Earnings Call: Q2 2021

Jun 3, 2021

BroadCam Inc. 2nd Quarter Fiscal Year 2021 Financial Results Conference Call. At this time, for opening remarks and introductions, I would like to turn the call over to Ji Yu, Director of Investor Relations of Broadcom Inc. Please go ahead. Thank you, operator, and good afternoon, everyone. Joining me on today's call are Hock Tan, President and CEO are Kirsten Spears, Chief Financial Officer Tom Krause, President, Infrastructure Software Group and Charlie Kowas, Chief Operating Officer. Broadcom also distributed a press release and financial tables after the market closed describing our financial performance for the Q2 of fiscal year 2021. 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 atbroadcom.com. During the prepared comments, Hock and Kiersten will be providing details of our Q2 fiscal year 2021 results, guidance for our Q3 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 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. I'll now turn the call over to Hock. Thank you, Gee, and thank you, everyone, for joining us today. In Q2, semiconductor solutions revenue grew a strong 20% year on year to $4,800,000,000 With infrastructure software revenue growing an expected 4% year on year to $1,800,000,000 consolidated net revenue was $6,600,000,000 up 15% year on year. Now on the last earnings call we had, we talked about how strong broadband and networking bookings were from hypercloud and service providers, even as wireless was declining seasonally. In Q2 just passed, not only do we see broadband and networking sustaining, we now see a recovery of bookings from enterprise and on the supply side, hourly times have now stabilized, but the book but the volume of bookings we are experiencing today continues to grow. Now we intend to meet such demand and in doing so, we maintain our disciplined process of carefully reviewing our backlog, identifying real end user demand and delivering products accordingly. With Dan as context, let me provide you more color. Starting with broadband, which interestingly now is going through somewhat of a renaissance. Revenue grew 28% year on year and represented 18% of our semiconductor revenue. As discussed during our broadband teaching, the work, learn and play from home environment is driving global service providers to expand connectivity to the home. In our broadband carrier access business, PON fiber or otherwise known as PON grew over 40% year on year, mostly with existing generation 2 point 5 gs, but with next generation 10 gs PON representing only 30% today, there is significant room for content growth as 10 gs PON deploys over the next few years. Not to be outdone by fiber, cable operators in the U. S. Are driving deployment of DOCSIS 3 point 1 cable modems, we saw an 80% year on year growth and planning to accelerate the upgrades to next Generation DOCSIS 4.0. Our broadband technologies, in fact, are enabling service providers to complement the 5 gs they deliver to deliver best experience for consumers. Now overlaying all these last mile broadband upgrades, we see a demand search for the latest Wi Fi 6 and 6E technology to enable the last 100 feet of connectivity in homes. Broadcom has emerged as the clear market and technology leader in Wi Fi for excess gateways to the home and to enterprises, with over 50,000,000 ports shift in Q2 alone or a year on year revenue growth of some 30%. On the other hand, as we might expect, with the push into higher performance fiber, copper DSL, digital subscriber line deployments for wireline broadband declined 30% year on year and with a lack of live events during the pandemic, video declined 20%. With the onset of 5 gs, service providers are competing for subscribers, leading to technology upgrades globally in fiber, cable and Wi Fi connectivity. We're seeing this investment cycle in broadband extending into 2022. And so for Q3, we expect to sustain double digit year on year revenue growth in this segment. Moving on to networking. Networking grew 10% year on year represented 32% of our semiconductor revenue. We experienced tailwinds from hypercloud and telcos, partially offset by headwinds from enterprise. Revenue for switching was up 30% year on year, primarily driven by the strong ramp of our Trident and Tomahawk 3 for over 400 gs platforms and hypercloud data centers. In their networks, service providers have been investing in 5 gs infrastructure worldwide, where the demand for Jericho 2 at the Metro call and Kumran at the Edge have been robust with revenue up 35% year on year. On the other hand, enterprise demand in networking has not yet recovered, still down double digits from a year ago. And as we go into the back half of the year, we expect to see HyperCloud upgrading to our next generation Trident Tomahawk for over 800 gs switching platforms and sustained strength by service providers in network routing. And accordingly, in Q3, we expect networking revenue to maintain the trend of low double digit growth year on year, we found the complete recovery of enterprise demand. Speaking of enterprise, let's talk about server storage connectivity, which represented approximately 12% of semiconductor revenue. This end market is largely driven by enterprise and in line with our guidance, revenue was down 16% year on year. You may recall, however, in Q1, this was down 22%. And as the economy starts to recover, we have seen an improving demand trajectory. And so in Q3, we expect server storage connectivity revenue to be down high single digits percentage year on year. With the launch of Intel's iSelect, AMD's Milan, as well as future ARM based servers, this space is turning quite exciting and innovative for us both in hardware and software. And we will provide obviously more color during our next teach in in July on our server storage business. Moving on to wireless, Q2 revenue was down 16% sequentially, reflecting seasonality we have wireless representing 34% of semiconductor revenue mix. Nonetheless, on a year over year basis, wireless revenue was up 48%, reflecting a very favorable compare year on year as well as content increases in air bar and Wi Fi. In Q2, we were able to ship more than we had originally planned. And accordingly, in Q3, we expect the growth trend in wireless revenue to sustain, but at over 30% year on year. Finally, industrial and other represented approximately 4% of Q2 Semiconductor Solutions revenue. Resales grew 34% year over year in Q2 driven by recovery in automotive and China, inventory in the channel continues to deplete as what we shipped into distributors grew only and services, we will be conducting a few minutes to discuss our Q2 Semiconductor Solutions segment was up 20% year on year and in Q3, we expect revenue growth year over year to be of a similar amount. Turning to software. In Q2, infrastructure software produced another quarter of steady and predictable results as revenue grew 4% year on year and represented 27% of total revenue. Now if we exclude Professional services. Our enterprise software revenue grew 7% actually year over year. And further indicator of the quality and sustainability of our products, over 90% of our software bookings represented recurring subscription and maintenance we've an average contract lifespan from core customers pretty much close to 3 years. We continue to believe our infrastructure software business is on track to grow at or better than mid single digit we will be happy to take the next step in the call. Summarizing this, demand continues to be robust. And so our Q2 consolidated net revenue grew 15% year over year. We expect the momentum to sustain in Q3 and total revenue to be at $6,750,000,000 or up 16% year on year. With that, let me now turn the call over to Kiersten. Thank you, Hock. Let me now provide we will now take additional detail on our financial performance. Revenue was $6,600,000,000 for the quarter, up 15% from a year ago. Gross margins were a record 75% of revenue in the quarter and up approximately 100 and 80 basis points year on year. Operating expenses were $1,200,000,000 down 1% year on year, driven by lower SG and A offset in part by increased investment in R and D. Operating income for the quarter was $3,800,000,000 and was up 25% from a year ago. Operating margin was 58% of revenue, up approximately 4.70 basis points year on year. Adjusted EBITDA was $4,000,000,000 or 60 percent of revenue. This figure excludes $133,000,000 of depreciation. Now a review of the P and L for our 2 segments. Revenue for our Semiconductor Solutions segment was $4,800,000,000 and represented 73% of total revenue in the quarter. This was up 20% year on year. Gross margins for our Semiconductor Solutions segment were approximately 69%, are up 2.90 basis points year on year, driven primarily by higher product margins. This margin comes from content growth as we deploy more next generation products in broadband and networking end markets. Operating expenses were $795,000,000 in Q2, up approximately 2% year on year as we invested in R and D and streamlined SG and A. R and D was $702,000,000 in Q2, up approximately 6% year on year. Q2 operating margins increased to 53%, up 580 basis points year on year. So while semiconductor revenue was up 20%, operating profit grew 35%. Moving to the P and L for our Infrastructure Software segment. Revenue for infrastructure software was $1,800,000,000 and represented 27% of revenue. This was up 4% year on year. Gross margins for infrastructure software were 90% in the quarter, up 100 basis points year over year. Operating expenses were $355,000,000 in the quarter, down 8% year on year as we've completed the integration of Symantec. R and D spending at $228,000,000 is up 1% year over year. Operating profit was up 10% year on year on top line growth of 4 percent. Operating margin was 70% in Q2, up 3 60 basis points year over year. Moving to cash flow. Free cash flow in the second quarter was $3,400,000,000 representing 52 percent of revenue. Day sales outstanding were 33 days in the Q2 compared to 51 days a year ago. We ended the 2nd quarter with inventory of 1,000,000,000 an increase of $52,000,000 or 5 percent from the end of the prior quarter. We should also note in Q2, we spent $126,000,000 on capital expenditures. On the financing front, we extended our weighted average debt maturity to approximately 10 years from 9 by exchanging notes, our weighted average coupon decreased about 5 basis points to 3.7%. During the quarter, we made $1,500,000,000 in payments on debt obligations, ending the quarter with $9,500,000,000 of cash and $40,400,000,000 of total debt of which $278,000,000 is short term. Turning to capital allocation. In the quarter, we paid stockholders $1,600,000,000 of cash dividends. We also paid $461,000,000 in withholding taxes due of employee equity resulting in the elimination of approximately 1,000,000 AVGO shares. We ended the quarter with 410,000,000 outstanding common shares and 450,000,000 diluted shares. Note that we expect the diluted share count to be $449,000,000 in Q3. The Board of Directors has approved quarterly cash dividend on our common stock of $3.60 per share in Q3. Based on current trends and conditions, our guidance for the Q3 of fiscal 2021 is for consolidated revenues to be $6,750,000,000 and adjusted EBITDA of approximately 60% of projected revenue. That concludes my prepared remarks. Operator, please open up the call for questions. Thank you. Please standby while we compile the Q and A roster. Our first question comes from the line of John Pitzer of Credit Suisse. Your line is open. Yes. Good afternoon, guys. Thanks for letting me ask the question. Hock, I've got 2 quick ones. First, within your wireless business, you've been able to sign long term contracts with your key customer and I'd argue that's benefited both you and them. It's given you the confidence to invest in the business properly and then the confidence that you'll have supply for them when they need it, I'm just kind of curious, given how tight things are elsewhere in the semi business, have you been able to parlay this into any longer term customer contracts and what implication might that have as we all start to worry about the end of cycle? And then secondly, just on your comments about enterprise recovery, can you elaborate on that? Was that specifically a storage comment or is that also a networking comment? Okay. Let me take the question one at a time. On arrangements with long term agreements, John, this is something we have been thoughtfully, carefully putting in place with I'll call strategic customers. We just don't go do it as if it's commoditized. We're very thoughtful about doing it and we do it in very specific areas where we know for sure that the technology is fairly, fairly difficult, complex to manage and which requires a substantial amount of R and D Spending. And we've been doing it for a while now with strategic customers in core businesses. So we just don't do it across the board. And what you pointed out is very, very correct. It's a mutual it's a structure, it's an agreement with mutual benefit. We have the confidence to invest in R and D to make CapEx capacity investment and in return, we offer the best leading edge technology in specific areas in a timely manner to our critical customers. So yes, we have been doing it and we will continue to thoughtfully do it in a very appropriate manner. On the second part, okay, which is if you could repeat the question, John, let me be sure. Yes. Just to Operator, a little bit on your comments about an enterprise recovering brewing. Was that mostly within storage or was it networking? So I'm a little bit surprised given some of Cisco's comments That you're not a little bit more positive on the enterprise network space? It is Across it is for enterprise spending, it is I won't say across the board necessarily and trying to define enterprise very Appropriately. As you noticed in my comments, we classify service providers telcos as a separate animal, different from traditional enterprise. And so and as I pointed out, based on broadband, telcos have been investing big time. Service provider telcos have been investing in a huge manner over the past 12 months, but traditional enterprise, the companies, whether it's the banks, the manufacturing sector, various retail customers and airlines examples, no, these guys are in a recovery mode. And not surprising, we are seeing pandemic easing, like say, in North America. And as it eases, we see a step up in spending, but we do not see spending spiking up. Now obviously, if you look at some businesses that require, like warehouses that require Wi Fi network, campus networking environment, you do see that improving. But to say across the board, all enterprises are just spending money, not we are still seeing, and as I show that in servers, storage connectivity, we still see a year on year things are not up to what it was a year ago. And that applies not just on data centers, namely compute, it also applies to data centers in enterprise, campus environment. We see less of that, but across the board. Helpful. Thank you very much. Thank you. Our next question comes from the line of Harlan sir, JPMorgan, your line is open. Good afternoon. Great job on the quarterly execution, strong margins and Free cash flow generation. Hock, I think as you mentioned, we're still in the early phases of the 400 gig networking upgrade cycle with your hyperscale and telco customers. I know 2 of your big cloud titan customers have already started the upgrade. Looks like there are another 2 more that are going to start the upgrade cycle here in the second half of this year and quite a bit more next year. And then as you mentioned, you still have Tomahawk 4 ahead of you. So given the and visibility that the team has with the strong backlog, do you see the cloud and telco upgrade cycle and inevitable recovery in enterprise Driving continued year over year growth in networking into next year. I don't we don't really try to guide More than 1 quarter at a time, first of all, because we're not that smart to be able to do that. But on a broader trajectory, it does appear fairly much the trend as we said, which is the hyper cloud guys will push out in the second half as I indicated on their data center side on Tomahawk 4, the 800 gs platform. In fact, we have substantial backlog for delivery in the back half of the year for Tom Holland 4. So we see that going on. But and we use you're right, we see The recovery step by step of enterprise, though I do not see that really taking off In terms of reaching the level, it was a year ago, probably until 2022. What we do not know for sure is would that give pause to hypercloud in their spending? And that part, I'm just putting everything on the table. We're not sure whether hyper cloud spending will necessarily continue into 2022. We sense it would. We see some of the backlog, but as enterprise steps up, one relevant never knows if the economy starts to rebalance in that side. But what we do see in broadband the service providers, the telcos in particular, are for sure upgrading. And here this is the longest cycle of upgrades and we see them upgrade and we see the backlog associated with it through 2022. Great. Thank you. Thank you. Our next question can come from Ross Seymore of Deutsche Bank. Your question please. Hi guys. Thanks for letting me ask a question. Congrats on strong results, Hock, I want to dive a little bit into the lead time commentary that you had with that stabilizing. 2 quarters ago, you talked about the size of the book, the backlog you had. Last quarter you talked about the year over year and even in some instances the sequential growth being so large in bookings and now we're hearing that the lead times are stabilizing. People could interpret that a bunch of different ways as far as the implication on the demand side of the equation or that supply is catching up to it or frankly people are just ordering so far out that they're not willing to extend that any further. So I was hoping to double click on that lead time commentary and get your feelings as to why it's stabilizing and do you take that as I'll just make a comment to say we have stretched out our lead time so far, Ross. Good point you bring up and I'm glad you bring it up to give me a chance to clarify a set of quick comments I made in my opening remarks we are comfortable at the lead times we are on. And so what it is, is customer our customers are comfortable seeing our lead time now. But what we have found rather remarkable over the last quarter is that even as our lead times remain stable, consistent, the volume of bookings we receive every week continues to grow. I made that comment and thanks for the opportunity to make that reiterate that point. Same lead time, stable for last 3 months, but the booking rate we are seeing every week continues to step up. Great. Thank you. Thank you. Our next question comes from Vivek Arya of Bank of America Securities. Your line is open. Thanks for taking my question. Hock, I had another one on the supply situation. If there were no supply constraints, how fast would your semiconductor business Doctor business be growing and kind of Part B of that is, what is driving the shortages for you right now? And what are you doing to resolve it? And do you have any kind of gut feel on when the supply situation will become normal? Thank you. One of the first I'll answer the first and the last. In between, I'm not sure. But on the first, It's we will not put ourselves in the situation nor should anyone do it because there's also a certain amount, we do not want our customers and I don't think any of our peers want to do that either to buy to hoard, to create buffers, to buy ahead of what they need. So we try to mesh, identify, as I said, and go through a process of rigorously understanding true end demand. In other words, we look for drop date quantities as Doctor. Museums in the industry. And we shift to those drop dead quantities and maybe a little more. And what you see today is the true growth rate we are representing. We are not hiding what could have been. There's no one could have been. We're shipping to what we believe we customers consider as the true real demand. Now having said that, we may be delivering doing JIT just in time. But nonetheless, we do try to fulfill what customer truly want Just on the in a timely basis. And that still continues today regardless of the size of the backlog we have. We're disciplined in that regard. And from our perspective, the challenges we have in the supply chain is a constant set of challenges is to ensure that we get components, whether it's wafers, substrates, getting our products assembled, tested and any other small components on a timely basis to make sure that we can keep this thing running. And if you look at the size of our inventory versus the size of our cost of goods sold or revenue quarterly, you can see that we run pretty close to just in time through our entire supply chain. And we've been able to do it and sustain that. And so what we're reporting to you like 20% year on year growth on semiconductor components it's in our view a pretty decent reflection what is truly end demand needs out there. All right. Next question. Our next question comes from Timothy Arcuri of UBS. Your line is open. Thanks a lot. Hock, I guess I wanted to ask you what you think the long term growth rate is of your semiconductor business. You're you're sort of trending to the high teens this year, but that's kind of due to easy comps and you have the compressed iPhone launch and the pull forward of some of these technologies due to the pandemic. So once this all sort of normalizes, what do you think is the right long term growth rate for the business? Are you still thinking 5% or do you think maybe just given the strength of the on bookings recently that it could be better than that? Thanks. That's a hell of a question. And I'll tell you this, right now we're in the midst of a very strong demand And that's also created perhaps, as we all know about, a severe imbalance between demand and supply as demand as supply works to catch up. But if you look at it long enough, I think the dynamics underlying the fundamental dynamics underlying the semiconductor industry hasn't yet changed. At least, I haven't seen it to change. So, Tim, That's my best and that's the only best answer I can give you, which is I haven't changed my thinking if we look over the next 10 years how this industry will behave, because it is a relatively matured industry. It's evolutionary. Technology is still evolving, which is great for us, And it keeps getting better and better, but it's evolving. Disruption, as people like to say, in this industry it's less of an event. It's evolutionary, and I have not seen anything that tells me there's a fundamental change. Thanks, Hock. Thank you. Our next question comes from Craig Hettenbach of Morgan Stanley, your line is open. Thanks. Tom, just given the ongoing strength in free cash flow and improved balance sheet, can you just talk about your thoughts on the M and A environment and also indoor buybacks, how you're thinking about cash deployment as you go forward? Yes, I'll take that one. This is Kirsten. Relative to capital allocation, 1st and foremost, we're dedicated to paying 50% of our free cash flows to our shareholders. And so that would be first. Secondly, M and A, if we can accretive M and A, it would be the 2nd objective. Then thirdly, stock buybacks and at the end there would be debt repayments. So I think that's how we're looking at capital allocation in that order. There isn't anything yet on the M and A front that I can talk about, but if anything does come up, we'll let you know. Thank you. Our next question comes from Blayne Curtis of Barclays. Please go ahead. Hey, good afternoon. Thanks for taking my question. Just curious a little more detail on the gross margin. It's a record gross margin. Any color on product or segment? And then I guess as you look forward here, if if you could describe what you're still dealing with in terms of excess costs due to COVID? And then how to think about it as enterprise comes back, should that be additive to the gross margin? I expect gross margin next quarter to be about the same as it was this quarter. And then as you know, at the end of the year, We're expecting wireless to come back in, for the normal ramp that we have and so the margins will come down a bit towards the end of the year. But at this point, I see us being able to sustain the margins that we experienced this quarter, mostly coming from networking and broadband. Blaine, as a result, perhaps repeating ourselves too much from past conversations that I had with all you guys, our gross margin has this natural trend of continuing to keep expanding year on year, not necessary quarter on quarter, but sequentially as much as year on year simply because we tend to have a chance to go to a new product life cycle product, new next generation product in across some of our franchise products and it's a combination of all this. So the natural growth of expansion of gross margin for our business, especially in the semi side, Particularly in the semi site, which I assume your question is related to, Blaine, is as I've always said, we have a gross margin expansion range of 50 basis points to 150 basis points year by year. And it's an average across our 24, 25 different, well, I should take out software, just hardware, about 20 or so different product lines, each with a different product life cycle and each going to its new generation product each time. As you know, each time we come to a new generation product, we get a lift in margins, in product margins, which translates to gross margin. So it's not unusual to see us go to the higher end of the range. And in this particular case, year on year, it's a bit more than the higher end of the range. And that's probably related to perhaps a separate mix of products in this environment because there are still puts and takes across our product range, not everything is on fire. And based on that, we end up with higher than the normal 50 basis point to 150 basis point range. But I don't think this is something that will go on forever. But you should expect that year after year, you will see that 50 basis points to 150 basis point improvement in gross margin on the semiconductor side. Thanks so much. Thank you. Our next question comes from Toshiya Hari of Goldman Sachs. Your line is open. Hi, guys. Thank you so much for taking my questions. I had 2 actually, 1 on wireless and 1 on the cost side. Hock, in terms of wireless, I guess, in Q2 revenue came in better than expected. I just wanted to understand was that primarily supply being better or were there dynamics on the demand side that came in better than expected? And then sticking to wireless, as you think about the next generation product cycle at your largest customer, how are you thinking about the content opportunity at this point, you pretty much know what's locked in. If you can comment on RF and Wi Fi and touch and maybe compare and contrast this uplift in this cycle vis a vis past cycles, that would be super helpful. And then on the cost side, based on the comments you just made about gross margin expansion and some of Kirsten's comments, I doubt cost inflation is having impact on your business. But if you can speak to wafer pricing and substrates and what you're seeing from a cost perspective over the next year or so, that would be super helpful. Thank you. All right. Let's start with the first one. And if I lost track of the last 2, you better remind me. But on wireless, you're right. What indicated was Q2 wireless was kind of higher than we originally planned and a lot related to demand. Of course, it's demand. We will never ship just because we have the products. It's based on demand, one thing is, and so we're happy to fulfill it. And part of the demand may actually come a bit from Q3. Not sure 100% yet because this As demand comes in short cycles and it may and perhaps that's why we are a bit careful about telling you Q3 year on year improvement is still 30 plus percent year on year growth. I'm not saying 40 plus, But we don't know for sure, except we know that we do pull in some from Q3 to Q2, not much, and that allows Q2 to perform 48% year on year growth, which is great. But Q3 will still be pretty good year on year as we fully expect. And related to content and all that, I prefer at this point in this sensitive arena, we have a highly sensitive situation to not answer that question at all. No offense, please, but I can answer that question. But I'll be happy to take the 3rd question, which is, yes, we have cost inflation in this environment, where as we all know, the semiconductor Supply chain is under severe constraint on its ability to provide. Now we are very large. We are very large customer and a very loyal customer to many of our suppliers, all of our key components and so we believe we are treated very well. Having said that, where prices are concerned, of course, not. We see cost inflation. And in this environment, we are very, very we are open to talking to our customers who are in turn very open to being able to address cause inflationary cost pressure in a higher purchase price on the other side. So we're good, which is why our margin has been stable. Thank you. Thank you. Our next question comes from C. J. Muse of Evercore. Your line is open. J. Muse:] Yes, good afternoon. Thank you for taking the question. I guess another question on the supply chain and I guess a bigger thanks for your question, Hock. If you think about your increased lead times, you talked earlier to John's question about selective strategic agreements with key customers, at the same time, we're taking multi year kind of take or pay contracts with foundries. Curious if you see any structural changes to the semi industry as we kind of emerge post pandemic? Okay. My frank opinion, I don't know. They shouldn't be. Same question that was asked is, do I think the semiconductor industry over the next 10, 20 years we'll grow any faster or slower. And my view is, no, I don't think I don't see any fundamental things that have changed. See, while we are in the thick of this storm, so to speak, of course, all hell breaks loose as the expression goes. But these are cycles we all have seen many times in the semiconductor industry. And maybe this is a bit extreme with the in the context of the pandemic over the course of 2020, now extending partly into 2021. But the supply will step up at some point And demand is always there because people need technology, people need the performance need the technology that we all offer in the products we provide and we'll be competing the same way we have been competing. And it's not necessarily related to creating long term agreement or any such thing. It's about being able to provide the best technology, the best product in a timely manner for your customers. And it doesn't matter that you do any agreements, if at the end of the day, you lack the technology or you lack the products that customers need to make themselves successful to be able to deploy in a very well in a good manner. And that has always been the semiconductor industry. And that is that will I do not see anything that changes that. Now, putting long term agreements might make life easier, but I think it's just a myth. We still have to establish ourselves that we can outperform, out engineer Thank you. Our next question comes from Chris Danely of Citi. Your line is open. Hey, thanks gang. There's a lot of talk, worries, speculation, I don't know, old wives' tales, whatever, about this big inventory build of handsets in China. Any thoughts there, Hock and team? And what will be the Potential impact for Broadcom? Well, If there's such a big overhang sitting out there, not directly because our wireless business, our wireless product as we have fully articulated, Primark's sales to 2 large customers largely, and we're talking about handset. We do not sell much, if any, to the handset product handset guys, OEMs that is in China. And we sell to 2 big customers, one in North America, one in Korea, and these are very high end flagship status phones, and That's it. And now, there could be indirect blowback and then I do recognize in certain markets, if there is an excess of inventory that needs to be just thrown out there. But on the other side, on a direct basis, we do not see any we do not expect to see any. Thanks, Akshay. All right. Thank you. At this time, I'd like to turn the call over to Ji Yu for closing remarks. Thank you, operator. In closing, please note that Hock will be presenting at the BofA Securities Technology Conference on Tuesday, June 8. Following our networking and broadband teach ins earlier this year, Broadcom and Bernstein will be hosting a teach in on our storage businesses on Wednesday, July 21 at 12 pm Eastern, we will be joined by Jazz Tremblay, General Manager of our Server Storage Connectivity Business Jack Rondoni, General Manager of our SAN Business and Dan Dolan, Marketing Head of our Hard Disk Drive Business. That will conclude our earnings call today. Thank you all for joining. Operator, you may end the call. Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.