Good day ladies and gentlemen, and welcome to Braodcom Limited's Fourth Quarter and Fiscal Year 2017 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 Tom Krause, Chief Financial Officer of Broadcom Limited. After market close today, Broadcom distributed a press release and financial tables describing our financial performance for the fourth quarter and fiscal year 2017. If you did not receive a copy, you may obtain the information from the Investor section of Broadcom's website at www.broadcom.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 at broadcom.com. During the prepared comments section of this call, Hock and Tom will be providing details of our third quarter and fiscal year 2017 results, guidance for our first fiscal quarter of 2018, 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, Broadcom 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. Well, we closed our fiscal 2017 on a very strong note with solid financial results for the fourth fiscal quarter. Fourth quarter revenue of $4.85 billion grew 17% year-on-year and 9% sequentially. On the earnings front, earnings per share were $4.59 growing by 32% year-on-year and 12% sequentially. Our business continue to become more profitable through fiscal 2017. We achieved operating margins of 47% in our most recent quarter comfortably ahead of our long-term operating margin target of 45% which we had announced at the end of fiscal 2016 and EBITDA rose to 50%. This led to substantially improved free cash flow generation in 2017 which drove the 72% increase in our dividends we announced today. As you may recall, these latest dividend increase comes on top of the doubling in dividends we had announced at the end of fiscal year 2016. We remain very focus on increasing capital return to our shareholders. We also continue to successfully execute our M&A strategy having completed acquisition of Brocade early in the first quarter of fiscal 2018 this current quarter adding one more business to our broad portfolio of networking and storage franchises. Against this backdrop, clearly our business continues to be strong. All our 20 product franchises continue to perform extremely well. Before I turn to a discussion of segment results, please note that commentary today for the fourth quarter does not include any contribution from Brocade. As I look forward within each of this segment commentary, I will also touch on specific trends and growth drivers for our business in fiscal 2018. Guidance however for fiscal quarter does include a partial quarter of expected contribution from the Brocade Fiber Channels SAN business. Please also note that this first quarter 2018 is a 14-week quarter…

Thank you, Hock and good afternoon everyone. My comments today will focus primarily on our non-GAAP results from continuing operations unless otherwise specially noted. A reconciliation of our GAAP and our non-GAAP data is included with the earnings release issued today and is also available on our website at broacom.com. Let me start first and comment on the progress we have made toward our long-term target operating model. As Hock outlined and I'm pleased to report for fiscal '17 we did exceed our long-term target of greater than 60% gross margins and 45% operating margins. We delivered fourth quarter 2017 gross margins of 63.3%, a 250 basis point increase from the same quarter last year and operating margin of 47.3% which was a 580 basis point increase from the same quarter of last year. On capital returns as you recall, starting last year we did increase the target for aggregate dividends to 50% of free cash flow on a trailing 12 month basis and a result of that financial policy did double our dividend at the end of fiscal 2016. Leveraging the significant improvement in profitability and operating cash flow generation in fiscal 2017, we announced today a 72% increase in dividends. This increase takes our interim dividend to $2.75 per share or $7 per share on a full-year basis and represents an approximate return of $3 billion annually to shareholders. We closed the acquisition of Brocade three weeks into the fiscal quarter of 2018. We completed the divesture of Brocade's campus WiFi and switch business to [Arras] for 800 million in cash in the first fiscal quarter of '18 and we also sold Brocade's headquarter building in Santa Clara for approximately 225 million in cash also in the first quarter. These transactions along with the completion of other some…

[Operator Instructions] Our first question comes from the line of Stacy Rasgon with Bernstein Research. Your line is now open.

First I guess a tactical one. Given where it's falling in Q1 how much revenue in OpEx is actually really coming in, in that extra weeks. Should we think of both of those as a full week or is the revenue may be less than a full week and the OpEx is a full week? What's the best way for us to think about the different puts and takes in your guidance impacted by that extra week.

I think is as you look at the seasonality in our business and you look at where we are in Q1 relative to where seasonally typically going in Q2 you can you can argue I think we believe it's less than an additional week of contribution. And OpEx what I would suggest to you is flat because we're basically just taking an extra week from a payroll and other [front] perspectives on the OpEx side.

For my follow-up I wanted to ask a little bit about the guidance and particular the segments. So you said wireless was up, I wasn't sure if that was because of the extra week or if that was normalized for the extra week and I guess given the metrics wireless seems like it is strong storage looks like it's bottomed and other pieces are growing. It seems to me the wired infrastructure may still be down sequentially, I guess if I normalize for the extra week given the drivers that Hock talked about. I guess could you give us a little more color on, I guess how much of the strength in wireless is extra week versus normalized and I guess what are those drivers for the rest of the guidance imply for wireless as we go to January quarter.

The best way to describe is to expand a bit on what Tom was saying is, you know 80% of our revenues is direct OEM revenues and so the extra week had very little impact for Q1 in terms of topline revenue. The industry revenue does have an impact obviously on a bases that is resale is very time base and so you might say on overall revenue basis from if I were to have an estimate that additional week provides probably an additional one foot addition of a week's revenue you are going to look at it. But as Tom indicated expenses we will be showing a full week of expenses which are largely for a company of our nature obviously salaries, people costs. So full week of expense is probably one third of a week of topline is the best estimate to put on a consolidated basis. And based on that to answer your question on wireless, it really doesn’t make much difference. Our wireless business is all direct largely. It makes very little different that there is an additional one week, but it is strong. As I indicated in my remarks, it is strong because of the fact that unlike the year before and the year before that as well, the rollover of the product life cycle of a North American, lot of American smartphone manufacture has been sort of push-out, push-out by over one month.

So, I guess the wired outlook then is just the set-top box I guess bottoming in Q1 which is driving that or there other numbers.

Set-top box and broadband access, carrier access is bottomed out in Q1. Against that datacenters continue to be okay, good and a big part of it driven by the ramp of our opportunity in AI in cloud and a couple of OEMs.

And our next question comes from the line of Ross Seymore with Deutsche Bank. Your line is now open.

Hock I want to follow-up on the wired side of things. The last couple of quarters on average you've been kind of the low to slightly below mid-single-digit growth in that business. You talked a little bit about what the broadband access and set-top boxes has done, you talked about optical and AI side. If we think about those three buckets as we look into fiscal 2018, can you just talk about the direction that they should go, is there going to be the optical side snapping back or this year it seemed like you had a number of headwind that might not persist into next year. So any color you could give on an annual basis would be helpful.

Sure, and you did touch on that in your saying that is true. In 2017 especially second half of 2017 in our wired business which we run into lot of puts and takes but quite a bit of headwinds in that whole regard simply because especially in the second half you start to see decline, seasonal decline in broadband, very much broadband than in the later - and especially in optical, we all have seen the slowdown in demand from metro and access network particularly out of China but against that we see datacenters continue to perform very well. And the net result of it was, has been relatively slow to flattish, if you look at the whole year, flattish slow single-digit growth in wired in 2017 with those headwinds. 2018 the sense we have is we've seen a lot of those headwinds and the worst of those headwind seems to be over, datacenters continue to be very well - presenting itself very well not just from switching routing which have always been very good for all this period but also the additional push from deep learning chips that we are providing for a few large customers. And against that, given that we have seen the worst on broadband I think wired business in 2018 will probably grow over 5%.

Tom switching gears over to your side for a moment, the free cash flow target increasing from 35% to 40%, the dividend increase was a bit more than I expected at 72% it seems like you guys actually were closer to 60% of free cash flow. So I guess as we go forward one is the policy change at all, are you giving back more and then two what's the biggest driver of that free cash flow margin increasing, is it one-time charges going away, profitability increasing any color on those will be helpful.

So Ross obviously you can do the calculation on the free cash flow just based on the cash flow statements but there were a couple of things that we took into consideration. One, as I think you know we had a big campus initiative both in Southern California around the Irvine Campus and then up here and in San Jose and a lot of that is tail off and then we went off and actually monetized the Irvine Campus which we just reported. So we thought we should give back that portion as well to shareholders in form of dividend. So that's the biggest driver, the CapEx initiatives beyond that will really around the test program the confinement work we did which I think is largely done. And then of course we delevered, we delevered around the pensions. So we had the [gear] pension which is the LSI pension that we inherited when we bought LSI several years ago. We took steps toward derisking that pension by fully funding it in affects and turning it more into a fixed income based portfolios. So we think that was the right thing to do but it was also a onetime event that hit free cash flow and so we backed it out. Going forward really it's all about the business model and the financial model that gets put out of that business model that Hock articulated earlier. CapEx is coming down to 3% as a percentage of revenue which is consistent with the fabless or largely fabless business model and given the operating margins of the business a balance sheet that's got 2x gross leverage you know less than 4% sort of average cost of debt capital we think 40% is a very achievable target.

And our next question comes from the line of Craig Hettenbach with Morgan Stanley. Your line is now open.

Hock now that you've closed Brocade can you talk about just the synergies from a technology and product perspective and the implications to your enterprise storage business?

Well, the main reason we acquired Brocade very simply put it that we believe that product line is a very sustainable product franchise. It fall and also certain customers with mission critical data center storage requirements. They need to use Fiber Channel SAN storage area network. The more conventional so to speak basis of iSCSI, IP networking stuff not of a performance level, quality level that will address those mission-critical requirements that financial institutions as an example agencies, governments need to make work in those storage systems. So it's fairly unique in some regards but it's a nice addition to our store enterprise storage portfolio where we tend to address more conventional storage requirements and we see this business as a business that will continue into the foreseeable future and not just in America worldwide simply because this storage - this kind of storage system and network fiber channel is literally bulletproof, mission-critical systems and practically not hackable.

If I could just follow-up and look to expand on your comments about AI and you know the type of visibility you have in some of those product ramps, as well as just the role you expect ASICS to play from your side?

Well we believe a lot of these emerging requirements that we're seeing in very specific application-specific end market specific requirements fall deep learning as we call it artificial intelligence other people call it when you need training and you need inference on large databases that continually upgrade. We tend to see that's been very customized. A lot of software that needs to be written on a hardware silicon platform that because of the particular nature of the application will tend to be very customized and we are making, we're producing cut in a nutshell ASIC of custom silicon solutions that addresses those market niches and it's pretty substantial. And our visibility today is extremely good in terms of the demand for this product.

And our next question comes from the line John Pitzer with Credit Suisse. Your line is now open.

Hock in your prepared comments you talked about excitement around continued FBAR content increases in fiscal year 2018. I am kind of curious to what extent is that just new flagship phones growing as a percent of the overall mix where content growth has already been very strong. To what extent is an expectation that maybe flagship phones that get introduced in calendar year 2018 will continue to have content growth and to the extent that it's the latter - this year you gave us pretty explicit guidance as to how much you thought your content was going up, I'd be curious as we look out to calendar year 2018 how we should think about that FBAR content story.

Well, it's an interesting story and by the way to answer your question it is on the same old story again of our more FBAR and more [band] this is not - this is actually thing of filtering as being stage. This is literally - most of the front end modules we talked about in the past where we have power amplifiers, and FBAR filters we tend to put it close to the transceivers where you filter signal that our channel by the antenna. What we're seeing here is going in and filtering the signals close to the antenna and before a channel is down to the front-end module. That's the thing that have changed. Some of the craving additional level of filter level of states of filtering which in effect increase -- and that increases the amount of filters unique and this advance are the only thing that can do very effectively those filtering that we call it extraction of signals at the antenna. And the benefit of all that it allows antenna to be shared as opposed to multiple antenna.

Any sense on what this new application can do to your dollar content in the phone?

Probably should tell you as we progress through the year. Now might be a bit to mature, but eventually it's going to increase it.

And then as my follow-on Hock, I just wanted to get back to your AI comments in the prior question, it just seems like over the last couple of quarters, I wouldn't say you were being dismissive of the market opportunity, but you clearly weren’t sort of highlighting it as one of the key drivers. It sounds like you're being a little bit more front foot on the AI opportunity. Did something change and can you help us understand how you're thinking about your TAM in this market over time?

Well, the dollars as they affect us have certainly grown a lot. So I guess I better had make a few comments on it as dollars drive it.

Any sense on how we should think about the total addressable market over a three-year horizon Hock?

We see driving our dollars to a level not dissimilar, but significant levels not that far off from even now switching revenue.

And our next question comes from the line of Vivek Arya with Bank of America, Merrill Lynch. Your line is now open.

Just first as a near-term question on wireless. Hock on the last call, I think you said and you expected Q1 to hold, which at that time sounded flattish. Now you're saying Q1 could be better. My question is that something changed, was it just perhaps conservatism before, but more importantly, how do you track the sell through of the different flavors of products that your customer is setting to make sure that you're shipping in line with sell through?

Well, as I mentioned on your latter question, 80% of our revenues, over 80% goes direct to customers and we get very good visibility in orders backlog with our customers. So that just I believe that in fact is pretty clear, over 80% goes directly to our various customers itself. And that enables us to track very well, that also enables to attract that over shipment in terms of in a sense that a customer has taken more products than they truly need because it adjusts itself very, very quickly. So it's just doing it directly as opposed to going through any distributor or middlemen. And as far as the question on wireless, yeah I can answer, it's not nothing we consolidate them. Since we last talked a quarter ago, visibility has obviously become full -- crystal clear and we're just in interest of being transparent, we're just passing on what we see today.

And then for my follow-up Tom, you raised your long-term targets on margins. When I look at gross margins versus what you reported in Q4, there seems to be another I think 170 basis points of upside to the 65% target. But on operating margin, you're already above the target. So I'm just curious what's driving that Delta.

Well, I'm not sure if I totally understand your question, but, yes, basically as you look at it with Brocade, you're right, we're running 64-ish guide. I think what you're seeing consistently, and probably the key driver of the overall financial model of the new targets is our ability to continue to drive gross margin expansion. But I think a lot of that ties back to the business model and continue to introduce more and more content rich products that carry higher values. And I think that's what's driving and it's consistent for a very long period of time. And obviously given the scale of the company, we'll continue to reinvest in R&D at a very healthy clip 15% of expanded revenue. But we're growing mid-single digits, obviously we did better last year. We're keeping SG&A lean and simple which is consistent with our model, and that gives us leverage. So you're right, I think we'll continue to monitor the long term model. We've obviously updated it a number of times over the past several years, but right now we're very comfortable with a target of 65%, 47.5% operating margins.

And our next question comes from the line of Ambrish Shrivastava with BMO. Your line is now open.

Hock, I just wanted to visit the longer term driver for wireless specifically in '18. Besides the N10, you also talked about WiFi in the back half of the year. And I think correct me if I'm wrong, you said first retail and then it starts to show up in handsets? So can you give us some idea on what that would do to content within the handset space, and then I had a quick follow-up as well.

Well, it does, but when you're trying to run it over time it becomes very hard and I'm very [low] to give you misleading answers. But all it does is definitely directionally pushing in the right direction. And I've always indicated to you guys, on a long term basis is what you're asking year-on-year, we are seeing dollar content increase which I'll say a large part of this content increase driving topline revenues in wireless closer to the range north of 10%, 10% to 15% annually on an annual growth rate basis. And that's all content increase in our view where there is an improvement of WiFi connectivity through 802.11ax and/or more FBAR as we enhance the RF experience on smartphones, it all comes back to the same thing. We seem to see based on history empirically that last five years CAGR, Compounded Annual Growth Rate, CAGR is around the mid-teens. And using that - and using the trends in architecture and designs and [indiscernible] or phones that the next five years will see that same CAGR of mid-teens.

And then on the non-wireless side, Marvell and Cavium are proposed to be combining. Just from your vantage point, does it or does it not change the competitive landscape the way you see it? Thank you.

We don't really see any material change at all as far as our business is concerned. As far as their business is concerned, of course, there could be major impact, and I'm not dismissing that at all. But as far as we are concerned and our various franchise businesses are concerned, we do not see any impact.

And our next question comes from the line of Harlan Sur with JPMorgan. Your line is now open.

On the OpEx guide, if I assume the OpEx run rate similar to Q4 for core Broadcom, and then normalize to the 14-week quarter and then try to back out the implied Brocade OpEx, I'm actually coming out with Brocade OpEx contribution on an annualized basis around $280 million which is right where you want your Brocade OpEx to be post integration back when you first announced this acquisition. So am I doing the math correctly? And I guess the question is how much more cost synergies will be coming out on the integration plans over the next few quarters?

I think the benefit of being able to spend a little extra time between sign to close, and of course, the benefit of being able to announce number of the sale processes which were in effect with structuring activities in time has helped us get to our target model with brocade factor. Now, that doesn't mean there isn't more to do. I would suggest we probably got about 20 million a quarter in operating expenses in the business right now on a run rate basis that still need to come out of the model. But we are ahead of schedule relative to where we normally would be when we close the deal. And I would expect over the next six months or so, we'll be trending towards sort of getting that 20 million out of the business on a quarterly basis.

And Hock question for you. As we speak with many of your datacenter customers, they're all anxiously awaiting Tomahawk 3, 12.8 terabytes of total switching throughput. I think the bigger opportunity here is that you're moving the market to 50 gigabits per switch port using this new PAM-4 technology which means that you not only change to switch silicon but you have to change the [indiscernible] products and after components as well. So you've got a lot of potential for content enhancement here for you and the team. So I guess the question is, are you still on track to get Tomahawk 3 to customers end of this year, beginning of the next year? And do you have a view as to how big this opportunity could be for the datacenter business probably starting in 2019?

Answering your first question, yes, we are very much on track to get samples out to our customers by the end of this year, calendar year. Very much on track. And as far as how big the impact will be, well to be fair, and that's not - I hope that may not get carried away. Tomahawk 3 which goes to 12.8 terabyte throughput, will just replace to a large extent, the existing versions of Tomahawk 2, we just thought that to be fair, and Tomahawk 1 which is 3.2. Now, of course, it replaces 8 by 4x and gives us therefore room opportunity for delivering more value to our customers. But at the end of the day, the number of sockets - there's a total level of replacement of existing sockets. With higher throughput equivalent, silicon, no doubt, which gives us some enhanced the dollar value, but it's not a total add-on in the overall scheme of things.

And our final question comes from the line of Chris Caso with Raymond James. Your line is now open.

Your first question is regarding seasonality and how we should be thinking about the April quarter. Of course, I know you don't want to provide guidance for that now. But as we build our models, I assume we would be taking out the extra half week of revenue as we model out April. How should we also be thinking about wireless therapies? I guess there was some extra wireless revenue in the January quarter during the push-out. How should we think of that as we build out our April expectations?

Chris, obviously we're not going to give guidance on the April quarter. What I tell you is, yes, there is a little bit of the extra week. That's right. But I think more importantly, we've talked about the long-term model here is mid-single digits. And I think that's where we plan to be a going forward.

And just as a follow-up on Brocade. You guys had set out some targets. I think it was 850 million EBITDA. My assumption, what you're talking about will take any additional 20 million out that basically gets you to that target. Are you still - stand behind that target the potential if you do a little better than that?

No, I'm sure Hock believes we can do a little better than that, but we certainly are in and around that target today in the business. Actually, I think what we are happy about is the business is performing very well. It's performing on plan and we think it's a great addition to the other 19 franchises we have in the portfolio.

Thank you, guys.

Thank you. And that concludes Broadcom's conference call for today. You may now disconnect. Everyone have a great day.