Avago Technologies' CEO Discusses F3Q12 Results - Earnings Call Transcript

Avago Technologies Limited (AVGO)

F3Q12 Earnings Call

August 16, 2012 5:00 p.m. EDT


Tom Krause – VP, Corporate Development

Hock Tan – President and CEO

Doug Bettinger – CFO


Terence Whalen – Citigroup

Ross Seymore – Deutsche Bank

Vivek Arya – BAML

James Schneider – Goldman Sachs

Parag Agarwal – UBS

Christopher Danely – JPMorgan

Romit Shah – Nomura

Vijay Rakesh – Sterne Agee

Brendan Furlong – Miller Tabak

Joanne Feeney – Longbow Research

Mark Lipacis – Jefferies & Co.

Ian Ing – Lazard Capital Markets



Good day, ladies and gentlemen, and welcome to the third quarter 2012 Avago Technologies Limited earnings conference call. My name is [Chanel] and I will be your operator for today.

At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. [Operator Innstructions]. As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to Mr. Tom Krause, VP of Corporate Development.

Tom Krause

Thank you, operator, and good afternoon, everyone. Joining me today are Hock Tan, President and CEO, and Doug Bettinger, Chief Financial Officer of Avago Technologies.

After the market close today, Avago distributed a press release and financial tables describing our financial performance for the third quarter of fiscal year 2012. 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 Investor section of our website at avagotech.com.

During the prepared comments section of this call, Hock and Doug will be providing details of our Q3 fiscal year 2012 results, background to our Q4 2012 outlook, and some commentary regarding the business environment. We'll 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 on 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 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?

Hock Tan

Thank you, Tom. Good afternoon, everyone. We're going to start today by reviewing recent end-market highlights and then Doug will provide a summary of third quarter financials.

Now, revenue for our Q3 fiscal year was $606 million, just slightly above the midpoint of our guidance, and this represented an increase of 5% from last quarter but an increase of less than 1% from the same quarter a year ago.

Now, during this Q3, industrial was strong, driven by continued recovery in Asia; wired infrastructure was modestly up; enterprise was flat; but we were helped by strength from service providers. Wireless was down below our estimates at the beginning of the quarter because of product transition at one of our major OEMs.

Now, looking into next quarter, Q4, however, we no longer have the revenue contribution, if you recall, from our consumer navigation products which represented approximately 7% of Q3 revenues. In this Q4, we foresee, we forecast industrial and wired infrastructure to be down, which leaves us really with only one cylinder running on turbo charge for Q4.

I would like to point out though that the strength of this wireless will still enable us to grow modestly quarter over quarter in Q4. And if I look at our three primary target markets, excluding consumer business, our total revenue is actually expected to increase in the mid to high single digits in Q4 on an apple-to-apple comparison, no pun intended, compared to Q3.

Let me provide more color on each of our end-markets. Starting with wireless, second half our fiscal year is playing out pretty much as we expected. Revenue from wireless declined 5% sequentially and represented 40% of our third fiscal quarter revenue.

As you may recall, during my last earnings call in May, I pointed out two near-term challenges to our wireless business in the third quarter; namely, the supply constraint of Qualcomm's 28nm LTE baseband chipset as well as the product transition cycle at one of our large OEM customers. These two near-term challenges were the main reasons wireless revenues were down sequentially in a quarter that is normally a seasonally strong quarter.

I also noted on our last call that we expected wireless to be very strong in Q4. As many of you know, we are very well-positioned Qualcomm's 28nm LTE platform. The 28nm supply has made some progress, as we have seen, as small supply becomes available to some of -- many of customers, OEM customers. Consequentially, we're now seeing demand for RF frontend solutions associated with this platform accelerating with certain ODMs today.

In addition, we're now seeing the full benefit of the product transition at one of our large OEM customers. Our content at this OEM and volumes are also up significantly, and as a result, we expect wireless revenue to be up in the range of 20% to 30% in Q4 compared to Q3.

Moving on to wired infrastructure, revenue here represented 29% of Q3 revenues. Wired was in line with our expectation at the beginning of this quarter, with revenues up 3% sequentially. We benefited from double-digit growth in 2.5G and 5G power uptakes used in core routing applications as we ship-in to major programs at service providers in North America and China.

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