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Broadcom Q3 2010 Earnings Call Transcript

Broadcom Q3 2010 Earnings Call Transcript

Broadcom (BRCM)

Q3 2010 Earnings Call

October 26, 2010 4:45 pm ET


Eric Brandt - Chief Financial Officer and Executive Vice President

Scott McGregor - Chief Executive Officer, President and Director

Chris Zegarelli -


Shawn Webster - Macquarie Research

David Wong - Wells Fargo Securities, LLC

Craig Berger - FBR Capital Markets & Co.

Mark Lipacis - Morgan Stanley

Uche Orji - UBS Investment Bank

Mark McKechnie - Gleacher & Company, Inc.

Glen Yeung - Citigroup Inc

Daniel Amir - Lazard Capital Markets LLC

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Stacy Rasgon - Bernstein Research

James Schneider - Goldman Sachs Group Inc.

Jonathan Smigie - Raymond James & Associates

Edward Snyder - Charter Equity Research

Ross Seymore - Deutsche Bank AG

Mahesh Sanganeria - RBC Capital Markets Corporation

Adam Benjamin - Jefferies & Company, Inc.

Alex Gauna - JMP Securities LLC

Harlan Sur - JP Morgan Chase & Co

Srini Pajjuri - Credit Agricole Securities (USA) Inc.

Kevin Cassidy - Stifel, Nicolaus & Co., Inc.

Christopher Caso - Susquehanna Financial Group, LLLP

Ruben Roy - Pacific Crest Securities, Inc.

Craig Ellis - Caris & Company

Timothy Luke - Barclays Capital

John Pitzer - Crédit Suisse AG



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Welcome to the Broadcom Third Quarter 2010 Earnings Conference Call. [Operator Instructions] Your speakers for today are Scott McGregor, Broadcom's President and Chief Executive Officer; Eric Brandt, Broadcom's Chief Financial Officer; and Chris Zegarelli, Director, Investor Relations. I would now turn the conference call over to Mr. Zegarelli. Please go ahead.

Chris Zegarelli

Thanks, 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 will provide on future revenue, gross margin and operating expense targets for the fourth 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 make today. Specific factors that may affect our business and future results, including, among other things, general economic conditions are discussed in the Risk Factor sections 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 statement except as required by law. Please refer to the Investor section of our website at www.broadcom.comparable for additional historical, financial and statistical information, including the information required by 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 Q3 2010 Earnings Information. For increased transparency, we have incorporated additional 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. Thanks for joining us today. Broadcom executed particularly well in the September quarter, with cutting-edge products and strong financial discipline resulting in revenue and earnings above the high end of our expectations. Broadcom's quarterly total revenue of $1.8 billion reached record levels, as well as new highs in each of our business segments. On a product revenue basis, this is up 13% sequentially and over 46% from the solid sales growth quarter one year ago.

Sequential revenue growth in the quarter was led by strength in our Mobile and Wireless and Broadband businesses, which were up 27% and 6%, respectively. The above seasonal revenue growth was driven by new product ramps as more consumer electronic devices are connecting to the Internet and connecting with each other. We're particularly pleased to reach our GAAP product target operating model as both our Q3 and nine-month results delivered dramatic expansions in operating margin. As a result of our surge in profitability, we had exceptional cash flow from operations that surpassed 25% of revenue. This achievement resulted in Broadcom's cash and marketable securities position, increasing approximately $425 million to $2.9 billion.

Broadcom is focused on the most innovative technologies related to connectivity, bandwidth and content. Our products are in the strongest growth market of the semiconductor industry in wired and wireless communications. We're clearly benefiting from product leadership and the consumer's increasing demand for data in the home, on the go and at work. Broadcom's focus remains to create outstanding communications and connectivity products to enable us to grow our market share, while maintaining strong profitability.

I'll now turn the call over to Eric for details on the third quarter financial results and our fourth quarter guidance.

Eric Brandt

Thanks, Scott. Moving to the financial overview. Total revenue was a $1.8 billion including $1.75 billion in product revenue. Q3 total net revenue was up 44% from prior year and 13% from Q2 levels. Total gross margin for Q3 was 51.7%. Product gross margin in Q3 was 50.1% versus 50.8% in Q2, down 70 basis points sequentially. Q3 GAAP R&D plus SG&A expense was $593 million compared to $565 million in Q2 of 2010. GAAP earnings per share for Q3 were $0.60 compared to first call consensus of $0.55. Q3 GAAP product operating margin was 15.8%. Cash flow from operations for Q3 was a record $456 million. Our cash and marketable securities balance was up to approximately $2.9 billion at the end of the quarter.

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