Earnings Call: Q4 2020

Dec 10, 2020

Welcome to Broadcom Inc. 4th Quarter and Fiscal Year 2020 Financial Results Conference Call. At this time, for opening remarks and introductions, I would like to turn the call over to Beatrice Rossato, Director of Investor Relations for Broadcom Inc. Please go ahead, ma'am. Thank you, operator, and good afternoon, everyone. Joining me on today's call are Hock Tan, President and CEO as well as the senior leadership team as announced this afternoon, including Tom Krause, President, Infrastructure Software Group Charlie Koweth, Chief Operating Officer and Kiersten Sears, Chief Financial Officer. Broadcom also distributed a press release and financial tables after the market closed, describing our financial performance for the Q4 fiscal year 2020. If you did not receive a copy, you may obtain the information from the Investors section of Broadcom's website atbroadcom.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 at broadcomb.com. During the prepared comments, Tak, Kiersten and Tom will be providing details of our Q4 fiscal year 2020 results, guidance for our Q1 as well as 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 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. And with that, I'll turn the call over to Hock. Thank you, Bea. Before I discuss our results, I do want to highlight the senior leadership appointments we just made around the same time this afternoon, which is all about ensuring continued growth and success of Broadcom. But 1st and foremost, as you see here, I'm not going anywhere. I'm as committed and engaged as ever. But while you often see me and Tom behind us, we have a very strong bench that has gotten us to where we are today. So today, we are elevating some of this deep bench into critical positions that will strengthen our organization going forward. Tom, Charlie and Kiersten are among the people who sustain the platform and make the phenomenal numbers I'm about to announce happen. And to showcase our deep bench of talent at Broadcom starting in fiscal year 2021, we plan to organize a series of analyst days on the various businesses where you can hear from our respective general managers about their businesses. And to kick this off, the first will occur this January where Ram Balager and Alexis Jolan will review our networking franchise. With this, let me now turn to our very strong 4th quarter results. We kept our fiscal 2020 with record quarterly revenue and profitability despite the ongoing pandemic and macroeconomic uncertainties. We delivered net revenue of $6,500,000,000 above the midpoint of our guidance and up 11% sequentially and 12% up 12% year on year. Semiconductor Solutions revenue was 4,800,000,000 dollars increasing 6% year on year and most notably representing a return to year on year revenue growth. Infrastructure software revenue was $1,600,000,000 up 36% year on year, which of course includes the contribution from Symantec. Let me now turn first to semiconductors. Networking, which represented approximately 35% of our semiconductor solution revenue in the quarter, was up 17% year on year, driven by the continued strength in cloud data center spending as well as continued spending by telcos in upgrading edge and core networks. Moving on to Q1, we expect this trend of double digit percentage year on year revenue growth to continue even as we expect enterprise campus spending to continue to soften. Turning to broadband, which represented approximately 14% of semiconductor solutions in the quarter, that was up 22% year on year. Growth was driven by the work from home environment and the need among service providers as well as consumers to upgrade broadband connectivity to as well as within the home. We experienced strong adoption of Wi Fi 6 in next generation access gateways in telcos and consumers. In fact, in this environment, Wi Fi, where we are very well positioned as a leader, has turned into a substantial and growing business for the company. Beyond Wi Fi, we also experienced strong investment by service providers in GPON, that's fiber to the home and digital subscriber line, copper, as well as cable modems among the cable operators. All this more than offset a decline in video. We expect lowtometeenspercentageyeonyeargrofrevenuegrowthinbroadband for Q1 as demand continues to remain strong. Moving on, wireless revenue, which represented approximately 31% of semiconductor revenue in this quarter, was up 43% sequentially in Q4 with the launch of new generation flagship phone by a large North American OEM customer. Still, this was down 9% year on year given the 1 quarter delay in the ramp of production of that program. Accordingly, we expect Q1 fiscal 2021 to now be the peak quarter of this seasonal ramp and revenue will compare extremely favorably with the same quarter a year ago and we expect that to be up over 50% year on year. Turning to server storage connectivity that represented approximately 14% of Q4 semiconductor revenue and was down 9% year on year as expected, reflecting softness in enterprise demand. Turning to Q1, we expect revenue to continue to decline and given a strong Q1 compare in fiscal 2020, We expect this to be down double digits even as much as perhaps 20%. Last, turning to industrial, which represented approximately 3% of Q4 semiconductor solution revenue. We're seeing demand recovery, especially out of China and consolidated resales and here we sell through distributors of course were up 4% year on year. And we forecast such resales in Q1 to start to accelerate to meet teams year on year growth as the recovery in industrial and auto continues. So in summary, our Semiconductor Solutions segment was up 6% year on year in Q4, driven primarily by the RAM in wireless as well as continued strength networking and broadband. Forecasting Q1, we expect this ramp in wireless to peak and while broadband and networking demand to remain strong. This will drive revenue in the semiconductor segment to increase in Q1 by high teens percentage year on year. Turning to software. Let me reiterate our business model here. We focus, as we have said many times, only on the largest enterprise customers and seek to increase the adoption of a software product to a hybrid model, about 90% of which are recurring subscription revenue. We have stepped up investment in R and D focused on just these core customers and we are able to do that by spending much less on our go to market outside of our large core enterprise customers. Unlike obviously the other software companies who are chasing every last dollar of revenue no matter how much it costs. So let me tell you with 2 years of CA under our belt, let me tell you how we have done. Revenue wise after 2 years integrating CA onto our platform, Q4 2020 revenue was up 5% year on year. For Cementa, if you exclude services and hardware, Q4 product revenue of $380,000,000 was up 10% from Q1 fiscal 2020, which was obviously our Q1 of the acquisition. But if we just look at revenue from our core accounts in CA, this was in fact up double digits, closer to 12% year on year, driven by bookings, which have continued to grow double digits on an annualized basis. This has obviously this growth in core accounts has obviously more than offset the planned decline in services and attrition of accounts outside our core enterprise customers. That's how we expect to sustain our core software business long term, albeit at lowtomidsingledigitpercentagerevenuegrowth. But we intend to drive to a financial outcome that is consistent with the Broadcom model. You'll hear more on that from Kirsten when she talks about our financial model. So looking ahead to next quarter on a year on year basis, we expect CA and Symantec software revenue to continue to grow in the mid single digits. However, in Q1 fiscal 2021, we expect Brocade to decline high single digits consistent with softness in enterprise markets, resulting in our Infrastructure Software segment revenue to be flat to perhaps up low single digit percentage year over year. In summary, we expect Q1 consolidated net revenue of $6,600,000,000 up approximately 13% year over year, all derived organically. Today, we are in a unique situation. We started fiscal 2021 with record backlog that has now grown to over $14,000,000,000 today. But the timing of this conversion of backlog to revenue will be driven by a supply chain, which continues to be tight. Finally, I want to take the opportunity here to thank our team for all their work in fiscal 2020. This has undoubtedly been a challenging year. And through it all, all of our employees have demonstrated unwavering focus and resilience. Because of their hard work, our mission critical technologies have never been more relevant than they are today. And with that, let me turn you over to Kiersten. Thank you, Hock. By way of background, while I've been a part of Broadcom for more than 6 years, my history in accounting and reporting roles for legacy companies, Avago and LSI, dates back over 20 years. I'm proud of the strong finance organization that Broadcom has built and I look forward to working together. I know Hock just gave you the details on revenue, which I'll recap before moving down the P and L to discuss our 4th quarter performance, which clearly demonstrates our strong foundation for future growth. Consolidated net revenue for the 4th quarter was $6,500,000,000 a 12% increase from a year ago. Semiconductor Solutions revenue was 4 $800,000,000 and represented 75 percent of our total revenue this quarter. This was up 6% year on year. Revenue for the Infrastructure Software segment was $1,600,000,000 and represented 25% of revenue. This was up 36% year on year given the inclusion of Symantec. Continuing down the P and L, gross margins were 74% of revenue in the quarter, up approximately 3 70 basis points year on year. The expansion in gross margin year on year was driven by favorable product mix in semiconductors and a higher percentage of software revenue. Operating expenses were $1,100,000,000 up 10% year on year due primarily to the addition of Symantec. Operating income from continuing operations was $3,600,000,000 and represented 56% of revenue. Operating margins were up approximately 400 basis points year on year. Adjusted EBITDA was $3,800,000,000 and represented 59 percent of revenue. This figure excludes $139,000,000 of depreciation. Gross margins for our Semiconductor Solutions segment were approximately 68% in Q4, up 3 20 basis points year over year driven by an improved product mix. This mix included more networking products and less wireless. As you know, wireless carries around 10 points less margin on product profitability than the rest of our semiconductor portfolio. Operating expenses were $777,000,000 in Q4 or 16 percent of semiconductor solutions revenue compared to $727,000,000 in the prior year period as we continue to invest in our business. R and D costs as a percentage of revenue for Q4 was approximately 14% and SG and A as a percentage of revenue was 2%. Operating margins for our Semiconductor Solutions segment were 52% in Q4, up 2.90 basis points year on year. All told, in Semiconductor Solutions, revenue was up 6% and operating profit grew 12%. Gross margins for our Infrastructure Software segment were 90% in Q4, up 130 basis points year over year. Cost of revenue primarily includes cost of product support, hosting for our SaaS products, professional services and hardware. Operating expenses were $338,000,000 in Q4 or 21% of infrastructure software revenue compared to $290,000,000 or 24 percent of revenue in the prior year period as we generate scale through the acquisition of Symantec. R and D costs as a percentage of revenue for Q4 was approximately 12% and SG and A as a percentage of infrastructure software revenue was 9%. Operating margin was 69% in Q4, up 4 80 basis points year over year. Our operating margins reflect our model, which is about focusing on the largest enterprise customers and increasing our share of their wallet in terms of our software portfolio. Given this model, we are able to focus our R and D investments on a strategic group of customers and by doing so reduce costs primarily on go to market. This is how we get to operating margin of about 69%, which we believe we can sustain. Looking at cash flow, we had quarterly free cash flow of $3,200,000,000 representing 50% of revenue. This is up 36% year on year as we managed our working capital more tightly during this pandemic. Moving on to capital allocation for Q4, we paid our common stockholders $1,300,000,000 of cash dividends. We also paid $185,000,000 in withholding taxes due on vesting of employee equity, resulting in the elimination of approximately 500,000 ABGO shares. We ended the quarter with 407,000,000 outstanding common shares and 451,000,000 diluted shares. Note that we expect the diluted share count to be 450,000,000 in Q1. On the financing and balance sheet front, we reduced total debt by $3,000,000,000 in the quarter. All told, we ended the quarter with $7,600,000,000 of cash and currently have $12,600,000,000 of liquidity including our $5,000,000,000 revolver. We ended the quarter with $41,100,000,000 of total debt, of which approximately $800,000,000 is short term. I'll now turn the call over to Tom. Thank you, Kirsten. Let me now recap our financial performance for fiscal year 2020. Our revenue hit a new record of $23,900,000,000 growing 6% year on year. Semiconductor Solutions revenue was $17,300,000,000 down 1% year over year. Infrastructure software revenue was $6,600,000,000 which included $1,500,000,000 from Brocade, which was down 17% year on year $3,500,000,000 from CA, which was up 4% year on year and the addition of Symantec, which was 1,600,000,000 dollars Gross margin for the year was a record high of 73.5%, up from 71% a year ago. The addition of Symantec as well as a beneficial mix in semiconductor product sales drove the gross margin expansion. Additionally, operating expenses were $4,600,000,000 which included the addition of Symantec. Operating income from continuing operations was $12,900,000,000 up 8% year over year and represented 54% of net revenue. Adjusted EBITDA was 13,600,000,000 up 8% year over year and represented 57 percent of net revenue. This figure excludes $570,000,000 in depreciation. We accrued $644,000,000 of restructuring and integration expenses and made $583,000,000 of cash restructuring and integration payments in fiscal 2020. We spent $463,000,000 on capital expenditures and free cash flow represented 49% of revenue or $11,600,000,000 Free cash flow grew 25% year over year. Now on to capital allocation. For the year, we returned $6,000,000,000 to our common stockholders consisting of $5,200,000,000 in the form of cash dividends and $800,000,000 for the elimination of 2,600,000 AVGO shares. We also paid $299,000,000 in dividends to our preferred stockholders. I would also note through the refinancing and liability managed activities we've undertaken this year, our weighted average debt maturity is now approximately 6 years with a weighted average interest rate of approximately 3.5%. Looking ahead to fiscal 2021, remain committed to returning approximately 50% of our prior year normalized free cash flow to stockholders in the form of cash dividends. With that, on the dividend, based on approximately $12,000,000,000 of free cash flow in fiscal year 2020, we are increasing our target quarterly common stock cash dividend starting this quarter to $3.60 per share. This constitutes an increase of 11% and assumes a basic outstanding share count of 413,000,000 shares at the end of fiscal 2021. We plan to maintain this dividend payout throughout this year subject to quarterly Board approval. Consistent with our capital allocation policy, we will reassess the dividend this time next year based on our fiscal 2021 free cash flow results. With that, I'll turn the call back over to Bea. Thank you, Tom. At this time, we'll open the call for questions. We have Hock, Tom, Kiersten and Charlie available to answer any questions. So operator, please go ahead and kick us off. Thank you so much. Our first question will come from Craig Hettenbach with Morgan Stanley. Please go ahead. Yes, thank you. A question for Hock. I think on the call a year ago, you talked about an increase in R and D investment, and there was areas in cloud, photonics, I think wireless infrastructure. So just wanted to get an update on how that's progressing and the visibility into kind of revenue from that R and D investment? Okay. That's a very good question. And the investment we the cadence of investment we're doing continues in areas that we see as very strategic in various businesses. And you've seen some of that coming out as we continue to do so. For instance, last week, we announced the introduction and RAM and introduction availability of the our 800 gig platform for switching, routing and the connect in the basic size, retimers and all that, that goes hand in hand with it. It's all about launching an 800 gig platform and that comes in the form of our new product, Tomahawk 4. And it's pretty interesting that we're launching it now because our previous generation, which is at 400 gig platform, Tomahawk 3, which we introduced over a year ago, of course, 1.5 years ago, is just starting to ramp, within in terms of into a larger market. And we are already launching an 800 gig. So the speed, the regularity and the speed at which we are pushing these products is definitely something we intend to keep where we're coming out with a newer generation probably that is probably 2x throughput capacity and a regularity of 18 months to 2 years on a consistent basis, because that's what our hyper cloud customers want. And it makes sense because we need to scale up data centers as CPUs start to hit the limitations of Moore's Law. Now that's one example. As part of that, as we indicated a year ago, we're stepping our investment in areas of silicon photonics, basically to enable interconnects at very high throughput, at very high bandwidth. And that's been going very, very well. It's a multiyear investment. And as we indicated from the last time we talked about it, we are now only on the 2nd year. But we expect to have something that will make sense that will be out to the marketplace within a generation or 2 of our platforms in switching and routing. And that's on that aspect of it. In terms of further investments, we have stepped up investment, as I indicated in my report, on Wi Fi, on connectivity of basically 802.11ax now. And we launched that platform 2 years ago and very successful and we're already working on the we have invested a lot on the next generation Wi Fi 7 successor to this Wi Fi 6. In between, we're putting out 6 gigahertz WiFi, that's WiFi 6E, which has the spectral bandwidth recently was approved by the FCC not that long ago. And we already have our first product certified by the FCC recently. We're the first out there. So we intend to be in the lead, for instance, in this wireless connectivity, which by the way today, as I indicated, represents a very substantial and growing part of our business. It's a testimonial to other reliable investment and success we've gotten in this area. And so these are some of the things that we have and most of this investment are multi year, but you do start to see some of the bands, some of the products, some of the launches, some of the revenues starting to come in with this level of investments we are making in here. Thank you. Our next question will come from Vivek Arya with Bank of America Securities. Please go ahead. Thanks for taking my question and good luck to Tom and Kristen and Charlie in your new roles. Hock, the question is for you on supply constraints that several of your peers in semiconductors have mentioned, whether it's in substrates or wafers or foundry capacity. I'm curious, where does Broadcom stand on this? Is supply a factor in your reported results or your Q1 outlook or something that you think can constrain the growth in fiscal 2021? Just what steps are you taking to make sure it doesn't constrain growth? And also, on the other side, make sure customers are not double ordering because of all these supply issues? Thank you. Well, interesting question. We reported on by the way, we reported on this supply constraint at least 3 months ago when we did our earnings call. In fact, probably even earlier than that. We have seen probably even 2 quarters ago, we have seen that supply constraint and we were one of the first to report on it. And that supply constraint continues from when we first touched on it 6 months ago. And it's in some area, it just seems to revolve in different specific areas where this we talk about wafers then. Since then, as you correctly pointed out and we hear you here in the news, substrate is a consideration. And believe me, beyond that, wire bonding is even a possible constraint depending on whether more and more automotive legacy products coming in. So we operate in an environment and I mentioned in my remarks that is fairly unique. Here we are in the middle of a pandemic. Here we are where there are winners and losers even in the product lines, even in the industry we're in, where there are some businesses where demand is just booming and we touched on that in networking, in broadband and some areas particularly in enterprise where they're not so strong. But what we also see is supply capacity from our supply chain that is tight, that's way to do it. And we have seen that for months and we have taken a lot of actions to have addressed it and we continue to do that. We're also one of the largest consumer of those 3rd party manufacturers in semiconductors out there, be they wafers, be they substrates, be they back end assembly or test capacity, we are all in there and we've been seeing it for 6 months. So best answer is we're managing that. We have having said that, we have the backlog in place. And we have also very early on in our fiscal 2020 stretch out a supply chain, not only based on what we're seeing, but based on what we anticipate happening. And that's has also enabled us to be able to in a more orderly manner, in what I consider in a more appropriate manner, put products in the hands of end users who need it at the appropriate times. We've done that very well. And having said all that, even as we do it, our backlog continues to grow. To give you a sense, I mentioned we have $14,000,000,000 over $14,000,000,000 of backlog today. When we started the quarter, our backlog and we're shipping in between since then, beginning of the quarter, our backlog was 12. So it's accelerating. But having said that, please don't get carried away in the other aspect. As you know, wireless business that we have is seasonal. So we are seeing, obviously, wireless our wireless backlog is a significant part of our total backlog. But given the seasonality of it, we obviously have seen deceleration in the order in the bookings that are coming in from our wireless business. But we are seeing on the other side acceleration and continued strength in all those coming in from the other parts of our business. Networking has always remained strong, broadband continues to be very strong. And now we start to see the smaller part of our business, industrial, coming in very, very strong. So one side is offsetting the other, and we continue to see this strong backlog, which in a way makes our planning in our supply chain easier, but in some ways, poses other challenges of making sure we are delivering products to the right consumer customers at the right time. Thank you. Our next question will come from Harlan Sur with JPMorgan. Please go ahead. Good afternoon. Great job on the quarterly execution and congratulations to all on the executive appointments. Hock, we're still at the very start of the 400 gig networking upgrade cycle with your hyperscale customers. It seems like telco service providers are also starting to adopt the white box switching routing model, which is good for your Tomahawk and Jericho chipsets. And then you guys are also benefiting from the optical connectivity that goes along with your switching solutions. Beyond this quarter, do you see sustainability of the networking upgrade and spending cycle through next year? And then given the wafer and substrate constraints, are your lead times in networking expanding beyond 6 months now? Very good question, Alan, and thank you for your kind words. To answer the first part, yes, we our new product generation in 400 gs platform, as I mentioned earlier, is starting to ramp up in a big way this coming this fiscal 2021. It started in 2020 with a couple large hyperscale customers and it's been a and it's ramping up with many more fiscal 2021, and I'm sure it goes on to 2022. And we do not see a slowdown in the demand. And you're correct, operator service provider and operators are also adopting this Merchant Silicon India routing platforms on their networks, as I mentioned, particularly in core as well as edge. And we're seeing very, very good demand and success as evidenced by the backlog and orders we're getting from service providers and not just hypercloud, particularly service providers on our merchant Silicon Jericho family. So that's good. And do I see that continuing? Probably as far as you can see 2021. We have our lead times go beyond 6 months, to answer your question. So and just to add a further thought, we have a policy in this company that we adhere to very, very strictly, both because of financial governance. Any orders placed on us do not we do not allow to be canceled. All our customers know that. All our partners know that. So we're actually seeing real demand out there at least 6 months. And that brings us pretty close to the second that brings us in fact to the second half of fiscal 'twenty one at that point. And I guess, as many of you will know, just in time for the beginning of the seasonal ramp of the next generation wireless products. So our 2021 visibility appears to be remarkably better than we usually have at this point in the beginning of the fiscal year. Thank you. Our next question will come from Stacy Rasgon with Bernstein Research. Please go ahead. Hi, guys. Thanks for taking my questions. I had a question on the wireless trajectory. Last quarter, just given the change in seasonality, you had given us a little bit of color. Actually, on this quarter, you said it would probably still grow sequentially. How should we think about the seasonality into, I guess, is it the May quarter off February, just especially given there seems to have been a push It looks like wireless in Q4 was actually came in a little lower than you had expected. And it sounds like some of that's pushing into Q1. So can you I guess, given those dynamics and given that's the seasonal peak in Q1, can you give us some idea similar to what you did last quarter on what to expect for the wireless trajectory into fiscal Q2? Well, that's a tough question. And to begin with, we generally don't talk much about Q2, though I did not give you guys some indication based on backlog we're seeing today, why it's all likely to flow. But I mean, it's you're right. I mean, we have this $14,000,000,000 of backlog, which continues to grow. And substantially, most of it, a lot of it will be filled between Q1 and Q2 to begin with and a bigger picture. But where you ask in respect of wireless, you're correct also in pointing out when we do year on year comparisons now, it's very interesting because the Q4 fiscal 2020, the quarter we just finished and reporting on, becomes the 1st quarterly ramp of our wireless business. And it compares to Q4 fiscal 2019, which in typical cycles in the past, is usually the peak quarter of revenue seasonally for our wireless business. So you're comparing an initial ramp against a peak quarter, and that's down, as I indicated, 9% year on year. The peak ramp now for this current generation of phones in our wireless business will be our Q1, the quarter we are in now. And that compares to the Q1 of fiscal 2020 now, which is post peak rent of the last generation, which is why I also indicated we're likely to see around a 50% year on year wireless revenue. Now we go on to Q2 and I think people probably things get back to more normalcy and as always expect wireless to demonstrate a seasonality as probably the bottom quarter of an annual cycle. Thank you. Our next question will come from John Pitzer with Credit Suisse. Please go ahead. Yes, good afternoon, Hock. Glad to see that you're sticking around. I guess I want to ask some of the questions around the management change and specifically Tom's new position. I'm just kind of curious what that might mean for the software infrastructure business longer term and whether or not there's any sort of plan to potentially actually spin that business out. And I asked the question because clearly when you look at the core IP you have in your silicon business around IO, around acceleration and how important those IP blocks are, when you look at the sum of the part valuation of overall Broadcom, it just looks dirt cheap. You've doubled the operating margins in the software businesses since you acquired those companies and you've got great franchises in silicon and yet you're trading at a big discount. Is there a belief that perhaps the best way to get value longer term for these businesses might be a spin? And is that part of the rationale behind Tom's new position? No, I love the fact you speculate so vividly here, But no, there's no plan. I think it's just that the software businesses, especially go to market, is a very interesting play for this company because Broadcom as a whole and you look at us, we are around $20,000,000,000 $25,000,000,000 roughly, give or take a few 1,000,000,000 in revenues each 1 year. We're technology company, surveyors out there, technology suppliers to an ecosystem. And by that, I mean, an ecosystem that addresses end users, be they hypercloud, be they service providers or be they basic large well, we tend to focus large enterprises out there, like the banks, insurance company, travel agency, whatever the end user. We look at this as our eventual end use customer. That's our ecosystem. And a key part of our ecosystem, we have partners with the OEMs, some distributors, but largely our key partners are on the OEMs, and these are our partners. These are, in a way, important partners that we often sell our products with and through. We look at it that way. So when you look at it that way, at the end use software, infrastructure software, It's no different than the silicon solutions, hardware and software tied to it that we sell out there. It's just that we tend to sell silicon software through partners, we partners who wrap it in a system and goes to end users versus infrastructure software where we tend to go direct, though not all the time. Sometimes we go with MSGS service providers like IBM GTS or DXC that sells it through. But ultimately, it goes to end users who uses our software. And we look at it consistent that way, it makes total logical sense that we have a unified platform that does everything across. Because at the end of the day, we are still fulfilling to the same end users, whether they are semiconductor hardware solutions with software developers kit, SDK or other operating system or straight infrastructure software, some with appliances too, I could add. And so to me to us, long term, it's very logical. They stay together. Thank you. Our next question will come from Ross Seymore with Deutsche Bank. Please go ahead. Hi, thanks for letting me ask a question and congrats to all the senior appointments. I guess this one could be for Hock, Tom or Kirsten. I want to talk about the capital allocation side versus a year ago, You delevered the balance sheet, pushed out the maturities, locked in some good rates. So there doesn't seem to be an issue there. You're comfortable enough to raise your dividend significantly. So I wanted to hear what your thoughts are, especially given the pandemics and what's going on with the backlog being as large as it is. As far as how are you thinking about the other half of your capital? Any sort of update given the environment? Or is it as simple as you're just going to focus on either giving it back with shareholder returns via buybacks or do a deal? Hey, Ross, it's Tom. I'll take that one. I think it's very much back to business as usual. And I think, obviously, 2020, we got into the crisis mode earlier in the year. I think we focused a lot on pushing out maturities. We padded the balance sheet from a liquidity standpoint, which we continue to do. And the markets were very favorable, and we're able to do all that. I think, obviously, business also came back and performed quite well. And as Hawx talked about, we've got a decent amount of visibility in the first half and we'll see what happens in the second half. But it seems like the year is set up for a reasonable amount of success. And so I think with that in mind, we're comfortable with our investment grade credit rating. We have delevered. We paid down $3,000,000,000 of debt in Q4. We're upping the dividend, as you mentioned, and sticking to the policy of giving back about 50% of the free cash flow. So that's going to leave us with some excess cash. And we always look at it as what are the right relative returns and what's best for shareholders. And that usually means buying back stock or doing M and A. And I think we'll certainly look at doing both. We're biased toward acquisitions historically. I think we'll continue to be so as long as we can find the right targets and generate the right returns consistent with our business model. So I'd really say business as usual for us. Thank you. Our next question will come from Timothy Arcuri with UBS. Please go ahead. Hi. I guess I wanted to follow on John's question. So in addition to the management changes, you're pretty much giving a full segment P and L, which you've never done before. So I guess the question is why now? Is there some investor feedback on maybe that the segmentation will drive a better multiple? I mean, for sure, the stock is very inexpensive and it seems like some of the parts would be a better way to value it. But is there some feedback that's giving you the driving you to sort of break out segment P and L? Thanks. Tim, you answered your own question perfectly. Yes. We're doing it because we feel that we should give more disclosures, more specifics of our various businesses. As you notice, in addition to giving full P and L, almost full P and L to Exendia is because there's also some amount of allocation, but we try to be very representative of our 2 segments, semiconductors and infrastructure software. You'll notice that within it, especially in semiconductors, we give you a lot now more color and breakdown on what drives what which are the particular end market applications in semiconductors and the behavior and the dynamics in each of those verticals. And something we understand we have been perhaps more lacking in the past, which we try to remedy now by giving you guys much more details. And it's also in this particular environment, it is very, very important. I think we give it because I cannot say that all cylinders are firing like crazy because as you all know, we all know, they're not in this environment. We have some cylinder and as we indicated very loudly, there are some areas where it's performing very, very well. And it's performing very well, very well, I should quickly hasten to add, not because we are super good in it, which we are, but we're also super good in the other areas that are not performing as well also. It's just the economy, the macro economy, the demand and the unusual situation we're all in. And so we felt it is appropriate to give you guys more specifics what's driving the overall revenue and what has changed. Because as I also indicated in my last earnings call, when we began this year, we had a certain set of expectations, which have dramatically changed now that we finished the year. I expect the semi I had expected semiconductor as an industry to recover from downturns of 2019, obviously. And that 2020 will be a slow, steady recovery accelerating into the back end. What we didn't expect is in actual numbers, it did recover, but not everything recovered. And it's in a sense, it's a response to the requirement, the situation of a pandemic and a work from home environment. And so we see those businesses that are doing it, doing superbly. And to really explain it, we felt we have to give you more disclosures, in which we are. And if we start giving you disclosure, I must say, give you all go all the way and show you where even how the segment the 2 broad segment P and L look like. And one of the other things we want to also demonstrate to you guys loud and clear is that we have a business model in mind, a thesis, investment thesis, when we go and buy this specific software companies, some of which may not be in favor when we bought them. But what we're looking at as we look at semiconductors is that these are very sustainable franchises, which with the right approach, with the right model and the right focus, which we like to think what we described to you is the approach we're taking, that we can make them into real sustainable franchises and generate the kind of cash and profit returns that we are demonstrating to you today and that those are sustainable. Thank you. And our final question today will come from Toshiya Hari with Goldman Sachs. Please go ahead. Hi, guys. Thank you so much for squeezing me in. I had a follow-up question for Tom. Now that you'll be leading the software business going forward, what are the 1 or 2 top priorities for you in running that business? And a clarification question, I think, Hock, in your prepared remarks, you talked about the long term growth rate in your software business being in the low to mid single digits. Is that an organic number or does that include M and A? And then on M and A, Tom, if you can speak to the pipeline and software and your thoughts on valuation today, that would be helpful. Thank you so much. So many questions, I can barely remember the first one. But look, I'm excited. I think we've got a great team bringing together the go to market and the business units under one umbrella. I think it will allow us to scale, continue to grow, which we've been doing. We've had some early success. We've got a lot to learn. And so I think this positions us well, and I'm looking forward to it. Beyond that, we'll take all the other follow-up questions on the call back call. But thanks very much. Ladies and gentlemen, thank you for participating in today's question and answer session. I would now like to turn the call back over to Ms. Beatrice Russotto for any closing remarks. Thank you, operator. So in closing, we did want to note that we'll be kicking off the presentations by our General Manager at the JPMorgan Tech Forum on Tuesday, January 12. Tock will be joined by Ram Balaga and Alexis Bjorlin from our networking division to present at that event. So thank you. That will conclude our earnings call today. And operator, you may end the call. Well, ladies and gentlemen, this concludes today's conference