Earnings Call: Q4 2017

Dec 6, 2017

Good day, ladies and gentlemen, and welcome to Broadcom Limited's 4th Quarter and Fiscal Year 2017 Financial Results Conference Call. At this time, for opening remarks and introductions, I would like to turn the call over to Ashish Saran, Director of Investor Relations. Please go ahead, sir. Thank you, operator, and good afternoon, everyone. Joining me today are Hock Tan, President and CEO and Tom Krause, Chief Financial Officer of Broadcom Limited. After market close today, Broadcom distributed a press release and financial tables describing our financial performance for the Q4 and fiscal year 2017. If you did not receive a copy, you may obtain the information from the Investors section of Broadcom's website at www dotbroadcom.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 broadcom.com. During the prepared comments section of this call, Hawken and Tom will be providing details of our Q4 and fiscal year 2017 results, guidance for our 1st fiscal quarter of 2018 and some commentary regarding the business environment. We will take questions after the end of our prepared comments. 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. Please refer to our press release today and our recent filings with the SEC. At this time, I would like to turn the call over to Hock Tan. Hock? Thank you, Ashish. Good afternoon, everyone. Well, we closed our fiscal 2017 on a very strong note with solid financial results for the 4th fiscal quarter. 4th quarter revenue of $4,850,000,000 grew 17% year on year and 9% sequentially. On the earnings front, earnings per share were $4.59 growing by 32% year on year and 12% sequentially. Our business continued to become more profitable through fiscal 2017. We achieved operating margins of 47% in our most recent quarter, comfortably ahead of our long term operating margin target of 45%, which we had announced at the end of fiscal 2016, and EBITDA rose to 50%. This led to substantially improved free cash flow generation in 2017, which drove the 72% increase in our dividend we announced today. As you may recall, this latest dividend increase comes on to remain very focused on increasing capital return to our shareholders. We also continue to successfully execute our M and A strategy, having completed the acquisition of Brocade early in the Q1 of fiscal 2018, this current quarter. Adding one more business to our broad portfolio of our business continues to be strong. All our 20 product franchises continue to perform extremely well. Before I turn to a discussion of segment results, please note that commentary today for the Q4 does not include any contribution from Brocade. As I look forward within each of these segment commentary, I will also touch on specific trends and growth drivers for our business in fiscal 2018. Guidance, however, for 1st fiscal quarter does include a partial quarter of expected contribution from the Brocade Fibers Channel Sand Business. Please also note that this Q1 2019, our largest segment, in the 4th quarter, wire revenue was $2,150,000,000 growing 4% year on year declining 3% sequentially. The wired segment represented 40 5% of our total seasonal decline in demand for our broadband access and set top box products. Similar to a number of our peers, we also experienced a slowing a slowdown in demand for our optical products from XS and Metro Networks. In contrast, however, demand from data centers continued to hold up quite well into the Q4. Turning to the Q1 of 2018. We expect to see the bottom of the seasonal decline in demand for our set top box and broadband access. And if we look further into the rest of 2018, we are rather excited about the ramp that we are enabling for our key cloud customer and couple of OEMs in artificial intelligence. Okay. In broadband, we are also seeing increasing traction on 10 gs technology to support broadband video delivery. Beyond even that point, we see that 10 gs cable technology going full duplex. Moving on to wireless. In the 4th quarter, wireless revenue was $1,800,000,000 growing 33% year on year and 40% sequentially. This wireless segment represented 37% of our total revenue. 4th quarter wireless revenue was driven by the ramp in shipments of next generation platform from our large North American smartphone customer. Growth in revenue was driven by the large increase, as we had indicated, in Broadcom's total dollar content in this new platform. As we look into Q1 2018, unlike the last two years, we expect wireless revenue to continue to grow sequentially as the ramp in demand from our North American customer this year was pushed out compared to prior years. Going beyond that into 2018 into the rest of 2018, we see significant increase in FBAR content driven by the need for additional filtering at the antenna. We are also very excited by the launch, the second half of twenty eighteen of the next generation Wi Fi products, the 802.11ax, which we expect to see happen at retail and progressing to handsets. Let me now turn to our Enterprise Storage segment. In the Q4 2017, enterprise storage revenue was $645,000,000 growing 15% year on year and declining 12% sequentially. The storage segment represented 13% of our total revenue. Sequential decline in storage revenue was driven by an anticipated correction in demand for hard disk drive products. In contrast, our server and storage connectivity business, the Migrate business experienced an increase in demand driven by the Pearly server launch cycle. Looking into the Q1 2018, we are seeing this Pearly launch continue to gain traction and drive very strong growth in demand for our server storage connectivity products. We also expect hard disk drive demand to have bottomed in the Q1 and start to recover. Starting with the Q1 of fiscal 2018, the Enterprise Storage segment this Enterprise Storage segment will include Brocade's fiber channel SAND business, which is expected to generate a partial quarter revenue contribution of $250,000,000 in Q1 fiscal 2018, driven very well by our products supporting the adoption of all flash arrays in storage appliances infrastructure with our PCI Express and NVMe technology. Finally, our last segment, Industrial. 4th quarter Industrial segment revenue was 257,000,000 dollars representing 5% of total revenue. Revenue for this segment grew 59% year on year, 8% sequentially. And this strong year on year growth, however, included the impact from a large increase in IP licensing revenue, which as you know tends to be able to grow double digits year on year. And looking into the Q1, while we expect IP licensing revenue to decline sequentially, industrial shipments and resales are likely to continue to trend as they did in the preceding quarter. And in fact, for the rest of 2018, we see the strong adoption and ramp of our optical isolation products to continue to drive growth coming from electric vehicles. So in summary, 4th quarter fiscal for the 4th fiscal quarter, we believe we delivered very strong financial results. Our Q1 fiscal 2018 revenue continues to be good as we see an outlook of $5,300,000,000 which includes the partial quarter contribution from Brocade. These will position us, we believe, for a very strong start to the new fiscal year. We have made great progress, we believe, in executing to all key parts of our strategy through fiscal 2017. Solid revenue growth and improved profitability, which ended up exceeding our current financial targets, led to a significant increase in capital return to our shareholders. These achievements, coupled with the expected rapid integration of Brocade and a background of continued strength in our various businesses will allow us to now improve on our long term target operating model, particularly as it applies to 2018. While we will continue, having said all that, to target long term sustainable revenue growth of just 5%, even as in the Q1 fiscal 2018 we are seeing double digit growth. We are increasing the gross margin target to 65%. We expect to sustain R and D expenses at about 15% of net revenue and drive SG and A expenses below 3% of net revenue. This positions us to increase the target for operating profit margin to be 46% otherwise specifically noted. A reconciliation of our GAAP and non GAAP data is included with the earnings release issued today and is also available on our website atbroadcom.com. Let me start first with comments on the progress we have made towards our long term target operating model. As Hock outlined and I'm pleased to report for fiscal 2017, we did exceed our long term target of greater than 60% gross margins and 45% same quarter of last year. On capital returns, as you recall, starting last year, we did increase the target for aggregate dividends to 50% of free cash flow on a trailing 12 month basis. And as a result of that financial policy, we did double our dividend at the end of fiscal 2016. Leveraging the significant improvement in profitability and operating cash flow generation fiscal 2017, we announced today a 72% increase in dividends. This increase takes our interim dividend to 1.75 dollars per share or $7 per share on a full year basis and represents an approximate return of $3,000,000,000 annually to shareholders. We closed the acquisition of Brocade about 3 weeks ago sorry, excuse me, 3 weeks into the fiscal quarter of 20 18. We completed the divestiture of Brocade's campus WiFi and switch business to ARRIS for $800,000,000 in cash in the 1st fiscal quarter of 2018. And we also sold Brocade's headquarter building in Santa Clara for approximately $225,000,000 in cash also in the Q1. These transactions, along with the completion of other several other smaller deals, marks the completion of portfolio rationalization activities for the Brocade acquisition and resulted in lowering the total consideration for Brocade to approximately $5,000,000,000 We look forward to fully integrating Brocade over the next few quarters and expect our total operating expenses in fiscal 2018, including Brocade, to remain within our target of 17.5% of net revenue. Let me take a moment to reiterate our financial policies, which we remain committed to going forward. We expect to continue to target long term permanent gross leverage of approximately 2x EBITDA as long as the cost of that debt remains attractive. We also plan to continue to target aggregate dividends of approximately 50% of free cash flow on a trailing 12 month basis. Given our free cash flow generation, we believe that this will also allow us sufficient balance sheet flexibility to pursue acquisitions that are consistent with our proven business model. As we look forward, the credit quality of the business continues to strengthen and we remain focused on maintaining and improving our investment grade ratings, including on our current debt. As Hock mentioned, we are also updating our long term target operating model. Sustainable long term revenue growth remains at 5% on an annual basis. Gross margin target increases to 65% and operating margin targets increased to 47.5%. Target free cash flow as a percent of revenue increases from 35% to 40%, and I would note that includes our long term CapEx target remaining at 3% of net revenue. With that, let me quickly summarize our results for the Q4 of fiscal 2017, focusing primarily on balance sheet and cash flow items. We delivered strong financial results for the Q4 starting with revenue at 4,850,000,000 dollars which grew by 8.5% sequentially and 16.9% year on year. Our day sales outstanding were 46 days, a decrease of 3 days from the prior quarter. Our inventory at the end of the 4th quarter was $1,447,000,000 flattish from the prior quarter. We generated $1,559,000,000 in operational cash flow, which includes the impact of a $345,000,000 payment to fund our legacy pension plan in the U. S. Free cash flow in the Q4 was $1,727,000,000 or 35.6 percent of net revenue. I'm pleased that even with the impact from the pension payment, which was approximately 7% of net revenue, we were able to drive free cash flow conversion above the 35% target we had set last year. Capital expenditure in the 4th quarter was $233,000,000 or 4.8 percent of net revenue. As we have indicated on prior calls, we expect overall CapEx to decline meaningfully starting in 2018. We expect CapEx to approach our long term target of $39,000,000 in cash was spent on the company dividend and partnership distribution payments in the 4th quarter. We received approximately $4,000,000,000 from the issuance of long term debt to finance the Brocade acquisition. And we also received approximately $440,000,000 the sale and leaseback of the Irvine campus, in the case of closing the acquisition of Brocade. Now let me turn to our non GAAP guidance for the Q1 of fiscal year 2018, which includes expected contributions from Brocade's Fibre Channel Sand Business for a portion of the quarter. Also to note, this is a 14 week fiscal quarter. This guidance reflects our current assessment of business conditions and we do not intend to update this guidance. This guidance is for results from continuing operations only. Net revenue is expected to be 5 point $3,000,000,000 plus or minus $75,000,000 Gross margin is expected to be 64%, plus or minus 1 percentage point. Operating expenses are estimated to be approximately $900,000,000 Tax provision is forecasted to be approximately 106,000,000 dollars Net interest expense and other is expected to be approximately 126,000,000 The diluted share count forecast is for 458,000,000 shares. Share based compensation expense will be approximately $300,000,000 CapEx will be approximately 210,000,000 dollars And as a reminder, our Q1 is generally a weaker quarter for operating cash flow due to the payment of our annual employee bonuses relating to the prior fiscal year. In addition, we do expect to start incurring cash restructuring expenses related to integrating Brocade. Okay. Finally, before we open up the call for conciliation. On November 2, I think as everybody knows, we announced our intent to initiate a redomiciliation process to change the parent company of the Broadcom Corporate Group from a Singapore company to a U. S. Corporation. The redomiciliation will occur whether or not there is corporate tax reform in the United States. The redomiciliation is subject to a shareholder vote and is expected to be affected in a manner intended to be tax free to shareholders. We are on tax reform efforts in the United States. On the Qualcomm front, on November 6, we made a proposal to acquire Qualcomm for a per share consideration of $70 in cash and stock. Our proposal represents a 28% premium over the closing price of Qualcomm common stock on November 2, 2017, the last unaffected trading day and a premium of 33% to Qualcomm's net of agreement. Earlier this week, on December 4, we notified Qualcomm of our intention to nominate a slate of 11 independent, highly qualified individuals for election to the Qualcomm Board at the 2018 Annual Meeting of Stockholders, which Qualcomm has announced will be held on March 6, 2018. The highly qualified slate brings significant technology sector, financial and operational experience. While we have taken this step, it remains our strong preference to engage in a constructive dialogue with Qualcomm. We firmly believe that this complementary transaction will position the combined company as a global communications leader, enabling us to deliver more advanced semiconductor solutions for our global customers and drive enhanced shareholder value. We continue to receive positive feedback from stockholders and customers. In addition, after having had initial meetings with certain relevant antitrust authorities, we remain confident that any regulatory requirements necessary to complete a combination will be met in a timely manner. Given our common strengths and shared focus on technology innovation, we are confident we can quickly realize benefits for all stakeholders. As a reminder, the purpose of today's call is to discuss our quarterly earnings. Please keep your questions focused on today's financial results. We will not be commenting in the Q and A on Qualcomm or the redomiciliation activities. With that, let me turn it back to the operator. Operator? Our first question comes from the line of Stacy Rasgon with Bernstein Research. Your line 1st, I guess a tactical one. Given where it's falling in Q1, how much revenue and OpEx is actually really coming in, in that extra week? Should we think of both of those as a full week? Or is the revenue maybe less than a full week and the OpEx is a full week? What's the best way for us? Seasonality in our business and you look at where we are in Q1 relative to where seasonally you typically go in Q2, you can argue because you're basically just taking an extra week from a payroll and other fringe perspectives on the OpEx side. Got it. Thank you. That's helpful. For my follow-up, I wanted to ask a little bit about the guidance, in particular, the segments. So you said wireless was up. I wasn't sure if that was pieces are growing. It seems to me though the wired infrastructure may still be down sequentially, I guess if I normalize for the extra week given the drivers that Hock talked about. Could you give us a little more color on how much of the strength in wireless is extra weak versus normalized? And what are those drivers for the rest of the guidance implied for wireless as we go into the January for wired as we go into the January quarter? Okay. Best way to describe it to expand a bit on what Tom was saying is 80% of our revenues is direct OEM revenues. And so the extra week has very little impact for Q1 in terms of top line revenue. The industry revenue does have an impact, obviously, on a basis that is resale is very time based. And so you might say on an overall revenue basis, if I were to hazard an estimate, that additional week provides probably an additional 1 third inc addition of a week's revenue. They want to look at it. But as Tom indicated, expenses, we are we will be showing a full week of expenses, which are largely for a company of a nature, obviously, salaries, people costs. So full week of expenses, probably onethree of a week of top line is a best estimate to put in on a conservative basis. And based on that, to answer your question on wireless, it really doesn't make much difference. Our wireless business is all direct largely. It makes very little difference that there's an additional one win. But it is strong. As I indicated in my remarks, it is strong because of the fact that unlike the year before and the year before that as well, the rollover of a product life cycle of a North American Latin American smartphone manufacturer has been sort of pushed up, pushed out by over 1 month. So I guess the wired outlook then, is it just the set top box, I guess, bottoming in Q1, which is driving that or are there other drivers? Set top box and broadband excess, carrier access is bottomed out in Q1. Gains Net data centers continue to be good. And a big part of it driven by the ramp of our opportunity in AI, in cloud and a couple of OEMs. Thank you. And our next question comes from the line of Ross Seymore with Deutsche Bank. Your line is now open. Hey, guys. Thanks for letting me ask a question. Hock, you talked a little bit about what the broadband access and set top box has done. You talked about optical and then the AI side. If we think about those 3 buckets as we look into fiscal 2018, can you just talk about the directions that they should go? Is there going to be the optical side snapping back? Or this year, it seemed like you had a number of headwinds that might not persist into next year. So any color you can get on an annual basis would be helpful. Sure. And you did touch on that in your saying that is true. In 2017, especially second half of twenty seventeen, in our wire business, which we run into a lot of puts and takes, but quite a bit of headwinds in that whole regard, simply because especially in the second half, you start to see declines, seasonal decline in broadband, very much broadband. Then in the later and especially in optical, we all have seen the slowdown in demand from metro and access networks, particularly out of China. But against that, we see data centers continue to perform very well. And the net result of it was has been relatively slow to flattish if you look at the whole year, flattish, a slow single digit growth in Wyatt in 'seventeen with those headwinds. 'eighteen, the sense we have is we've seen a lot of those headwinds. The worst of those headwinds seems to be over. Data centers continue to be very well very presenting itself very well, not just from switching routing, which has always been very good throughout this period, but also the additional push from deep learning chips that we are providing for a few large customers. And against that, given that we have seen the worst on broadband, I think, white business in 'eighteen will probably grow over 5%. Great. That's helpful. Tom, switching gears over to your side for a moment. The free cash flow target increasing from 35% to 40%. The dividend increase was a bit more than I expected at 72%. It seems like you guys actually were closer to 60% of free cash flow. So I guess as we go forward, 1, is the policy changed at all? Are you giving back more? And then 2, what's the biggest driver of that free cash flow margin increasing? Is it one time charges going away, profitability increasing? Any color on those would be helpful. Yes. So, Rod, obviously, you can do the calculation on the free cash flow just based on the cash flow statements. But there were a couple of things that we took into consideration. 1, as I think you know, we had a big campus initiative, both in Southern California around the Irvine campus and then up here in San Jose. And a lot of that is tailed off, and then we went off and actually monetized the Irvine campus, which we just reported. So we thought we should give back that portion as well to shareholders in the form of the dividend. So I think that's the biggest driver. The CapEx initiatives beyond that were really around the test program and the consignment work we did, which I think is largely done. And then, of course, we delevered. We delevered around the pension. So we've had the AGEAR pension, which is the LSI pension that we inherited when we bought LSI several years ago. We took steps toward derisking that pension by fully funding it, in effect, and turning it more into a fixed income. Basically, it's all about the business model and the financial model that gets put out of that business model that Hock articulated earlier. CapEx is coming down to 3% as a percentage of revenue, which is consistent with a fabless or largely fabless business model. And given the operating margins of the business, the balance sheet that are an achievable target. Great. Thank you. Thank you. And our next question comes from the line of Craig Hettenbach with Morgan Stanley. Your line is now open. Yes, thank you. Hock, now that you've closed Brocade, can you talk about just the synergies from a technology and product perspective and the implications for your enterprise storage business? Well, the main reason we acquired Brocade, very simply put, is that we believe that product line is a very sustainable product franchise. It for certain customers with mission critical data center storage requirements. They need to use fiber channel SAN, storage area network. The more conventional, so to speak, basis of ICASing, IP networking stuff, are not of a performance level, quality level that will address those mission critical requirements to make work in those storage systems. So it's fairly unique in some regards, but it's a nice addition to our enterprise storage portfolio, which tends to address more conventional storage requirements. And we see this business as a business that will continue into the foreseeable future. And not just in America, worldwide, simply because this storage is bullet this kind of storage system and network fiber channel, it's literally bulletproof, mission critical systems and practically non hackable. Has into some of those product ramps as well as just the role you expect ASICs to play from your side? Well, we believe a lot of these emerging requirements that we are seeing in very specific application specific end market specific requirements for deep learning, as we call it, artificial intelligence, other people call it, where you need training and you need inference on large databases that continually upgrade, we tend to see it as being very customized. Lot of software that needs to be written on a hardware silicon platform that because of the particular nature of the application will tend to be very customized. And we are making, we are producing, in a nutshell, ASIC or custom silicon solutions that addresses those market niches. And it's pretty substantial. And our visibility today is extremely good in terms of the demand for these products. Got it. Thank you. Thank you. And our next question comes from the line of John Pitzer with Credit Suisse. Your line is now open. Yes, good afternoon guys. Thanks for letting me ask the questions. How can you prepare that? Is that just new flagship phones growing as a percent of the overall mix where content growth has already been very strong? To what extent is that an expectation that maybe flagship phones that get introduced in calendar year 2018 will continue to have content growth? And to the extent that it's the latter, this year you gave us pretty explicit guidance as to how much you thought your content was going up. I'd be curious as we look out to calendar year 2018, how we should think about that FBAR content story? Well, it's an interesting story. And by the way, to answer your question, it's not the same old story again about more F bar, more bands. This is not this is actually think of filtering as being staged. This is literally most of the front end modules we talked about in the past where we have power amplifiers and add bar filters, we tend to put it close to the transceivers, where you filter signals that are channeled by the antenna. What we are seeing here is going in and filtering the signals close to the antenna as before it channels down to the front end module. That's the thing that actually it's almost like you're creating additional level of filter level or stage of filtering, which in effect enhance is increasing effectively those filtering, we call it extraction of signals at the antenna. And the benefit of all that is it allows antenna to be shared as opposed to multiple antenna in a phone. That's helpful. Any sense on what this new phone? Probably should tell you as we progress through the year. Now might be a bit premature, but it's definitely going to increase it. Perfect. And then as my follow on, Huck, I just wanted to get back to your AI comments and the prior question. It just seems like over the last couple of quarters, I wouldn't say you were being dismissive of the market opportunity, but you clearly weren't sort of highlighting it as one of the key drivers. It sounds like you're being a little bit more front foot on the AI opportunity. Did something change? And can you help us understand how you're thinking about your TAM in this market over time? Well, the dollars as it affects us has suddenly grown a lot. So I guess I better make a few comments on it. Asset is dollars, it drives it. Any sense on how we should think about the total addressable market over a 3 year horizon, Hock? We see driving our dollars to a level not dissimilar, but significant level, not that far off from even our switching revenue. With Bank of America Merrill Lynch, your line is now open. Thanks for taking my question. Just first is a near term question on wireless. Hock, on the last call, I think you said you expected Q1 to hold up, which at that time sounded sort of flattish. Now you're saying Q1 could be better. My question is, did something change? Was it just perhaps conservatism before? But more importantly, how do you track the sell through of the different flavors of products that your latter question, 80% orders backlog with our customers. So that to start with, that track is pretty clear. Over 80% goes directly to our various customers and so, right? And that enables us to track very well. That also enables to track if there's over shipment in terms of in the sense that the customers take on more products than they truly need because it adjusts itself very, very quickly since you're doing it directly as opposed to going through any wireless, yes, I guess the answer is it's not nothing of conservatism. We since we last talked a quarter ago, feasibility has obviously come full crystal clear. And we're just in the interest of being transparent, we're just passing on what we see today. Got it. Thanks. And then for my follow-up, Tom, you raised your long term targets on margins. When I look at gross margins versus what you reported in Q4, there seems to be another, I think, 170 basis points of upside to the 65% target. But on operating margins, they are already above the target. So I'm just curious what's driving that delta? Well, I'm not sure I totally understand the question. But basically, as you look at it with Brocade, you're right, we're running it's our ability to continue to drive gross margin expansion. And I think a lot of that ties back to the business model and continue to introduce more and more content rich products that carry higher values. And I think that's what's driving it, and it's consistent for a very long period of time. And obviously, given the scale of the company, we'll continue to reinvest in R and D at a very healthy clip, 15% of expanded revenue. But we're growing mid single digits. Obviously, we did better last year. We're keeping SG and A lean and simple, which is consistent with our model, and that gives us leverage. So you're right. And I think we'll continue to monitor the long term model. We've obviously updated it a number of times over the past several years. But right now, we're very comfortable with a target of 65%, 47.5% operating margins. And our next question comes from the line of Ambrish Srivastava with BMO. Your line is now open. Hi. Thank you very much. Hock, I just wanted to visit the longer term driver for wireless specifically in 2018. Besides the antenna, you also talked about Wi Fi in the back half of the year. And I think correct me if I'm wrong, you said first retail and then it starts to show up in handset. So can you give us some idea on what that would do to content within the handset space? And then I had a quick follow-up as well. Well, it does. But see, when you try to run it over time, it becomes very hard and I'm very loath to give you misleading answers. But all it does is definitely directionally pushing in the right direction. And dollar content increase, which I would say a large part of its content increase, driving top line revenues from in wireless, closer to the range north of 10%, 10%, 15% annually on an annual growth rate basis. And that's all content increase in our view, where there is an improvement of Wi Fi connectivity through 802.11ax or and or more as we enhance the RF experience on smartphones. It all comes back to the same thing. We seem to see based on history empirically that last 5 years CAGR, compounded annual growth rate CAGR is in around the mid teens. And using that and using the trends in architecture and designs and the needs of phones that the next 5 years we'll see that same CAGR of mid teens. Okay. That's very helpful. And then on the non wireless side, Marvell and Cavium are proposed be combining. Just from your vantage point, does it or does it not change the competitive landscape the way you see it? Thank you. We don't really see any material change at all as far as our business is concerned. As far as their business is concerned, of course, there could be major impact, and I'm not dismissing that at all. But as far as we are concerned and our various franchise businesses are concerned, we do not see any impact. Thank you. And our next question comes from the line of Harlan Sur with Jefferies. And then normalized to the 14 week quarter and then try to back out the implied Brocade OpEx. I'm actually coming out with Brocade OpEx contribution on an annualized basis of around $280,000,000 which is right where you wanted Brocade OpEx to be post integration back when you first announced this acquisition. So am I doing the math correctly? And I guess the question is how much more cost synergies will be coming out on the integration plans over the next few quarters? AR, it's a good question and certainly the right one. I think, look, the benefit of being able to spend a little extra time between sign to close and of course, the benefit of being able to announce a number of the sale which were in effect restructuring activities at the same time, has helped us get to our target model with Brocade Faster. Now that doesn't mean there isn't more to do. I would suggest we probably got about $20,000,000 a quarter in operating expenses in the business right now on a run rate basis that still need to come out of the model. But we are ahead of schedule relative to where we normally would be when we close a deal. And I'd expect over the next 6 months or so, we'll be trending toward sort of getting that $20,000,000 out of the business on a quarterly basis. Great. Thanks for the insights. So total switching throughput, I think the bigger opportunity here is that you're moving the market to 50 gigabits per switch port using this new PAM4 technology, which means that you not only change the switch silicon, but you have to change the PHY and NIC products and optical components as well. So you've got a lot of potential for content enhancement here for you and the team. So I guess the question is, are you still on track to get Tomahawk 3 to customers end of this year, beginning of next year? And do you have a view as to how big this opportunity could be for the data center business probably starting in 2019? I'm sorry, your first question, yes, we are very much on track to get samples out to our customers by the end of this year, calendar year, very much on track. And as far as how big the impact will be, well, to be fair, I see, and let's not get I hope let me not get carried away. Tomahawk 3, which goes to 12.8 terabit throughput, will just replace, to a large extent, the existing versions of Tomahawk 2, which is started, to be fair, and Tomahawk 1, which is 3.2. Now of course, it replaces it by 4x and gives us therefore room opportunity for delivering more value to our customers. But at the end of the day, the number of sockets, there's a certain level of replacement of existing sockets. With higher throughput equipment, silicon, no doubt, which gives us some enhanced, the dollar value. But it's not a total add on in the overall scheme of things. Got it. Thank you. Thank you. And our final question comes from the line of Chris Caso with Raymond James. Your line is now open. Yes, thank you. Good evening. The first question is regarding seasonality and how we should be thinking about the April quarter. Of course, I know you don't want to provide guidance for that now. But as we build our models, I assume we would be taking out the extra half week of revenue as we model out April. How should we also be thinking about wireless there because I guess there was some extra wireless revenue in the January quarter during the push out. How should we think of that as we build out our April expectations? Yes. Hey, Chris, obviously, we're not going to give guidance on the April quarter. What I'd tell you is, yes, there is a little bit of the extra week. That's right. But I think more importantly, as we've talked about, the long term model here is mid single digits, and I think that's where we plan to be going forward. Okay, fair enough. Just as a follow-up on Brocade, you guys had set out some targets, I think it was $850,000,000 EBITDA. My assumption, what you're talking about was taking the additional $20,000,000 Yes. No, I mean, I'm sure Hawk believes we can do a little better than that, but we certainly are in and around that target today in the business. Actually, I think what we're happy about is the business is performing very well. It's performing on plan, and we think it's a great addition to the other 19 franchises we have in the portfolio. Thank you, guys. Thank you. Thank you. And that concludes Broadcom's conference