BRCM

Broadcom Corporation (BRCM)

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Broadcom (BRCM)

Q1 2011 Earnings Call

April 26, 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

Emily Scudder

David Wong - Wells Fargo Securities, LLC

Craig Berger - FBR Capital Markets & Co.

Uche Orji - UBS Investment Bank

Glen Yeung - Citigroup Inc

James Schneider - Goldman Sachs Group Inc.

Stacy Rasgon - Sanford C. Bernstein & Co., Inc.

Ross Seymore - Deutsche Bank AG

Sumit Dhanda - Citadel Securities, LLC

Harlan Sur - JP Morgan Chase & Co

Romit Shah - Nomura Securities Co. Ltd.

Christopher Caso - Susquehanna Financial Group, LLLP

Ruben Roy - Pacific Crest Securities, Inc.

Craig Ellis - Caris & Company

Vivek Arya - BofA Merrill Lynch

Timothy Luke - Barclays Capital

Quinn Bolton - Needham & Company, LLC

Arnab Chanda - Roth Capital Partners, LLC

John Pitzer - Crédit Suisse AG

Doug Freedman - Gleacher & Company, Inc.

Presentation

Operator

Hello and welcome to the Broadcom First Quarter 2011 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded, Tuesday, April 26, 2011. 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 of Investor Relations. I would now like to turn the call over to Mr. Zegarelli. Please go ahead.

Chris Zegarelli

Thank you, Manisha. 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 second 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 forecast and the other forward-looking statements we make today, as well as statements about the prospects for our various businesses, factors that may affect our business and future results, including, among other things, general economic conditions that are discussed in the Risk Factor section of our 2010 annual report on Form 10-K and subsequent SEC filings. A current list of these 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 statements to reflect future events or circumstances.

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 see the Investors section of our website at www.broadcom.com for any reconciliations going back to the beginning of March 2009, as well as for additional financial and statistical information, including the information disclosed in accordance with 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 Q1 2011 Earnings Information. For increased transparency, we have incorporated tables and information regarding our future guidance, historical performance and segment operating income.

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

Scott McGregor

Good afternoon, and thanks for joining us today. Broadcom had a solid March quarter with slightly better revenue and profitability than we originally anticipated. Broadcom continues to benefit from powerful long-term trends in all 3 of our business segments. We see increasing attach rates for our wireless connectivity devices in phones, tablets, connected home and consumer electronics products. Data Center buildouts are continuing at a rapid pace and service providers are upgrading their networks to manage the explosive growth in mobile data.

In the Home, international growth and the migration to HD continue to drive demand for our highly integrated and cost-effective solutions. You can see the momentum building around Broadcom from our design win traction. Following record design wins in 2010, we achieved record design wins across all 3 of our business units in Q1. Our focus remains to create innovative communications products that enable us to grow our market share while maintaining strong profitability.

Financially, we remain focused on running our business within the operating margins we outlined on Analyst Day. To that end, we are maintaining a tight rein on our overall spending growth as shown by our Q1 results and Q2 guidance for R&D and SG&A spending.

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

Eric Brandt

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

Moving to the financial overview. To summarize for Q1, total revenue of $1.82 billion, including $1.75 billion in product revenue. Q1 total net revenue was up approximately 24% from prior year and down 7% from Q4 levels. Q1 total GAAP gross margin declined 20 basis points to 50.7% from Q4. Product gross margin decreased 50 basis points to 48.9% from Q4, principally due to acquisition-related charges. Q1 GAAP R&D plus SG&A expense was up $36 million to $677 million. GAAP earnings per share for Q1 were $0.40 above First Call Consensus of $0.35 per share. Cash flow from operations for Q1 was $334 million. Our cash and marketable securities balance was $3.9 billion, down slightly from Q4, principally due to share repurchases in the quarter.

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