Earnings Call: Q4 2019

Dec 12, 2019

Welcome to Broadcom's 4th Quarter and Fiscal Year 2019 Financial Results Conference Call. At this time, for opening remarks and introductions, I would like to turn the call over to Beatrice Russotto, Director of Investor Relations of Broadcom. Please go ahead, ma'am. Thank you, operator, and good afternoon, everyone. Joining me today are Hock Tan, President and CEO and Tom Krause, Chief Financial Officer of Broadcom. After the market closed, Broadcom distributed a press release and financial tables describing our financial performance for the Q4 fiscal year 2019. If you did not receive a copy, you may obtain the information from the Investors section of Broadcom's website at broadcom.com. This conference call is being webcast live and a recording will be available via telephone playback for 1 week. It will also be archived in the Investors section of our website atblotcom.com. During the prepared comments section of this call, Hock and Tom will be providing details of our Q4 fiscal year 2019 results, guidance for fiscal year 2020 and commentary regarding the business environment. We'll take questions after the end of our prepared comments. 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. 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. With that, I'll turn the call over to Hock. Thank you, Beek. Good afternoon, everyone, and thank you for joining today. Now we concluded fiscal year 2019 with record revenue of $22,600,000,000 growing 8% year over year despite a challenging environment. Our Semiconductor Solutions segment declined 8% year over year, but this was more than offset by our Infrastructure Software segment benefiting from the integration and healthy results from the CA business. In semiconductors, almost all product lines were down year on year with one clear exception, and that's networking, where the existing growth drivers continue their strong momentum. In infrastructure software, renewals in our core accounts grew double digits, which more than offset the expected attrition in our non core accounts. Now as we embark on fiscal 2020, I want to provide you some insights into our latest strategic assessment of our semiconductor businesses and our current view of the market. I also want to give you an update on our software business, including our latest Symantec acquisition. I'm sure you have seen the guidance in our earnings release today that we are headed towards $25,000,000,000 in revenue $25,000,000,000 in revenue in 2020. And I'll let Tom go through the details on how we get there. But before I turn this over to him, let me now give you the broader picture. So when we look at our semiconductor segment today, we are increasingly thinking about it as a core and fabless semiconductor business that consists of networking, broadband and storage connectivity products focused on enterprise, service providers and cloud infrastructure. Here, we get a lot of strategic synergies and scale across our end markets with our customers and with our core silicon technology. This in turn drives efficiencies in our sales, R and D and supply chain activities. Our infrastructure software businesses, which focus primarily on large enterprises, are in fact quite complementary and enhance these core semi businesses by bringing us closer to our end customers. This gives us a natural barrier to entry and gives us comfort that we can drive sustainable revenue growth and improve profitability long term. Alongside these core semiconductor businesses, we have several valuable semiconductor businesses that are much more standalone in nature. Due to their unique customers, technology and supply chain characteristics. Now this will include our wireless businesses and our industrial businesses. We don't have the same kind of synergies with this as we do in our core semi business. Increasingly, we view this business as more financial assets, especially in terms of capital allocation, balance sheet optimization and how we choose to leverage resources and manage the company. Turning to our current assessment for our core semi business, it's extremely positive. We believe we are uniquely positioned with an industry leading portfolio, extending connectivity across enterprise, telcos and cloud. In data center switching and routing, we're enabling the cloud with the transition to 400 gigabit per second. We also just announced 800 gigabit per second, which further demonstrates our leadership in this space by far. In 5 gs cellular infrastructure, we are leveraging our Ethernet technology to bring the network to the edge in open RAN or radio access networks through a combination of custom and standard products across both analog and digital domains. And as we know, as more slots for computing starts to slow down as it has, we continue to gain momentum in developing and delivering hardware accelerators to offload computing for the cloud service providers across an increasing variety of workloads, initially with virtualization, hypervisors and extending today to AI, security encryption and video transcoding. And in wireless access in enterprise and home gateways, we are, of course, leading the market transition to WiFi 6. And finally, we actually do have now an organic integrated silicon photonics effort underway, combining our capabilities in switching with our strong legacy in fiber optics for next generation cloud and networking architectures. So in summary, we plan to increase our investment in our core semiconductor businesses to position ourselves for expected future growth opportunities where we can leverage our scale of investment, industry leading focus execution and breadth of IP. Now we all know it has been a tough year for semiconductors in general. We found semiconductor segment down approximately 8%, as I indicated. But if we look at our core semi business as I defined it, it has held up reasonably well. To put some numbers around it, this business did a little over $11,000,000,000 in sales in 2019, which was down just less than 4% from 2018. We think this business is stabilizing, and we believe, given the growth drivers I just highlighted over the next several years, that this business can actually grow 6% to 8% annually. Turning to infrastructure software. We started a few years ago with Brocade, storage area networking switch business. Then we acquired CA, which is a leading independent provider of mainframe tools, and we just closed on Symantec, the leading enterprise security software provider in November. Our Brocade acquisitions was predicated on view that the fiber channel SAN switching market for large enterprises was sustainable and that we could just grow our leadership position with additional investment. And after a couple of years now, it's fairly clear this investment thesis was right. Similarly, we bought CA because we felt the mainstream market for the largest enterprises was stable and in fact growing. And the CA was critical to customers who relied on mainframes to run their business. It's still early innings, 1 year now, just over 1 year, but mainframe compute is growing with our target customers. We are increasing investment in mainframes to support our leadership position. The CA customer transition continues with core accounts growing double digits, while non core accounts treat as we had planned. We expect Cemente to start with $1,800,000,000 of core sustainable incremental annual run rate revenue that we believe we can grow to over $2,000,000,000 over the next 3 years. Our infrastructure software segment is becoming more predictable with ratable recurring revenue contribution from CA and now also with Symantec. And we anticipate over $7,000,000,000 infrastructure software revenue in fiscal 2020. In summary, therefore, our long term plan for this company is to invest in organic growth in our core semi business, while continuing to scale up our infrastructure software business through disciplined and highly accretive acquisitions. Now let me turn the call over to Tom. Thank you, Hock. Let me start with a review of our Q4 fiscal 2019 results. I'll then spend some time discussing our outlook for fiscal 2020, after which we will open up the call for questions. Consolidated net revenue for the Q4 was $5,800,000,000 a 6% increase from a year ago. Semiconductor Solutions revenue was $4,600,000,000 and represented 79% of our total revenue this quarter. This was down 7% year on year and up 5% quarter over quarter. On a sequential basis, networking sustained driven by an uptick in our custom silicon solutions. Storage also held up driven by increased demand for high capacity drives. This was offset by increased volatility in broadband, especially as the market prepares for the WiFi 6 transition. And as is typical in our 4th fiscal quarter, wireless was seasonally up. Revenue for the Infrastructure Software segment was $1,200,000,000 and represented 21% of revenue. The CA business continues to perform well. SAN switching demand remains muted as our partner OEM supply chain continues to compress. That being said, the SAN switching business was up from the Q3 low points and the market for these products looks to be stabilizing. Looking down the P and L sequentially, gross margins dropped given the seasonal mix shift to wireless and our semi business, while operating expenses remained relatively flat at just over $1,000,000,000 Operating income from continuous operations was $3,000,000,000 and represented 52.3 percent of net revenue. Adjusted EBITDA was $3,200,000,000 and represented 54.8 percent of net revenue. This figure excludes $143,000,000 of depreciation. I would also note that we accrued $119,000,000 of restructuring integration expenses and made $150,000,000 of cash restructuring integration payments in the quarter. These expenses and payments are primarily related to CA. We spent $96,000,000 on capital expenditures and free cash flow represented 41% of revenue or $2,400,000,000 In the quarter, we returned $1,600,000,000 to our common stock holders, including $1,100,000,000 of cash dividends. As we previewed when we announced the Symantec deal, in Q4, we initiated the transition from stock buybacks to debt repayment. In the quarter, we invested $587,000,000 for the repurchase and elimination of 2,100,000 AVGO shares. However, we also paid down $4,800,000,000 of debt with proceeds from a preferred stock offering and excess cash flow. We ended the quarter with $5,100,000,000 of cash, dollars 32,800,000,000 of total debt, dollars 398,000,000 outstanding common shares and $444,000,000 fully diluted shares for the quarter. Now let's recap performance for the full fiscal year 2019. Our revenue hit a new record of $22,600,000,000 growing 8% year on year. Semiconductor Solutions revenue was $17,400,000,000 down 8% year over year. As Hock reviewed, revenue from our core semiconductor business, which does not include wireless and industrial, was down 4%. Infrastructure software revenue was $5,200,000,000 which included $3,400,000,000 from CA Mainframe and Enterprise and $1,800,000,000 from Brocade Sand Switching. Gross margin for the year was a record high of 71%, up from 67% a year ago. The addition of CA as well as the beneficial mix in semiconductor product sales drove the gross margin expansion. Additionally, operating expenses expanded to $4,100,000,000 with the addition of CA offset by lower annual performance bonus amounts relative to 2018. Operating income from continuing operations was $11,900,000,000 up 14.4% year over year and represented 52.8 percent of net revenue. Adjusted EBITDA was $12,600,000,000 up 13.5% year over year and represented 55.7 percent of net revenue. This figure excludes $569,000,000 of depreciation. I would also note that we accrued $1,100,000,000 of restructuring and integration expenses and made $883,000,000 of cash restructuring and integration payments in fiscal 2019. We spent $432,000,000 on capital expenditures, and free cash flow represented 41.8 percent of revenue or $9,300,000,000 dollars Free cash flow grew 12.4 percent year over year. For the year, we returned 10 point $6,000,000,000 to our common stockholders consisting of $4,200,000,000 in the form of cash dividends and $6,400,000,000 for the repurchase and elimination of 24,500,000 AVGO shares. Okay. So now let's look ahead to fiscal 2020. The outlook for our business is as follows. In the Semiconductor Solutions segment, we expect to achieve approximately $18,000,000,000 in revenue. Let me unpack this a bit. We expect our core semiconductor business to deliver approximately $12,000,000,000 in revenues in 2020, which would represent approximately 7% growth compared to 2019. Our wireless businesses, which let me remind everybody, consisted 3 primary product lines. 1 is RF, the other is Wi Fi, Bluetooth combos and finally, our mixed signal custom products, which we sell almost exclusively to one of our large smartphone customers. RF, which represented approximately $2,200,000,000 of revenues in fiscal 2019, is expected to grow high single digits given the initial ramp in 5 gs phones. WiFi Bluetooth combos, which is approximately $2,200,000,000 in fiscal 2019, is expected to be down low single digits. The adoption of new Wi Fi 6 solutions at our 2 large smartphone customers will be offset by the completion of our movement away from non core lower margin legacy WiFi business, which will adversely impact this product line's 2022 revenues. Finally, our mixed signal custom product line, which was approximately $1,100,000,000 in fiscal 2019, is expected to drop to less than $500,000,000 in fiscal 2020. The reduction in revenues here is driven by a change in architecture at our primary smartphone customer as well as our decision to reduce our investment in this area and focus our engineering resources on more sustainable and profitable activities in our core semi business. Finally, industrial, which consists primarily of optoelectronic power management and sensing product lines, we expect business will stabilize and recover in fiscal 2020 after a challenging fiscal 2019 and to contribute approximately $1,000,000,000 in revenues. Switching to the Software segment. As Hock reviewed, we expect the business to grow to approximately $7,000,000,000 Symantec is expected to contribute approximately $1,800,000,000 including the effects of purchase accounting, while CA and the Brocade are expected to be relatively flat to up slightly. So on a consolidated basis, we are forecasting net revenue to be approximately $20,000,000,000 $25,000,000,000 excuse me, plus or minus $500,000,000 for fiscal 2020. One housekeeping item, our IP, Financial Property segment, will be included in our Semi Solutions segment going forward given this business represents an immaterial amount of revenue. We'll therefore have 2 reporting segments in fiscal 'twenty, Semiconductor Solutions and Infrastructure Software. Turning to our fiscal year 2020 guidance. On a non GAAP basis. Operating margins and adjusted EBITDA margins are expected to be relatively flat in fiscal 'twenty. There are a number of specific headwinds. As Hock discussed, we are increasing our investment near term in our core semi business to take advantage of growth opportunities we see there. We are also in a transition year with Symantec given effects of purchase accounting near term and onetime expenses tied to the transition services agreement in place with Norton LifeLock. And finally, we will have a headwind from our bonus accrual resetting the target, which impacts 2020. Looking beyond fiscal 2020, we expect to continue to expand our operating margins organically and are targeting 55% by fiscal 2022. Now on to capital allocation. We remain committed to returning approximately 50% of our prior year free cash flow to stockholders in the form of cash dividends. With that, on the dividend based on approximately $9,000,000,000 of free cash flow after M and A and related items that we generated in fiscal 2019, we are increasing our target quarterly common stock cash dividend starting this quarter to $3.25 per share. This constitutes an increase of 23%. We plan to maintain this dividend payout throughout the year subject to quarterly board approval, which means we plan to payout just over $5,000,000,000 in cash dividends in fiscal 2020. Consistent with our capital allocation policy, we will reassess the dividend this time next year based on our fiscal 2020 free cash flow from operations results. In addition, we plan to pay down approximately $4,000,000,000 in debt in fiscal 'twenty as part of our commitment to maintain our investment grade credit rating. That concludes my prepared remarks. During the Q and A portion of today's call, please limit yourselves to one question each so we can accommodate as many analysts as possible. Operator, please open up the call for questions. Thank you. Our first question comes from Harlan Sur with JPMorgan. Good afternoon. Thanks for taking my question. One of the areas, obviously, which has been a strong growth driver for the team, 2019, as you mentioned, Hawk, has been cloud and hyperscale data center networking and compute acceleration. You've got Tomahawk, Trident, Jericho, your compute and security acceleration ASICs and the new optical connectivity portfolio. There was a bit of pause in cloud spending in the first half of this year, but it looks like that that is starting to reaccelerate and looking to be strong in 2020. You also have the start of the 400 gig upgrade cycle. So for fiscal 2020, how do you see the data center part of your semi franchise performing relative to 2019? Is this going to be another strong year? And then just secondarily, one of your customers, Cisco, just announced that they're getting into the merchant silicon market for cloud networking. You guys have a strong position here and in fact have helped these guys, both merchant and ASIC on their networking platforms. It would be great to get your views on this customer now as a potential competitor. Well, let's start with the first part of your question, which is how do we see 2020 business for networking? And there are 2 parts to each of this, as you know. There's the cloud guys, service provider in the cloud guys, and there is the more traditional enterprise. And we see spending in the cloud guys, as you correctly pointed out, stepping up more and more in 2020. We've seen some of it this year calendar in the later part of calendar 'nineteen in investment in storage. And we will start to see in 2020 spending on networking to start ramping up, especially with regard to 200 gigabit and 400 gigabit, especially in the second half of the year, which will be great for us because of our product portfolio, Tomahawk 3 and even Trident 4 in these areas as well as, of course, the spine. So to us, we see 2020 as continued growth momentum in basically in our data center business, especially where it relates to cloud. In enterprise, we are not so sure. Enterprise has clearly taken a pause second half of 'nineteen calendar 'nineteen, and we see that pause probably continuing for a while into 'twenty before possibly, in our thinking, slowly recovering later half of twenty twenty for enterprise. And that's and it is a a clear difference in the spending. And with respect to one of our very good customers turning into coming into merchant silicon with the recent announcement, I think, yesterday on 1 silicon or the silicon 1 and the router 8,000, I think it's going to be welcome there because it validates a couple of things we have been pushing for years. One of which is that there will be and there has been and will be more and more disaggregation of software, the operating system, from hardware, the silicon, the chips that supports it. There will be more and more disaggregation. As you know, traditionally, it's all wrapped into a black box as one. That disaggregation path has obviously been pushed, and we have enabled that by the cloud guys, the hyper cloud guys. And we have been very successful enabling it, and that's great. So the fact that Cisco joined it, in our view, validates the model, the trend we have been pushing, and it's great to see that we're right in that regard. So we'll welcome the competition. I just want to add, it's more than cloud that we're seeing that happen. It's also in enterprise, traditional enterprise, particularly some of the large telcos, who you classify as Cloud 2, and I don't need to mention names, but a couple a few of them very large telcos, both in North America and in Europe, are also pushing down that path with us very, very closely. And some of them are very far along, especially we using our Jericho 2 router to enable it. And talking of which, that Jericho 2 router, which we are using today, to enable the path of those telcos enterprises towards disaggregation of hardware and software, has been around and we've been shipping it for over a year. And that runs 10 terabit per second, the same bandwidth as Silicon One announced yesterday. And earlier this week, we announced as a future successor 25.6 terabits per second switching and routing. And that's where we're pushing now 2.5x the performance of what just came out. Thank you. Our next question comes from Craig Hettenbach with Morgan Stanley. Yes, thank you. A question on the Symantec business, the $1,800,000,000 starting point, can you talk about if there's any impact there of any divestitures you might be considering? And then once getting past that, just to comment around you think you can grow it from that level, what are some of the growth drivers that you see in the Symantec side of the business? Craig, it's Tom. I think we talked about this in the past. We take the original run rate, which is about a $2,400,000,000 run rate on the enterprise business. We're going to focus on core accounts in terms of investment and where we're going to try to drive our combined strategy with CA and Symantec. We're also going to rationalize the portfolio around some of the noncore businesses, especially in the areas of services. And so when we take that into account as well as some of the effects on purchase accounting, which a couple of $100,000,000 we're going to start a run rate of about $1,800,000,000 And then we think we can grow that. It's obviously a growing market. We've talked a lot about the growth of the market. We've talked about the 3 core franchises, the endpoint protection, DLP and the web proxy area. We think those three areas focused on core large accounts will allow us to continue to grow the business over the next several years, and we should comfortably exit year 3 at a run rate over $2,000,000,000 Thank you. Our next question comes from Vivek Arya with Bank of America. Thanks for taking my question. I actually wanted to dig into the fiscal 2020 guidance and the two aspects of what hawk are you baking in for trade tensions and kind of the return of shipments to Huawei or other Chinese customers? And the other aspect, you're now classifying wireless as a financial asset rather than what has been a kind of a core strategic asset, and I'm not sure what the implications are longer term for Broadcom. To answer the latter question, not short term, nothing has changed. It's a valuable asset, and it's still there. We are still investing and making sure it sustains itself. It's just that we are highlighting it as a fact that it's differentiated from the core semiconductor sets of products, portfolio of products, we're highlighting there is a difference because those are stand alone franchises. And it gives you a sense how powerful those technology and franchises are that they can stand alone, fairly large size in these markets. But as we look at all our portfolio companies, they are assets and franchises. And where we particularly highlight for this purposes of this review why we pull out core semis is there's a lot of synergies, there's a lot of push in data centers, networking, and it covers both cloud and enterprises and covers both hardware and increasingly software operating systems like eventually even infrastructure software. And we want to highlight that difference and highlight the difference in particular to show you that in those core areas of data centers, we don't drop as much as the marketplace as we saw in 2019, where year on year, organically, we're down only 4%. And that we expect, as some puts it, in 2020, to actually grow recover fairly quickly to mid- to high single digits year on year, very fast in this end market because the environment is and the market environment is good, and we lead in by a long shot. We lead in providing the technology, which is another interesting thing between selling a system and selling components. Components, be it software, be it semiconductor solution, is driven a lot by technology, good strong technology, which can be applied to allow customers to create differentiated systems. Selling systems, as we find out in software, is very much a relationship business, a very embedded software, where the key is service and support, I suppose, technology, and together they're different. But that's really what we're trying to show here. That's why we highlight the strength of our core semiconductor franchise. Thank you. Our next question will come from Ross Seymore with Deutsche Bank. Hi, guys. Thanks for letting me ask a question and thanks for all the details. I guess a 2 pronged question. The 7% growth you're talking about and what you're now calling core, from an answer to an earlier question, it seems like networking is a big portion of that. But can you talk through a little bit about the other moving parts, broadband, etcetera? And then within the WiFi Bluetooth combo side of the, I guess, wireless business, can you give us a little more color on what's happening with why that's going down low single digits year over year? And when you bought that asset, people thought you might have gotten rid of it and divested it, then you seem to really like the differentiation, the sustainability. Now it seems like it might be somewhere between those two viewpoints. So a little color would be helpful. That's a good point. On our core semiconductor business, touching on the first part of it, obviously, networking is especially merchant silicon and networking has been a very strong driver. And particularly so in latter part of 2019 when enterprise spending slowed down and it has stabilized, but it has definitely slowed down. But cloud starts to recover. And the various the portfolio the various positions we have product portfolio we have in all these areas allows us, on balance, to mitigate quite a bit this slowdown. And the big one of the biggest areas that allows mitigation to any slowdown in networking, as you're seeing, is compute offload. Here, this is very much a cloud spend. And the biggest area of mitigation, it continues to be AI. We ship AI chips provides one of the biggest segment for our compute opportunities, I should say, for our compute outlook business. And this is real business now. We're shipping several $100,000,000 a year and growing of these AI chips. We're also starting to emerge in a few other areas as in virtualization and hypervisor, and we all typically call smart links. That we're starting to see happen. And that's also in cloud. And in enterprise, the move towards higher bandwidth mix, performance mix, and so helping drive that. So there's a whole slew of things in data centers that mitigate each other. Having said that in 2019, especially second half, broadband, and you know we are very big in this area, be it video delivery in cable, in which in DSL, digital subscriber line, copper or PON, fiber to the home, slowed down second half of 'nineteen. We're now seeing, as we approach the end of the year, a lot of momentum as telcos seem to recover their spending in broadband, and we're seeing a very sharp recovery. When all is mixed and put together, broadband, we see as fair as a market that's very stable cycle goes through cycles with an underlying push on Wi Fi access. As more and more of these access gateways are now deploying while Wi Fi, as I say, especially the next generation Wi Fi 6. So that creates a little degree of growth. But broadband, in general, is stable, goes through cycle and sometimes it offsets it. But the data center networking business is a secular growth area, and that's why we talked about stepping up our investment in this area. And that's the other reason we want to highlight out the call that we are actually investing, increasing a level of investment as a percent of revenue, as an example, in this particular area. And that includes our foray into silicon photonics, which is intended to enable integration of a silicon switch together with fiber optic interconnects as we move from 25.6 gigabit per second routing to the next gen 2 years from now, 51 terabits per second. It's so high density. I think we need that integration, and we're preparing towards that direction. Thank you. Our next question comes from Mitch Steves with RBC Capital Markets. Hey guys, thanks for taking my question. I kind of wanted to go into the operating margin side of the equation. You guys are talking about 55%. But given the fact that you guys have got more software assets and it seems like your integration is going well as well, is there any reason why that couldn't be higher? I guess why is it so, I guess, muted relative to the mix improvement on the software side? Well, I figured one way I thought 55% sounds pretty good. I mean, we're moving from what is around 52% getting to 53% over the next 3 years to 55%, it's like something out 3 years. It's a trajectory. And we believe we are well on that trajectory. And you're right, you get to more than 55%, but we figured 55% is a nice target milestone to land in. And we may get that in 2 years instead of 3. Thank you. Our next question comes from Edward Snyder with Charter Equity Research. Thank you very much. Hock, in terms of the Symantec acquisition, it seems to be you kind of set this up a little bit different than a lot of the cost savings that we've done before you get there in terms of kind of downsizing some of the assets that you don't need. Should we expect that some of the that you should see synergies from this accelerate or not accelerate, but show up sooner than we have with like CA and some of the other ones. I know it's not looking for guidance. I'm just trying to get a feel for how you're seeing the synergies play out for CA. I know you talked about the revenue side of it too, but what we can expect, so I'm doing quarterly models now trying to get an idea of what that impact would be on cash flow in the second half of your fiscal year? Thanks. Okay. That's a very good question actually. And to show the difference between the CA and cement tank because there is a clear difference. To begin with the structure of the deal, CA, we bought the whole company. And then we have to sit there, watch you guys, and you guys watch us as we restructure. And that does take longer to get to an end state, which we're not quite there yet, by the way, but getting close there instead of the CA integration, unlike Cementek. Symantec is a carve out of an asset. So you're right, it will get us to the end state quicker. It will, and we expand. But in the short term, we have to handle transition services agreements from the remain cold, northern life log while we work through that. And there'll be probably a 6 months of transition services arrangements before we're out of it. But then we get to because we only take the assets we really want and the people we really want, you'll see us get there faster. And that's where we expect to be able to do that. Thank you. Our next question comes from Matt Ramsay with Cowen. Yes. Thank you very much. Good afternoon. Hawken, some of your comments, you talked about the new Cisco platform and the performance level that your switching and routing solutions have that are significantly higher than that. I wonder if you might talk a little bit about the mix of business in your switching and routing business, which pieces of revenue are at the highest performance points and what the tiering looks like within that stack, just to understand a little bit about what percentage of your business there might be competition with and which parts are super differentiated at those highest performance Thank you. I'm no technologist to be able to delve in the level you want to. I'd be happy to take it separately. But broadly, let me try to answer the question. We have a pretty broad portfolio in our switching and routing business. And by the way, the differentiation between switching and routing, the way we are architecting it is rapidly going away. It's how much more features you put in 1 versus the other, which is what differentiates between the Tomahawk and the Trident product line. I'm not trying to confuse people. But in broad terms, we have very high we have a whole portfolio that goes from very high end spine, which is routing, top of the rack switching, very high end throughputs, all the way down to campus, which is more lower end, which and we have a whole range of portfolio products that are, I would say, that are created to match each segment they are in. And it cuts across the whole range from very high end, hypercloud and even routing for operators like Jericho 2 and beyond, all the way down to very low end campus switching and routing, which are chips that are relatively simpler. And our strength is our ability to leverage across this entire portfolio. Our next question comes from C. J. Muse with Evercore. I just wanted to just revisit the operating margin side. And if you could speak to, I guess, the moving parts in terms of how fast you expect to kind of cost down on Symantec and perhaps what increased investments might look like on the OpEx side to help us really understand the drivers of that flat guide? Thank you. Hey, C. J, it's Tom. I'll take that. So as we outlined on the call, I think the sort of 3 major pieces, but we do have a couple of $100,000,000 headwind in our annual performance bonus target because we under accrued in 2019 given that we didn't hit our numbers. So that's one that is a technical one, but matters. The other is we are increasing investment a couple of $100,000,000 in the semiconductor business as well. So that's another headwind. And then from a Symantec perspective, this is a business that was doing a couple of $100,000,000 of EBITDA when we bought it. We're going to enter the year day 1 with obviously a much more elevated EBITDA figure, which we'll report on next quarter. But I think when you think about the TSA elements and some of the other restructuring items, there you have another couple of $100,000,000 that you have to get through as we work through the year. So I would think of it in those three equal parts and then you could back that out and then you think about some of the organic growth that we're driving in core semis. We still have margin expansion. We've talked about this a lot over the years in terms of where we can take gross margins in our core semiconductor business and the scale advantages that delivers in terms of the operating margin line. That's how we get to the 55% target over the next 3 years. Thank you. And today's final question will come from William Stein with SunTrust. Great. Thank you for squeezing me in. I want to say I like that 55% margin target. So thanks for that. But the question relates to 5 gs. Hock, I think you talked about the pace of growth in pardon me, the pace of growth as it relates to 5 gs and handsets. Can you address your exposure to 5 gs infrastructure? Oh, absolutely. Yes, I think a lot of discussion has been a lot on 5 gs handsets, which as Tom mentioned, especially in our RF side, RF division, we're very, very much in it. And it's great to the point where we expect to grow 2019 to 2020 because of content increase. On but with respect to infrastructure, we are getting a lot of traction. And I indicated in my opening remarks, and you've been very you asked for specific let me be very specific in the base station as the best example. I call it radio access networks. It's really another term is base station. And the base station for 5 gs networks to improve latency, to improve density throughput, The architects, the operators are pushing the network, the backhaul, all the network that takes a signal from the base station, they're pushing that right to the edge, which is into the base station. In other words, Ethernet is likely to be under open RAN, the open base RAN will push as far as possible into the radios. And you really run the entire line end to end as much as you can on Ethernet. Even SIPRI, which is typically the protocol that's used between the radio and the radio, is now being minimized and squeezed out as opposed to just running a common higher bandwidth Ethernet, which is, by the way, plays right up to our switching strengths, routing and switching strengths. So we are very engaged now with OEMs in those infrastructure sites in developing, testing and working on the key elements within the base station. That's our push very hard into 5 gs infrastructure, which is, to no small degree, part of the increased investment in core semis that Tom indicated of at least $200,000,000 a year, not all of it, but a big part of it. You may now disconnect and have a wonderful day.