Broadcom (BRCM)

Q3 2011 Earnings Call

October 25, 2011 4:45 pm ET


Eric K. Brandt - Chief Financial Officer and Executive Vice President

Scott A. McGregor - Chief Executive Officer, President and Director

John Dryden -


Anil K. Doradla - William Blair & Company L.L.C., Research Division

Romit J. Shah - Nomura Securities Co. Ltd., Research Division

Craig Berger - FBR Capital Markets & Co., Research Division

Stacy A. Rasgon - Sanford C. Bernstein & Co., LLC., Research Division

John Pitzer - Crédit Suisse AG, Research Division

Daniel L. Amir - Lazard Capital Markets LLC, Research Division

Christopher Caso - Susquehanna Financial Group, LLLP, Research Division

Glen Yeung - Citigroup Inc, Research Division

Harlan Sur - JP Morgan Chase & Co, Research Division

David M. Wong - Wells Fargo Securities, LLC, Research Division

Christopher J. Muse - Barclays Capital, Research Division

Ruben Roy - Mizuho Securities USA Inc., Research Division

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

Craig A. Ellis - Caris & Company, Inc., Research Division

Uche X. Orji - UBS Investment Bank, Research Division

James Schneider - Goldman Sachs Group Inc., Research Division

Srini Pajjuri - Credit Agricole Securities (USA) Inc., Research Division

Ross Seymore - Deutsche Bank AG, Research Division

Mark Lipacis - Jefferies & Company, Inc., Research Division

Jonathan Steven Smigie - Raymond James & Associates, Inc., Research Division

Sanjay Devgan - Morgan Stanley, Research Division

Tristan Gerra - Robert W. Baird & Co. Incorporated, Research Division

Shawn R. Webster - Macquarie Research

Vivek Arya - BofA Merrill Lynch, Research Division

Unknown Analyst -

Ambrish Srivastava - BMO Capital Markets U.S.

Doug Freedman - RBC Capital Markets, LLC, Research Division



Welcome to the Broadcom Third Quarter 2011 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded, Tuesday, October 25, 2011. I would now like to turn the conference call over to John Dryden, Senior Manager, Investor Relations. Please go ahead.

John Dryden

Thank you, and good afternoon, everyone. Welcome to Broadcom's Third Quarter 2011 Earnings Conference Call. I'm joined today by Scott McGregor, our President and Chief Executive Officer; and Eric Brandt, our Executive Vice President and Chief Financial Officer.

This call will include forward-looking statements that involve risks and uncertainties that could cause Broadcom's results to differ materially from management's current expectations. We encourage you to review the cautionary statements and risk factors contained in the earnings release and our 10-Q, which were furnished and filed, respectively, with the SEC today and are available on our website. We undertake no obligation to revise or update publicly any forward-looking statement to reflect future events or circumstances.

Additionally, throughout the call, we will be discussing certain non-GAAP financial measures. Today's earnings release and the related current report on Form 8-K describe the differences between our non-GAAP and GAAP reporting and present a reconciliation between the 2 for the periods reported in the release. Please also see the Investors section of our website at for a slide deck that includes additional information disclosed in accordance with SEC Regulation G.

As it relates to the proposed acquisition of NetLogic, before making any voting decisions, investors are urged to read NetLogic's definitive proxy statement filed with the SEC on October 21 and other relevant materials when they become available because they contain or will contain important information about the transaction.

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

Scott A. McGregor

Good afternoon, and thanks for joining us today. Broadcom executed well in the September quarter, with cutting-edge products and strong financial discipline resulting in record revenue and operating profitability above our target financial model. I'm also pleased to report we generated record cash flow from operations, surpassing 27% of revenue. Our total cash and marketable securities position of $4.2 billion also ended the quarter at record levels.

While many of our businesses set records in the September quarter, our outlook reflects near-term industry softness and uncertainty from our customers. To that end, we're maintaining a tight rein on our overall spending, as shown by our Q3 results and Q4 guidance for R&D and SG&A expenses. Broadcom has a proven track record of success across semiconductor cycles, and we position the company to once again emerge stronger coming out of the current uncertain economic environment. Our goals remain focused on product innovation and relentless integration that enables us to grow our market share and deliver strong profitability and robust cash flow from operations.

I'll now turn the call over to Eric for details on the third quarter results and fourth quarter guidance, and then I'll go into details on our business units.

Eric K. Brandt

Thanks, Scott. As John mentioned, please refer to the data breakout in the Investors section of our website for additional financial information that will supplement my financial commentary.

Moving to the financial overview. To summarize for Q3, total revenue of $1.96 billion, including $1.9 billion in product revenue. Q3 total net revenue was up 9% sequentially and up 8% from prior-year level.

GAAP product gross margin was roughly flat from Q2 at 49.5%, and non-GAAP product gross margin was 50.9%. Q3 GAAP R&D plus SG&A expenses were down $21 million to $666 million. Net of the non-recurring legal payment in Q2, R&D and SG&A expenses were up only $4 million sequentially. GAAP earnings per share for Q3 were $0.48, which, excluding one-time items, would've been $0.58 per share. Non-GAAP earnings per share was $0.82 or $0.06 above first call consensus of $0.76 per share. Cash flow from operations for Q3 was a record $534 million. Our cash and marketable securities balance was $4.24 billion, up over $443 million from Q2.

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