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Broadcom Corporation Q1 2010 Earnings Call Transcript

Broadcom Corporation Q1 2010 Earnings Call Transcript

Broadcom Corporation (BRCM)

Q1 2010 Earnings Call Transcript

April 27, 2010 4:45 pm ET


Peter Andrew – VP, Corporate Communications

Scott McGregor – President & CEO

Eric Brandt – EVP & CFO


Tim Luke – Barclays Capital

Craig Ellis – Caris & Company

James Schneider – Goldman Sachs

John Pitzer – Credit Suisse

Glen Yeung – Citi

Mahesh Sanganeria – RBC Capital Markets

Adam Benjamin – Jefferies

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Sumit Dhanda – Banc of America

Stephen Eliscu – UBS

Craig Berger – FBR Capital Markets

Mark Lipacis – Morgan Stanley

Stacy Rasgon – Sanford Bernstein

Daniel Amir – Lazard Capital Markets

Alex Gauna – JMP Securities

Mark McChesney [ph] – BrownPoint Securities [ph]

Allan Mishan – Brigantine Advisors

Shawn Webster – Macquarie Capital

Raj Seth – Cowen & Company

Arnab Chanda – ROTH Capital Partners

Ross Seymore – Deutsche Bank

Steve Smigie – Raymond James

Emily Gessner – BMO Capital Markets



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Welcome to Broadcom’s first quarter 2010 financial results conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session.

As a reminder, this conference call is being recorded, Tuesday, April 27th, 2010. Your speakers for today are Scott McGregor, Broadcom's President and Chief Executive Officer; Eric Brandt, Broadcom's Chief Financial Officer; and Peter Andrew, Vice President of Corporate Communications.

I will now turn the call over to Mr. Peter Andrew. Mr. Andrew, you may begin.

Peter Andrew

Thank you, 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 provide on future revenue, gross margins, and operating expense targets for the second quarter of 2010 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 made today.

Specific factors that may affect our business and future results, including among other things general economic conditions, are discussed in the risk factors section of our 2009 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 statements except as required by law. Please refer to the Investors section of our Website for additional historical, financial and statistical information, including the information required by SEC Regulation-G.

In addition, we've placed a slide deck, which is available now in the Investors Relations section of our Website that incorporate additional tables and information regarding our future guidance, historical performance and segment operating income.

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

Scott McGregor

Good afternoon and thanks for joining us today. Broadcom continues to execute and performed particularly well in the March quarter with substantially better results that we originally anticipated, driven by upside demand in several of our businesses. For the first quarter, we reported net revenue of $1.46 billion, which was up approximately 9% from our fourth quarter.

Broadcom’s quarterly revenue reached a record level for a second consecutive quarter and is up 71% from the trough quarter one year ago in Q1 2009. Sequential revenue growth in the quarter was broad-based, with particular strength in our enterprise and our mobile and wireless businesses, which were up 15% and 10% respectively. The solid upside in revenue was driven by new product ramps in each of our segments and continued strong demand from customers in Asia during the quarter.

As a result of our strong cash flow from operations, Broadcom’s cash position remained roughly flat despite the acquisition of Teknovus, issuing our first dividend and repurchasing over $150 million in stock. This result demonstrates our ability to pursue our strategic opportunities while at the same time returning capital to shareholders.

In anticipation of some likely questions, orders remain strong, capacity is tight, but deliveries of our products continue to be within lead times. We believe we are shipping to underlying demand and are comfortable with our inventory levels and best-in-class inventory turns. We are clearly seeing the benefit from both improved global demand as well as the secular trend of increasing need for data, video and multimedia. Broadcom’s focus remains to create outstanding communications and connectivity products that enable us to grow our market share. We have also been successful in generating profitable growth, as we committed on analyst day last December. Both our Q1 results and guidance for Q2 indicate substantially improved operating margins.

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

Eric Brandt

Thanks, Scott. Starting with our financial overview, to summarize for Q1, total revenue of $1.46 billion including $1.4 billion in product revenue. Q1 total net revenue was up 71% from prior year and 9% from Q4 levels. Total gross margin decreased 60 basis points from Q4 to 52.5%.

Product gross margin in Q1 decreased 40 basis points to 50.5% versus 50.9% in Q4. Q1 2010 GAAP R&D plus SG&A expense was $554 million compared to $481 million in Q4 of ’09. Please recall that Q4 of ’09 included a net recovery of legal expenses of $63 million. On a comparable basis, excluding this recovery, these expenses increased only $10 million over Q4. GAAP earnings per share for Q1 were $0.40 per share compared to a First Call estimate of $0.28 per share.

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