President and CEO

Eric Brandt - CFO

Analysts

Sumit Dhanda - Banc of America

Craig Berger - FBR Capital Markets

Craig Ellis - Caris & Company

Adam Benjamin - Jefferies

Ross Seymore - Deutsche Bank

Uche Orji - UBS

Tim Luke - Barclays Capital

Jim Schneider - Goldman Sachs

Ruben Roy - Pacific Crest

David Wong - Wells Fargo

Allan Mishan - Brigantine Advisors

Edward Snyder - Charter Equity Research

David Wu - GC Research

Suji De Silva - Kaufman Brothers

Srini Pajjuri - CLSA

Brian Blair - Wedge Partners

Presentation

Operator

Welcome to the Broadcom fourth quarter and year 2009 financial results conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session.

As a reminder, this conference is being recorded, Wednesday, February 3, 2010. Your speakers for today are Scott McGregor, Broadcom's President and Chief Executive Officer, Eric Brandt Broadcom's Chief Financial Officer, and Peter Andrew, Vice President of Corporate communications. I will now turn the call over to Mr. Peter Andrew. Mr. Andrew, you may begin.

Peter Andrew

Thank you very much, Monica. During this call we will discuss some factors that are likely to influence our business going forward. These forward-looking statements include guidance we will provide on future revenue, gross margin, and operating expense targets for the first quarter of 2010 and any other future periods as well as statements about prospect for our various businesses, potential market share, and the development status and planned availability of new products.

You should know that the guidance we provide today is based upon forecasts that require us to make certain estimates, judgments, and assumptions using the information that is available to us at this time. It should be clearly understood that our actual performance and financial results may differ substantially from our forecasts and the other forward-looking statements we make today.

Specific factors that may affect our business and future results, including among other things general economic conditions, are discussed in the risk factors section of our 2009 Annual Report on Form 10-K and subsequent SEC filings. A partial list of these important risk factors is set forth at the end of today's earnings press release.

As always, we undertake no obligation to revise or update publicly any forward-looking statement except as required by law. Please refer to the Investors Section of our website at www.broadcom.com for additional historical, financial and statistical information, including the information required by SEC Regulation-G.

In addition, we've placed a slide deck, which is available now in the Investor section of our website that is on the right hand side of the page under the Q4 2009 Earning Information. For increased transparency we have incorporated additional tables and information regarding our future guidance, historical performance and the last three years of segment operating income.

With that, let me now turn the call over to Scott.

Scott McGregor

Good afternoon and thanks for joining us today. Broadcom continues to execute well in a difficult economy and executed particularly well in the fourth quarter with substantially better results than we originally anticipated, driven by upside demand in several of our businesses.

For the fourth quarter, we reported net revenue of $1.34 billion, which is up over 7% from our third quarter. Broadcom's quarterly revenue reached a record level and is up 57% from the tough quarter in Q1 2009. Sequential revenue growth in the quarter was a result of overall strength in our broadband and enterprise businesses, which were up 14% and 18% respectively offset by an expected seasonal decline in our mobile and wireless business.

The upside in revenue was driven by new product ramps, normal customer order patterns, and a better than expected holiday season along with strong demand from customers in Asia. Broadcom far surpassed our 2009 financial goals of gaining market share, while at the same time generating strong cash flow from operations.

Broadcom's annual revenue declined approximately 4% year-over-year significantly better than the overall industry decline of 9 %. We generated $987 million in cash flow from operations in 2009, far surpassing our $300 million goal for the entire year and reached a record level for Broadcom, despite the difficult market environment entering the year.

Broadcom's goal remains to create great products that enable us to grow our market share and deliver better than industry revenue growth. Broadcom has also been successful in generating strong sequential growth and operating margin leverage and is committed to returning to our financial model as outlined on our Analyst Day last December.

We believe we can achieve all of these objectives while at the same time initiating return of capital through our investors and confidence in our business is the foundation for the announcement we made this afternoon to initiate a quarterly dividend.

I will now turn the call over to Eric for details on the fourth quarter results and first quarter guidance.

Eric Brandt

Thanks, Scott. As Peter mentioned, please refer to the segment breakout data on the Investor Section of our website for additional financial information that will supplement my financial commentary. We have included data to reconcile product gross margin and operating expense as well as modified the presentation of our income statement to further breakout revenue and income related to our intellectual property licensing.

Moving to the financial overview, to summarize for Q4, total revenue of $1.34 billion including $1.28 billion in product revenue. Q4 total net revenue was up approximately 19% from prior year and 7% from Q3 levels. Total gross margin improved 220 basis points to 53.1%. Product gross margin in Q4 increased 240 basis points to 50.9% versus 48.5% in Q3.

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