Avago Technologies Limited (AVGO)

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Avago Technologies Ltd (AVGO)

F4Q 2012 Earnings Call

November 29, 2012 5:00 pm ET


Tom Krause - VP Corporate Development

Hock Tan - President and CEO

Doug Bettinger - Senior Vice President and Chief Financial Officer


Terence Whalen - Citi

Ross Seymore - Deutsche Bank

Blayne Curtis - Barclays

Romit Shah - Nomura

Vivek Arya - Merrill Lynch

Stephen Chin - UBS

Chris Danely - JPMorgan

Mark Lipacis - Jefferies

Joanne Feeney - Longbow Research

Ian Ing - Lazard Capital Markets

Aalok Shah - D.A. Davidson

Matt Ramsay - Canaccord Genuity

Sameer Kalucha - JPMorgan

Brendan Furlong - Miller Tabak



Welcome to the Avago Technologies Limited Fourth Fiscal Quarter and Fiscal Year 2012 Financial Results Conference Call.

At this time, for opening remarks and introductions, I would like to turn the call over to Tom Krause, Vice President of Corporate Development. Please go ahead, sir.

Tom Krause

Thank you, operator, and good afternoon everyone. Joining me today are Hock Tan, President and CEO, and Doug Bettinger, Chief Financial Officer of Avago Technologies.

After the market closed today, Avago distributed a press release and financial tables describing our financial performance for the fourth quarter and fiscal year 2012. If you did not receive a copy, you may obtain the information from the Investor section of Avago's website at avagotech.com. This conference call is being webcast live and a recording will be available via telephone playback for one week. It will also be archived in the Investor section of our website.

During the prepared comments section of this call, Hock and Doug will be providing details of our Q4 and fiscal year 2012 results, background to our Q1 2013 outlook, and some commentary regarding the business environment. We will take questions after the end of our prepared comments.

In addition to U.S. GAAP reporting, Avago reports certain financial measures on a non-GAAP basis. A reconciliation between the 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.

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.

At this time, I would like to turn the call over to Hock Tan. Hock?

Hock Tan

Thank you, Tom. Good afternoon, everyone. We are going to start today by reviewing recent end market business highlights, and then Doug will provide summary of our fourth quarter and fiscal 2012 financial results.

Revenue for Q4 fiscal year was $618 million, which was slightly above the midpoint of our guidance. This represented an increase of 2% from last quarter, but a decrease of 1% from the same quarter a year ago.

However, if we just look at our three primary target markets, revenue from those markets grew 8%, sequentially, on an apple-to-apple comparison basis. For the full fiscal year 2012, revenue was $2.4 billion, which represented an increase of 1% from fiscal 2011. Essentially here, a 20% in our Wireless business was offset largely by 23% decline in industrial revenues. Wired Infrastructure, remain relatively flat.

Back to Q4 results, Wireless was very strong, driven by simultaneous product ramps at two of our large smartphone OEM customers. While there were certain bright spots in Wired Infrastructure, Wired revenue was down due to largely weak core routing spending with service providers. Industrial was also down below our estimate at the beginning of the quarter, here though is because, our distribution partners reduced inventory levels.

Looking forward to Q1 Wireless demand continues to be strong. However, we expect that continued supply chain contraction in industrial and the continued hiatus in core routing spending will result in a sequential decline in revenues overall.

Let me now provide more color on each of our end markets. Starting with Wireless, revenue from Wireless came in at the upper end of our expectations, growing 30%, sequentially. This sequential strength was driven primarily by product ramps at two large OEM customers. I guess I will let you figure out who those are.

We also benefitted from seasonal demand from selective smartphone makers in China and Japan, and this particular strength resulted in shift I should say, a mix shift in our revenue mix with Wireless increasing to 51% of total revenue for Q4.

Looking at Q1 fiscal 2013, follow-on demand from our two major smartphone OEM ramps remained strong. In addition, we're continuing to see demand from certain other smartphone OEM, as is pretty normal at this time of the year as a launch multiple high end smartphone programs to compete against each other, the upping in demand has also helped a lot by proliferation of LTE capability in these platforms and the strength of our products offering, which now supports 15 LTE frequency bands is supporting this very well. We therefore expect overall Wireless revenue to be virtually flat in Q1, despite one would normally be a seasonally weaker quarter.

Stepping back here for a second, I'd like to add; we have as a company cumulatively invested or are currently investing approximately $300 million into putting in place an additional FBAR capacity. We in fact, from 2011 through the end of fiscal 2013, we expect to quadruple our FBAR capacity, driven pretty much by our expectation of strong customer demand. The growth in FBAR as a key point here will improve our Wireless gross margin going forward.

Moving onto Wired Infrastructure, revenues here came in slightly better than we expected at the beginning of the quarter. Notwithstanding, revenue sequentially declined 8%. We did benefit from double-digit growth of our ASIC business, shipping into data center switching. However, the pullback in our core routing business at one of the large communications OEM customers particularly more than offset the strength in the ASIC business.

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