Good day, ladies and gentlemen. And welcome to the Avago Technologies Limited Third Quarter Fiscal Year 2015 Financial Results Conference Call. At this time, for opening remarks and introductions, I would like to turn the call over to Ashish Saran, Director of Investor Relations. Please go ahead, sir.

Thank you, Operator, and good afternoon, everyone. Joining me today are Hock Tan, President and CEO; and Tony Maslowski, 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 third quarter fiscal year 2015. If you did not receive a copy, you may obtain the information from the Investors section of Avago’s website at www.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 Investors section of our website at avagotech.com. During the prepared comments section of this call, Hock and Tony will be providing details of our third quarter fiscal year 2015 results, background to our fourth quarter fiscal year 2015 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 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?

Thank you, Ashish. Good afternoon, everyone. I’ll touch on Q2 revenue highlights, with a preview of our Q4 expectations and then Tony will provide a summary of our third quarter fiscal year 2015 financial results. As a note, you may be aware we closed the Emulex acquisition on May the 5th two days into our third fiscal quarter and accordingly Q3 results include contributions from Emulex. Now, it is ironic that volatility and recent weakness in the equity markets are in such sub-contrast to relative stability and predictability, I might add, of our end market demand. Revenue for our third quarter was $1.75 billion, a 6.4% sequential increase and above the midpoint of our guidance as all segments performed well. I am very pleased with our execution which drove Q3 margins and earnings per share to the high-end of our expectation. We continue to see good demand driven by our diverse portfolio of highly differentiated solutions. We believe our focus on sustainable franchises provide us with a firm foundation to consistently deliver strong operating results. Turning to a discussion of our segments, starting with wireless, in the third quarter, revenue from our wireless segment grew by 7% sequentially. Wireless now represented 35% of our total revenue from continuing operations. As expected growth within the quarter was driven by the start of our ramp from our North American smartphone OEM as they transition to their next-generation platform and the continuation of our product ramp at an Asian handset OEM. Looking at the fourth quarter of fiscal ’15, we do expect revenue growth to continuing our wireless business with strong growth of over 10% sequentially. We expect this growth to result from the full ramp of the new phone model at our North American smartphone customer, partially offset by the product cycle…

Thank you, Hock and good afternoon, everyone. Before reviewing third quarter fiscal year 2015 financial results, I want to remind you that my comments today will focus primarily on our non-GAAP results from continuing operations unless otherwise specifically noted. A reconciliation of our GAAP and non-GAAP data is included with the earnings release issued today and is also available at our website at www.avagotech.com. Revenue of $1.75 billion in the third quarter represents an increase of 6% from the prior quarter. Foxconn was greater than 10% customer in the third fiscal quarter. Our third quarter gross margin from continuing operations was 61%, which was at the high end of our guidance range, primarily due to better revenue mix in fab utilization. Turning to operating expenses, R&D expenses were $245 million and SG&A expenses were $85 million. This resulted in total operating expenses for the third quarter of $330 million, $5 million below guidance, primarily because cost synergies from the Emulex transactions being realized faster than expectation. As a percentage of sales, R&D was 14% and SG&A was 5% of net revenue. Operating income from continuing operations for the quarter was $733 million and represented 42% of net revenue. Taxes came in at $38 million for the third quarter, slightly below our guidance. Third quarter net income was $660 million and earnings per diluted share were $2.24. This is a significant increase from the $347 million in net income and a $1.26 in earnings per diluted share from the same quarter last year, which was our first quarter that included results from LSI. Third quarter interest expense was $43 million. Other income, net was $8 million resulting from a number of items including gains from foreign exchange hedging and interest income. Our share-based compensation in the third quarter was $63 million.…

[Operator Instructions] And our first question for today comes from the line of Vivek Arya from Bank of America. Your line is open.

Thank you for taking my question. Hock, question on wireless, I think you guided to over 10% sequential growth. And I believe last year, Apple did some prebuilds and so some of the year-on-year trends probably distorted. So part A of the question is how should we think about content growth at your largest customer this generation, this upcoming generation, and how should we think about seasonality as we look out at Q1?

Well, to begin with, in terms of content increase, I guess, my best way to describe is there has been no decline in content in our largest customer. To make it clear, number one. And number two, we do not really give guidance beyond the current quarter we are in. So I will have to refrain from giving you a sense of what would go on beyond into Q1 of fiscal ‘16. But in terms of content, do not expect any reduction in content at our largest customers in wireless.

I see. And then as a follow-up, Tony, congrats on your expanded role, how should we think about OpEx trajectory over the next few quarters and do you expect to take any cost actions before you close the Broadcom acquisition? Thank you.

To answer your last question, first. Nothing until closed as far as the actions that would affect kind of the combined companies. But as far as OpEx going forward, as we said to you before, 335 and then a steady decline with Emulex getting further and further along the way on their cost cutting, I think is the way we look at it. And then also remember, we have the bonus reset in Q1. So, we are ahead of plan above 100% right now. So, we are accruing above 100% and you will see that and it will tail off in Q1. So, flattish to -- again, as Hock said, we are not guiding Q1 but I think you can kind of see where it’s headed for Q1.

Okay. Thank you.

Thank you. Our next question comes from the line of John Pitzer from Credit Suisse. Your line is open.

Yeah. Good afternoon, guys. Hi, Hock and Tony. Congratulations on the strong results. I guess, Hock, I will go back and ask another question around FBAR, that’s a follow-up from Vivek’s question. But if you look, clearly in the fiscal fourth quarter you guys are benefiting from the ramp of a new phone. That ramp should probably be largely over by the end of October going into the January quarter but you still are clearly undersupplying the overall market for FBAR and you have a lot of confidence. You are building capacity at a pretty healthy clip for the next fiscal year. So, I guess I’m just trying to figure out to what extent did the North American guide does see some seasonality going forward, you can find homes for that capacity in any given quarter or is that not how the dynamics works, is it going to take time for you to get incremental content out of Chinese smartphones?

I see what you mean. No, right now, our fab is -- as it has been for the past 12 months obviously, has been completely full and we expect it to continue to run full through to the middle of next year. That’s based on what we can see in terms of line of sight. Beyond that frankly, I’m not sure and as I pointed out correctly, it would give us any opening, any additional capacity coming on the line going forward, coming from additional capacity would be very welcome by us in terms of our ability to then ship to various other customers. And you point out one group obviously, some of the Chinese customers, which we feel we want to be able to support very well and which we’ve been trying very hard to do as much as we can. But our capacity as I mentioned continues to be rather constrained.

That’s helpful, Hock. And then I guess as my follow-up. On the enterprise storage segment, you did a really nice job kind of going through the different product lines within that division. I might have missed it but I was kind of curios. Could you talk about what the HDD trends were in the just reported fiscal third quarter and then you talked about in the guidance for fiscal fourth quarter, the expectation of a seasonal uptick for HDD, just given some of the lackluster data points around PC builds, help me understand little bit better why you are confident you are going to see kind of that seasonal increase on the HDD side within enterprise storage? Thanks.

Well, to begin with, a lot of our HDD revenues are coming from HDD products sold into nearline vertical data centers, enterprises. We virtually do zero products into notebooks, limited amount only into desktops and most of our revenues, most of our share resides in enterprise and what you call near line datacenters. So obviously that does have some impact with this entire seasonality that we’ve seen over last several months as we mentioned last quarter too. As PC weakened, we have seen some of that. But that impact has been mitigated by continuing demand from enterprise and data centers and so there is certain level of offset. Having said that, I'm not for second saying for the last several months that our HDD business is up, it's not. But yes, we believe we’ve seen bottom and we believe that there will be some improvement as we head out over the next several months. And perhaps, part of it is due to our emphasis on enterprise and data centers.

That’s helpful. Thanks again, guys. Congratulations.

Thank you.

Thank you. Our next question comes from the line of Craig Hettenbach from Morgan Stanley. Your line is open.

Thanks. Hock, in addition to just some of the broad-based uncertainty out there, there’s also in recent months been some uncertainty about the data center. It look like your commentary was pretty strong on both ASIC and fiber optic. But I was hoping you can expand on that in terms of the trend you're seeing at kind of traditional data centers as well as with the Hyperscale customers?

Okay. If I give the impression that data centers are booming, I apologize. It’s not intended that way. But we do see our business of various products we have into the data centers, [bereft] [ph] from certain amount ASICs, fiber optics and certainty into enterprise storage for data centers. We do see stable and in many cases, uptrend demand over the last three months and we continue to see that trend continuing in this quarter. While I’m not saying it’s super strong but we do not see weakness either.

Got it. And within the trend you are seeing is there anything from new customers? I know you -- I think you called out two customers. But is there something that might be helping you as well in terms of does it expand the customer base or traction at specific customers?

Are you refering to the wireless segment?

Not just staying with data center.

Data centers, it’s an expanding base for us. But many of our customers are fairly large OEMs. Most of them are. Some of that are perhaps end users but most of them are OEMs and we do not see any dramatic shift in the selection of customers we service in this enterprise storage or wired segment.

Okay. And maybe just a quick follow-up for Tony. Just on the very strong gross margin performance. There could be some elements of mix in there, but also maybe from a manufacturing or cost perspective, can you discuss just the trend you’ve seen in gross margins and sustainability in that segment?

We are very happy with the gross margin performance. But as we've always said, we've got some -- when we actually report, there is a lot of perfection in our yields and the fab utilization. As Hock mentioned, we’ve been 100% now for probably going on five to six quarters. So, again, we think there is good sustainability. The fab will stay full. We hope that yields will stay up. We won’t hit any excursions but I think that we broke the 60 number. We are guiding to a 60 number. We are pretty confident that is something that's sustainable going forward.

And if I could add to that, I think we also are benefiting from a fairly strong attractive product mix. If you look at our enterprise storage, industrial and wired networking business, the point I made is very stable. It continues to be on a steady uptrend and those are extremely good gross margin business. As they keep expanding, we get a benefit of operating leverage.

Got it. Thanks for that.

Thank you. Our next question comes from the line of Ross Seymore from Deutsche Bank. Your line is open.

Hey, guys. Thanks for letting me ask the question. I guess the first one Hock from the highest of level, you described that your business is stable when others are seeing severe volatility. I know you specify the customers, the segments, et cetera that you address. But in general, what do you attribute that stability to, because it seems somewhat odd for example that your enterprise storage and your industrial business would be up high-single digits quarter-over-quarter on a core basis when others are seeing weakness? Can you talk a little bit about why you think it’s different for Avago?

Well, I guess, maybe the best way, we are now one single product end market business as you all know. And in fact, we’ve 12 separate products in those four end markets throughout separate operating divisions and throughout separate product lines, somewhat even larger. And you might see each of them in a niche market of their own. So when you -- not all up at the same time, not all down at the same time. Combined consolidated, or aggregated as a whole, we have been able to see and we have seen it now for the last 12 months, I would say four quarters, a very stable progression of our business. What is more volatile as I point out in my closing remarks too is, in enterprise storage, why an industrial? Multiple segments, multiple natures of perhaps offset each other, but there is also end market largely that because of perhaps of the natures have been able to exactly stable. And the only thing that is small, I would call it seasonal, and it recurs with fairly regular frequency now so far for the last few years is our wireless business. And that sits on top off of extremely firm foundation. And that’s the best way to describe our business.

Great. Thanks for that. And I guess one that’s a little bit more housekeeping for Tony. In the past, you talked about paying down some of the debt on our balance sheet. I know you had a bunch of puts and takes in this quarter itself. But any sort of overall guidance you can give us on cash usage between now and when Broadcom is going to close. Is it a safe assumption to say you will be building up your cash balance? Or are there some other puts and takes like you had in this quarter that we should be ready for?

Just one word matrix, just going straight to the matrix. So again, there is a few things that are going on, but it’s really just marching towards the close. So don’t expect anything too surprising. There will be some small immaterial things here and there where we pay for a pension and so forth, but again nothing material.

Perfect Thanks. Congrats again.

Thank you. Our next question comes from the line of Harlan Sur from JPMorgan. Your line is open.

Hi, good afternoon. And congratulations on the solid quarterly execution. If I -- perusing your financial filings, 50% of your revenues get shifted China, but obviously this is somewhat of a misleading number because only a portion of this actually gets consumed in China, obviously the rest gets shipped to the rest of the world. Do you guys have a sense of what percentage of your revenues actually gets consumed in China? China domestic smartphones, wired, wireless infrastructure and so on. I assumed it’s a much smaller number than 50% of your revenues, but anyway you guys can quantify?

It’s definitely a much smaller number than what we report as where we ship our products. As you correctly pointed out, that’s to a lot of contract manufacturers who produce and re-export. And to answer your question, what percent, not a clue, it’s very hard.

Okay. Thanks for that Hock. And then on the storage and server connectivity segment within the enterprise storage business, obviously you guys are expecting good growth during the October quarter. Can you just help us understand the drivers? Is it 12 gig SAS, is it RAID, is it PCI, or is it your fiber channel-based products, or maybe a combination of all of the above? And then I guess just a final question is, is your custom enterprise SSD controller segment also contributing to the growth in the October quarter? Thank you.

Thank you. The past answer on enterprise storage, as you know, we have a broad portfolio of products, some going into servers and some going into external storage. So that’s the degree of a mix here. But broadly, as I said, we do have a broad portfolio of products, which have been very helpful in basically balancing out the portfolio and the revenue mix. And as long as that end market in enterprise networking but more so in data centers, hyper data centers build-out, we have been able to see sustained demand. I won’t use the word strong demand, but we don’t see a decline. We’re seeing very, very stable demand that has been on this trajectory for the last six months. We are not seeing it ramp, but we’ve seen in stable and we have not seen it decline significantly for any sustain period either. So that’s the best description of how I could characterize what we’re seeing here today, which is why our forecast for Q4 is structured accordingly. And as to your second question, would you mind repeating that?

Yes. Just wondering the team has seen strong growth in your enterprise SSD controller product line. I am just wondering if that’s also contributing to growth in the October quarter.

That’s still a small part of our business and it’s really not that meaningful. And while I did mention it and that’s because of a sharp ramp-up, I would not say to be necessarily something that is very meaningful as to the fact the overall portfolio at this time. But we do see significant ramp up in that business that we’re in, which is very customized flash controllers for enterprises. And we have been able to benefit from that very nicely, but it’s not that substantial.

Thanks, Hock.

Thank you. Our next question comes from the line of Steven Chin from UBS. Your line is open.

Great. Thanks for taking my question. Hock, question for you if I could, in terms of competition in the wireless business, but I think it’s still clear that your FBAR technology by the measurable leads on an apples to apples basis compared to other filtering technologies. But as some of your competitors introduced more highly integrated front end modules with either FBAR, TC-SAW filters combined with power amplifiers. Can you talk about how those type of growth customers? Is that highly integrated, how that might compare to your overall pad solutions from a toll subsystem or front end module performance perspective? And what kind of locations they might have from a competitive standpoint longer term?

Okay. Thanks for question. First of all, I want to clarify the RF solution we specialized in and that drives a lot of revenues as you correctly called them in front end modules. And within it comprises several discrete, multiple discrete elements, largely FBAR filters, one FBAR filter for each frequency band. And combined into a front end module, different discrete elements may constitute as you correctly call it a front end module pad for RF cellular as a receiver and transmitter. And in this case, in this particular phenomenon, the physics is what dictated. The filters, certain filters, certain bands, frequency bands require FBAR filters in order to perform adequately. FBARs and certain other bands could do without FBAR filters and need only use SAW filters. And where we excel and where we have a very strong market position, obviously are in those phones we requiring frequency bands that can only perform adequately with FBAR filters and that’s where our market position is. For those bands and those front-end modules because of that that can do with SAW filters, we don’t participate in it because well our performance is still far superior as SAW filters is adequate and go for much lower price. So in that sense, you’re comparing apples and oranges. There are certain bands, we’re not competitive or we are not well-represented and are not competitive, even though our performance maybe very good. And for other bands, they require FBAR filters to achieve certain performance for the phone makers and we are very well-represented there. And that’s how we compete. We differentiate ourselves from largely the SAW filter guys.

Got it. Thanks for that color. And as my follow-up and I think question for Tony, in terms of the expected capacity increase for FBAR filters, you guided to another 50% growth for fiscal ‘16. Just wondering if you have any additional color on how that breaks down in terms of expected unit growth, in terms of mobile devices as opposed to certain content growth in existing or new devices incrementally?

Well, again I think obviously, Hock said that we’re continuing this 50% growth for next year. Not really have any comment on unit growth or anything like that.

So we obviously belief and that has been to be our philosophy and our policy on capital expenditures is that we still have a line of sight towards specific demand before we put in that capacity increase and sometimes because of that as we’re seeing over the last 12 months or more, we like demand. But having said that by putting 50% for next year, we’re pretty certain we’re going to meet that capacity and use it.

Perfect. Thank you.

Thank you. Our next question comes from the line of Srini Pajjuri from CLSA Securities. Your line is open.

Thank you. Hock, a question on wireless. On a like-for-like basis, what kind of ASP declines do you normally see in FBAR? And then as we head into next year, given that the hyper growth is probably behind us, what sort of ASP trends should we expect?

We don’t think very hard about ASPs in the products we’re in. And its not just wireless typically, it’s across most of our product lines. And a big part of it is our products are very highly differentiated and we offer performance, we offer solutions to our customer and not to mention, usually our products come in and it’s good for few years, in the case of wireless maybe a year or so and then a new generation takes over. And when the new generation takes over it adds an additional features, addition capabilities, so it’s very hard to do like-to-like. And we really have stopped looking at ASP degradation in our overall business.

Okay. Great. And then follow-up on China. You said you were still a capacity constrained. Given that China is driven by mostly reference platforms, I'm just curious as to how well you’re positioned within these reference platforms? And as you get more capacity online, how quickly can you address this market?

Okay. Typically, the products we sell, we sell the RF Envelope. I mean, this is the extreme of envelope performance kind of product. We sell RF Envelope. We do not sell additional mixed-signal platforms. And so as I mentioned and answer to an earlier question, our core focus products are filters. And there are some bands, even those in China that require FBAR filters versus the more ubiquitous SAW filters. And they would be required even in many kinds of platform as discrete solutions. And we have obviously no issue about selling discrete FBAR filters to phone makers in China who require that filters in order to be able to perform well at those specific bands. On top of that, there is this phenomenon of what you call phone operators, trying to win multiple bands, trying to uplink or downlink as a single pipe and that’s part of the phenomenon of carrier aggregation. And they really do carrier aggregation very well, which we are very good at doing. You really want to have FBAR filters operating in that regard. So that provides us the additional opportunity to position our product. And that’s something we obviously have been working on very, very vigorously.

Thank you.

Thank you. Our next question comes from the line of Amit Daryanani from RBC Capital Markets. Your line is open.

Thanks a lot. Good afternoon, guys. Two questions for me. One, if I look at the October guide to gross margins, you are guiding it flat to down a little bit even though sales are up 6% sequentially and the wireless business, which I assume is a higher margin business is ramping the strongest. So what are the offsets in October that lead to your flattish or down gross margin trends when mix of revenues on your favor?

Well, again, what we've always said is, our print on gross margin is usually against the backdrop of, there has been perfection in the fab. And so what we do is we just say, we’re never going to price it for our perfection going forward, so that's all you're seeing there. There is nothing there that says that we’re not confident, that we might be able to overachieve that number, but it just, that’s not our way of thinking about gross margin on a go-forward basis.

Got it. And then just in the enterprise side, could you talk about in dollars how much Emulex contribute in the quarter? And then you have $109 million assets held for sale on your balance sheet line item, just talk about what exactly that includes?

Sure. So I’ll answer the last question first. So through all the various acquisitions, we’ve had a couple of building. So we have a building that we inherited from Emulex that was owned, which is about $45 million in that asset held for sale and a couple of small buildings as well. And then also remember with the Emulex transaction we had a security business that is not core to Avago, a security appliance business called Endace and that’s about another roughly $40 million of that. And then as you might have seen we had a sale of a certain part of our business to on higher earlier this week and that makes up the remainder of that asset held for sale. It’s a big number, because its $100 million, but it's roughly building businesses and its most recent transaction.

Perfect. Thank you.

Thank you. Our next question comes from line of Doug Freedman from Sterne Agee. Your line is open.

Great. Thanks guys for taking my question and congrats on the strong results. If I could at least I want to make sure I fully understand the 50% increase in FBAR capacity. When you're measuring capacitor, you are talking about a 50% increase in wafer output and I would think that with the mix of business moving to higher frequencies in FBAR, those I believe use smaller amounts of die space? So are you looking for a larger increase in units than the 50%, if that 50% in fact is wafers? Can you just offer some clarity there?

Yeah. There is a bit of mix dynamics and I don’t want to answer it wrong a halfway and give you the wrong sense going forward. There are a couple of dynamics and we are not sure where this all thing will fall out. But you are right in that regard, each new generation of FBAR filters on our -- on every 6-inch wafer which we are still using, each of those filters do become typically smaller. But however there is a change in the mix, so because depending on which band is used, some of the filters are larger and/or small -- and might be larger than even the mix than the bands, the other bands they are replacing. So there is one dynamic that goes the way. Two, keep in mind this is, as we sell more and more of those bands, which in our phone you might add, which is a content increase in phones we've been espousing all this time and it’s true, which is every the new generation of a phone either Galaxy or otherwise would tend to contain more bands. The world phone concept, the broader roaming concept, more bands will get into a phone. The scale up is pretty substantial and the way we address this scale up is we make filters smaller which help, but also they than pull into a front-end module as I mentioned before of pad as we go, which basically was with power amplifier within the module. And as you will probably know, the number of power amplifiers remains substantially the same, even as more filters go into the same module. So basically our leverage on revenues on those pads effectively become less which are mostly saying that that’s a price discount the more bands of FBAR filters we sell in each quarter. And that does happen and that’s counter obviously to in terms of a linear ASP increase as a number of bands increase. So there is these two mix of dynamics and end results of that is, yes, a 50% increase in capacity wafer does not necessarily mean a similar increase in revenue a year from now.

Okay. Terrific. Thanks for that color. If I could move to one of your smallest segment, Industrial, Hock, I believe you made the comment that you shift less into distribution and they shipped out that you reduced their inventory. Can you give us a sense by how much you believe you reduced the distributors carrying inventory in the quarter?

I don’t have the data on me. That’s pretty specific and precise. Probably by almost a few weeks of carrying inventory is the best way to describe. Precisely, I don’t have any. And it’s not the same every location. As I say, China and Americas was okay for us so we probably reduced it less but in Germany -- in Europe and Japan, we probably pulled it back much more.

Terrific and again congrats on the really strong results. Thanks for allowing my questions.

Thank you.

Thank you. And the last question that we’re going to be taking today is from the line of Ambrish Srivastava from BMO Capital Markets. Your line is open.

Hi. Thanks for taking my question. This is Kulin Patel for Ambrish. I have a question on the enterprise storage, the fiber channel portion of business. Your competitor saw weakness in their reported results. Can you comment on what you’re seeing in fiber channel?

Well, I mean, fiber channel is a business that is faced with roughly on a long-term gradually flat to declining trend. Don’t kid ourselves there. Having said that, new generation pops up and hands us the ASP. So overall in dollar terms, this is not far from being flat and we have seen demand been flat is the best description I have, the best way to characterize it. It’s flat.

Okay. Thanks. And question of store capacity, in the past call, you’ve talked about moving from six inch to eight inch. Can you comment on your progress on that and when do you expect more of your production to be on eight inch for the FBAR?

Well, right now and into fiscal ‘16 going forward, beyond this quarter, we will only have one line, maybe about 10%, 15% of our capacity going into 8 inch. And that conversion is going very nicely. We got the know-how technology kind of figured out and locked in and so not more than 10% or so. We won’t get to the point where we will convert all to eight inch until 2017 is my belief and so whole new project. But what we’re seeing now, which is in production or going to production is an ability to obviously do the conversion on one line.

Great. Thank you.

Thank you. That’s all the time that we have for questions for today. So I would like to turn the call back over to management for closing remark.

Thank you, Operator. Thank you for participating in today’s earnings call. We look forward to talking with you again when we report our fourth quarter fiscal year 2015 financial results.