BRCM

Broadcom Corporation (BRCM)

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Broadcom (BRCM)

Q3 2012 Earnings Call

October 23, 2012 4:45 pm ET

Executives

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

Analysts

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

Harlan Sur - JP Morgan Chase & Co, Research Division

Glen Yeung - Citigroup Inc, Research Division

James Schneider - Goldman Sachs Group Inc., Research Division

John W. Pitzer - Crédit Suisse AG, Research Division

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

Christopher J. Muse - Barclays Capital, Research Division

Ross Seymore - Deutsche Bank AG, Research Division

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

Emily Scudder

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

Daniel A. Berenbaum - MKM Partners LLC, Research Division

Srini Pajjuri - Credit Agricole Securities (USA) Inc., Research Division

Vivek Arya - BofA Merrill Lynch, Research Division

Anil K. Doradla - William Blair & Company L.L.C., Research Division

Alex Gauna - JMP Securities LLC, Research Division

Doug Freedman - RBC Capital Markets, LLC, Research Division

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

Steven Chin - UBS Investment Bank, Research Division

Jonathan Steven Smigie - Raymond James & Associates, Inc., Research Division

Shawn R. Webster - Macquarie Research

Ruben Roy - Mizuho Securities USA Inc., Research Division

Presentation

Operator

Welcome to the Broadcom third quarter earnings call. My name is Anthony, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I would now like to turn the call over to Chris Zegarelli. Mr. Zegarelli, you may begin.

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 that 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 and our 10-Q, which were furnished and filed, respectively, with the SEC today and are available on our website.

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 a reconciliation between the 2 for the periods reported in the release.

Please also see the Investors section of our website at www.broadcom.com/investors 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. We're pleased to report quarterly revenue -- record revenue, record cash flow from operations and model profitability in the September quarter. Revenue came in at $2.13 billion, which was up 8% sequentially and at the high end of the guided range. Q3 was the first quarter in the company's history exceeding $2 billion. Non-GAAP earnings per share of $0.79 were up 10% over Q2, and cash flow from operations was a record $621 million.

All 3 of our businesses grew in Q3. Mobile and Wireless grew almost 14% sequentially and crossed $1 billion of quarterly revenue for the first time. We continue to see strong demand for connectivity solutions, while our 3G baseband business continues to grow with the ramp of our latest 40-nanometer platform.

Despite a challenging economic environment, we're benefiting from multiple attractive secular themes, including increasing WiFi attach rates, exponential growth in network traffic and strong adoption of high-definition cable and satellite solutions in emerging markets.

This quarter, we introduced the industry's highest density, [indiscernible] Bragg switch and the industry's first 28-nanometer multicore communications processors. Broadcom's technology innovation has created a product portfolio that's stronger than ever and drives growth from new product cycles going forward.

I'll discuss these trends and announcements later in the call. But first, I'd like to turn it over to Eric for details on the third quarter financial results and fourth quarter guidance. Eric?

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 Q3, total record revenue of $2.13 billion, including product revenue of $2.08 billion. Q3 total net revenue was up 8% sequentially and 8.7% year-over-year. Q3 non-GAAP product gross margin was 52.1%. Q3 GAAP product gross margin was 48.8%. Non-GAAP and GAAP R&D plus SG&A expenses were up $28 million and $21 million, respectively, from Q2 levels. Q3 non-GAAP EPS was $0.79 or $0.02 above First Call Consensus of $0.77 per share. Q3 GAAP EPS was $0.38 per share, including $0.21 of acquisition-related and non-recurring adjustments outlined in our earnings release. Cash flow from operations for Q3 was a record $621 million. Our cash and marketable securities balance at the end of the quarter was $3.2 billion.

Moving to revenue and gross margin. In July, we said that we expected Q3 total net revenue to be $2 billion to $2.15 billion. We delivered revenue at the upper end of the range at $2.13 billion. The Broadband Communications segment was up a bit less than expected, increasing 2.6% from Q2 principally driven by growth in sales of set-top box platforms. Revenue from our Infrastructure & Networking segment was a bit stronger than anticipated, increasing 5.2% sequentially, driven principally by stronger-than-expected sales of switching products. Our Mobile and Wireless segment was up 13.7% from Q2 to a record $1.02 billion, which was slightly higher than anticipated driven primarily by strength in wireless connectivity.

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