Broadcom Corporation (BRCM)

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Broadcom (BRCM)

Q2 2011 Earnings Call

July 25, 2011 4:30 pm ET


Eric Brandt - Chief Financial Officer and Executive Vice President

Scott McGregor - Chief Executive Officer, President and Director

Chris Zegarelli - Director of Investor Relations


Craig Berger - FBR Capital Markets & Co.

Shawn Webster - Macquarie Research

Uche Orji - UBS Investment Bank

Sandeep Shyamsukha - Auriga USA LLC

Glen Yeung - Citigroup Inc

Sanjay Devgan - Morgan Stanley

James Schneider - Goldman Sachs Group Inc.

Daniel Amir - Lazard Capital Markets LLC

Christopher Muse - Barclays Capital

Edward Snyder - Charter Equity Research

Ruben Roy - Mizuho Securities USA Inc.

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

Ross Seymore - Deutsche Bank AG

Harlan Sur - JP Morgan Chase & Co

Craig Ellis - Caris & Company

Vivek Arya - BofA Merrill Lynch

Romit Shah - Nomura Securities Co. Ltd.

Srini Pajjuri - Credit Agricole Securities (USA) Inc.

Mark Lipacis - Jefferies & Company, Inc.

Christopher Caso - Susquehanna Financial Group, LLLP

John Pitzer - Crédit Suisse AG

Quinn Bolton - Needham & Company, LLC

Arnab Chanda - Roth Capital Partners, LLC

Ambrish Srivastava - BMO Capital Markets U.S.


Question-and-Answer Session

Harlan Sur - JP Morgan Chase & Co

Scott, to an earlier point that you made, I mean the team is constantly ramping new products. And so of the incremental growth that you're expecting in the third quarter, how much of it is from new products that you've launched over the past several months? So you've got things like the fourth generation 4330 combo connectivity product. You've got the 2157 Android 3G baseband reference platform, and you also have things like Data Center 10 gigabit switching solutions as examples?

Scott McGregor

It's a fair question. I don't have the percentage at my fingertips, but certainly, the 4330 will probably be our highest-volume product for all Broadcom in the next 12 months. So that's certainly a big product there and, some of the others you mentioned important as well. Some of the 40-nanometer products we have in broadband, and certainly, some of our switch products are doing very well in our Infrastructure group. So I don't have that number. But generally, most of our revenue is product launched over the last 18 months, and so it give you a sense that we tend to be an innovation and product cycle-driven company rather than a macro economics-driven company.

Harlan Sur - JP Morgan Chase & Co

Yes, got it. And then on the broadband side, can you just give us a sense of what are the moving parts that are contributing to the growth in Q3 from a geographical perspective? Is it China triple play? Is it the SD to HD and advanced services migrations in the U.S? Is that India? Any color there would be great.

Scott McGregor

Sure, I can help you a little bit there. We certainly see the SD to HD trend as a long-term trend and helps us a little bit in that space. We've seen good growth from the Satellite side. China continues to be something that drives there especially in the Infrastructure side and DSL side, but we see some benefit there. And I think the move to home gateways is something we see as a broader trend. Home gateways really allow us to put a lot more silicon into the boxes and drive ASP there. So those are some of the things that drive that on a broader sense.


The next question comes from Uche Orji from UBS.

Uche Orji - UBS Investment Bank

First of all, Eric, can I just understand how we should think about OpEx? You'd done a great job keeping it down, but specifically, are there any, beside bonus and major awards and accruals first quarter just so that we don't see a catch-up on the OpEx, somewhere the trend is? Any comments you can make as to how we think about OpEx especially around accruals for some major works?

Eric Brandt

I don't think there are any abnormal accruals. So this quarter, there's that $25 million payment that was made to the derivative attorney, which is what caused this OpEx to actually be down $16 million quarter-on-quarter on a GAAP basis. And that's principally driven by favorability in legal -- some favorability and employee causes. Obviously the French rate [ph] steps down. As we look forward, the guidance we gave you is really -- it's 3 things. It's design and development, which is tape-outs as more and more tape-outs go to 40-nanometer particularly on dedicated. Some employee cost benefits, the fringe thing pretty much has washed itself out by Q3 and a little bit of pickup in legal basically due to some of the IP cases come in trial, like the AMLX [ph] trial. But even in the face of all of that, we still think probably flat to down $10 million on a GAAP basis as we roll through Q3. We don't guide more than 1 quarter out. And so we said that we would be more attenuated across the year. We think we have -- and I don't think that changes as we look at Q4 either.

Uche Orji - UBS Investment Bank

A follow-up question for Scott. Scott, when I look at your comments around Infrastructure and I look back to some of the comments made by the wireless, by some of the carriers on the second half CapEx, it's a little less bullish than what your guidance will imply. Can you just kind of walk me through either by geography or by specific programs where you're seeing these trends in the Infrastructure business that you have?

Scott McGregor

Infrastructure is made up of carriers but also data centers, and we do see opportunity for Data Center growth, as well as carriers, but we're definitely seeing China as remaining a driver on that and we're seeing people generally upgrade bandwidth in that space. And so it was quite broad-based, and we expect our growth is broad-based into Q3. So in some cases, we are taking share. And again, as you probably know, one of the overall objectives for Broadcom is to grow faster than the market and take share. And so this is one of the ways we do it in evidence of us being successful at doing that.

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