BRCM

Broadcom Corporation (BRCM)

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Broadcom (BRCM)

Q4 2010 Earnings Call

February 01, 2011 4:45 pm ET

Executives

Eric Brandt - Chief Financial Officer and Executive Vice President

Scott McGregor - Chief Executive Officer, President and Director

Chris Zegarelli -

Analysts

Shawn Webster - Macquarie Research

Romit Shah - Lehman Brothers

Craig Berger - FBR Capital Markets & Co.

Uche Orji - UBS Investment Bank

Glen Yeung - Citigroup Inc

Daniel Amir - Lazard Capital Markets LLC

Stacy Rasgon - Bernstein Research

James Schneider - Goldman Sachs Group Inc.

Ross Seymore - Deutsche Bank AG

Harlan Sur - JP Morgan Chase & Co

Ruben Roy - Pacific Crest Securities, Inc.

Sandeep Shyamsukha

Christopher Caso - Susquehanna Financial Group, LLLP

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

Craig Ellis - Caris & Company

Arnab Chanda - Roth Capital Partners, LLC

Mahesh Sanganeria - RBC Capital Markets, LLC

John Pitzer - Crédit Suisse AG

Timothy Luke - Barclays Capital

Presentation

Operator

Welcome to Broadcom's Fourth Quarter and Year 2010 Earnings Conference Call. [Operator Instructions] Your speakers for today's call are Scott McGregor, Broadcom's President and Chief Executive Officer; Eric Brandt, Broadcom's Chief Financial Officer; and Chris Zegarelli, Director, Investor Relations. I would now like to turn the conference over to Mr. Zegarelli. Please go ahead.

Chris Zegarelli

Thanks, Christine. 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 2011, and any other future periods, as well as statements about the prospects for our various businesses, potential market share and the development status and planned availability of new products.

You should note 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 Factor sections of our 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 Investor 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 have placed a slide deck, which is available now in the Investor Relations section of our website, that is on the right-hand side of the page under Q4 2010 Earnings Information. For increased transparency, we have incorporated additional tables and information regarding our future guidance, historical performance and segment operating income.

With that, let me turn this call over to Scott.

Scott McGregor

Good afternoon, and thanks for joining us today. Broadcom continued to perform particularly well in the December quarter with better revenue results than we anticipated. Broadcom's quarterly revenue growth was well above seasonal, with record sales of $1.95 billion.

On a product revenue basis, this is up 8% sequentially, and over 47% from the solid sales growth quarter one year ago. Sequential revenue growth in the quarter was led by strength in our Mobile & Wireless business, which was up 14% sequentially. Our Broadband and infrastructure sales also reached record highs, up 3% and 4%, respectively. Broadcom's strong revenue growth was driven by new product ramps and increasing attach rates in a number of wired and wireless communications markets.

Broadcom far surpassed our 2010 financial goals of gaining market share while driving meaningful financial leverage. Broadcom's annual revenue increased approximately 52% year-over-year, significantly better than the overall industry growth of 25%. We delivered almost 17 full points of improvement in product operating margin and achieved record EPS of $1.99. As a result, Broadcom has exceptional cash flow from operations of approximately $1.4 billion, and our cash and marketable securities position increased to a record level of $4.1 billion.

Broadcom's goal remains to create great products that enable us to grow our market share and deliver strong profitability and robust cash flow from operations. We believe we can achieve all of these objectives while at the same time increasing the return of capital to our shareholders. Our confidence in cutting-edge solutions and solid financial discipline is the basis for the announcement we made this afternoon to increase our quarterly dividend by 12.5% and to accelerate our share repurchase program.

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

Eric 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. We've included data to reconcile product gross margin and operating expense, as well as modify the presentation of our income statement to provide non-GAAP numbers in light of the accounting adjustments associated with the acquisitions closed in Q4.

Moving to the financial overview. To summarize for Q4, total revenue of $1.95 billion including $1.89 billion in product revenue. Q4 total net revenue was up approximately 45% from prior year and 8% from Q3 levels. Total GAAP gross margin declined 80 basis points to 50.9%. Product gross margin in Q4 decreased 70 basis points to 49.4% due to the acquisition and warranty charges mentioned at our analyst day. Q4 2010 GAAP R&D plus SG&A increased to $641 million in the middle of the updated guidance from analyst day. GAAP earnings per share for Q4 were $0.47, which includes approximately $0.11 per share negative impact associated with certain nonrecurring items primarily related to the settlement and asset impairment charges taken during the quarter.

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