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Broadcom (BRCM)

Q4 2011 Earnings Call

January 31, 2012 4:45 pm ET


Chris Zegarelli - Director of Investor Relations

Scott A. McGregor - Chief Executive Officer, President and Director

Eric K. Brandt - Chief Financial Officer and Executive Vice President


Ross Seymore - Deutsche Bank AG, Research Division

Glen Yeung - Citigroup Inc, Research Division

Uche X. Orji - UBS Investment Bank, Research Division

James Schneider - Goldman Sachs Group Inc., Research Division

Mark Lipacis - Jefferies & Company, Inc., Research Division

John Pitzer - Crédit Suisse AG, Research Division

Harlan Sur - JP Morgan Chase & Co, Research Division

Vivek Arya - BofA Merrill Lynch, Research Division

Craig Berger - FBR Capital Markets & Co., Research Division

Craig A. Ellis - Caris & Company, Inc., Research Division

Sanjay Devgan - Morgan Stanley, Research Division

Romit J. Shah - Nomura Securities Co. Ltd., Research Division

David M. Wong - Wells Fargo Securities, LLC, Research Division

Ambrish Srivastava - BMO Capital Markets U.S.

Christopher J. Muse - Barclays Capital, Research Division

Christopher Caso - Susquehanna Financial Group, LLLP, Research Division

Stacy A. Rasgon - Sanford C. Bernstein & Co., LLC., Research Division

Tristan Gerra - Robert W. Baird & Co. Incorporated, Research Division

Daniel L. Amir - Lazard Capital Markets LLC, Research Division

Kevin Cassidy - Stifel, Nicolaus & Co., Inc., Research Division



Hello, and welcome to the Broadcom Fourth Quarter and Year 2011 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Tuesday, January 31, 2012. I would now like to turn the call over to Chris Zegarelli, Director of Investor Relations. Please go ahead.

Chris Zegarelli

Thank you, and good afternoon, everyone. Today's call will include prepared remarks by Scott McGregor, our President and Chief Executive Officer; and Eric Brandt, our Executive Vice President and Chief Financial Officer.

This call will include forward-looking statements which involve risks and uncertainties that could cause Broadcom's results to differ materially from management's current expectations. We encourage you to review the cautionary statements and risk factors contained in the earnings release, which was furnished with the SEC today, and is available on our website, and on our 2011 10-K when it is filed. We undertake no obligation to revise or update publicly any forward-looking statement to reflect future events or circumstances.

Additionally, throughout this call, we will be discussing certain non-GAAP financial measures. Today's earnings release and the related current report on Form 8-K describe the differences between our non-GAAP and GAAP reporting and present the reconciliation between the 2 for the periods reported in the release. Please also see the Investor section of our website at for a slide deck that includes additional information disclosed in accordance with SEC Regulation G.

Now it is my pleasure to introduce Broadcom's President and Chief Executive Officer, Scott McGregor.

Scott A. McGregor

Good afternoon, and thanks for joining us today. Broadcom performed well in the December quarter, with somewhat stronger revenue than we anticipated. Our quarterly revenue was $1.82 billion, above the guidance provided in December at our Analyst Day in New York.

At the outset of the year, we established a plan to outgrow the industry while delivering results within our target operating model. I'm pleased to report that we delivered on this goal. Broadcom's annual product revenue increased almost 9% year-over-year, significantly better than the overall industry, which grew in the low single digits.

2011 non-GAAP product operating margin came in at 20.9%, within our targeted range of 20% to 22%. As a result, Broadcom delivered record cash flow from operations of more than $1.8 billion, driving record cash balances of $5.2 billion.

At our Analyst Day, we talked about a few important competitive differentiators that we'll continue to highlight, IP strength, R&D scale, our complete system portfolio and our business model. Broadcom remains focused on enhancing our world-class IP portfolio. Ending 2011, Broadcom had more than 15,900 patents and applications. To put this in context, the U.S. Patent Office recognized Broadcom as receiving the 17th highest number of patents in the U.S. in 2011 among all industries and second among semiconductor companies, excluding memory. Looking forward, Broadcom will continue to leverage our leading IP portfolio into highly leveraged products that power communications from your handset, to the base station, through the network and back to devices in your home.

Broadcom's R&D scale and breadth of complete system solutions enables us to consistently gain share in our market, deliver solid profitability, reinvest in our businesses and return more capital to shareholders. In 2011, we nearly doubled the amount of capital return to shareholders in share repurchases and dividends. Today, we build upon that trend by announcing our second consecutive annual increase in our dividend to $0.10 per quarter.

I'll now turn the call over to Eric for details on the fourth quarter results and first quarter guidance, and then I'll go into details on our business units, and talk about our plans for strategic growth.

Eric K. Brandt

Thanks, Scott. As Chris mentioned, please refer to the data breakout in the Investor section of our website for additional financial information that will supplement my financial commentary.

Moving to the financial overview, to summarize, for Q4, total revenue of $1.82 billion, including $1.76 billion in product revenue. Q4 total net revenue was down 7% sequentially and down 6.4% from prior-year levels. Both GAAP and non-GAAP product gross margin were down slightly from Q3 at 49.3% and 50.6%, respectively.

Q4 GAAP R&D plus SG&A expenses were down $30 million to $636 million. GAAP earnings per share for Q4 were $0.45 per share. Non-GAAP EPS was $0.68 or $0.03 above First Call Consensus of $0.65 per share. Cash flow from operations for Q4 was $482 million. Full year cash flow from operations was a record $1.84 billion. Our cash and marketable securities balance was $5.2 billion.

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