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Thread: Interesting notes from the Broadcom Q3 2018 Call

  1. #1
    Admin Daniel Nenni's Avatar
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    Interesting notes from the Broadcom Q3 2018 Call

    Admittedly I am a Hock Tan fan but I really enjoyed this call. Good info on the CA acquisition. I really like Hock's no BS style:

    Hock Tan:

    The strength of our business model delivered another quarter of very sustained revenues, strong earnings and free cash flows. Consolidated net revenue for the third quarter was $5.07 billion, 13% increase from a year ago and EPS came in at $4.98, a 21% increase from a year ago, while free cash flow at $2.13 billion is 42% of revenues....

    Broadcom Inc. (AVGO) CEO Hock Tan on Q3 2018 Results - Earnings Call Transcript

    Speaking of acquisitions, before I turn this call back to Tom to talk about the financials in greater detail, let me perhaps take a few more minutes and talk about CA Technologies. The number one question we get from when we get with CA is, why did we choose to buy? Cut to the chase. We are buying CA because of the customers and their importance to these customers. CA sales mission critical software to virtually all of the world’s largest enterprises. These are global leaders in key verticals including financial services, telecoms, insurance, healthcare and retail. And CA does it a scale fairly unique to the infrastructure software space. This can only come from longstanding relationships with these customers that spend several decades. In other words, these guys are deeply embedded.

    Now, Broadcom does a lot of business with the cloud companies, building the digital economy, the leaders. Google, Amazon, Microsoft are all large customers for us. They’re growing rapidly and we are, as you notice, growing event. They use our leading edge silicon solutions to develop their next generation data centers to enable many businesses worldwide.

    On the other hand, when you look at the largest enterprises, which comprise CAT customers, these guys really have limited direct access to a mission critical technology. In that lies what we think is a new and huge opportunity. Just as we have done with hyper cloud players, we believe we can bring our compute offload solutions, our Tomahawk switches, Jericho routers, fiber optics and our server storage connectivity portfolio directly to these same large enterprises that are buying CA software. These large end users invest tens of billions dollars on IT infrastructure every year. Through CA, we believe we have a big doorway to engage strategically with these customers and provide them direct access at very compelling economics to the same leading edge -- and make through the same leading edge networking storage and compute technologies that are used to enable the cloud service providers today.

    Beyond this industrial logic, I might note, CA by itself is a great franchise. Mainframes remain the backbone of the enterprise computing environment and are relied on to run mission-critical applications. Mainframes process approximately 30 billion transactions per day and $7 trillion of credit card payments annually. Contrary to popular belief, over the last 10 years, mainframe models have actually increased 3.5 times, driven largely by increasing amounts of data generated with every single transaction. Given mainframes are the most important parts of large enterprises, we believe this will remain a strong and stable market opportunity for us for long term. CA is a leader in delivering a suite of mainframe solutions across application development and ITOM tools. So, bottom line, we actually see this opportunity, a great opportunity, I may say, to double down for future growth.

    With that, let me turn the call over to Tom at this time.

    My favorite part is the Q&A. The analysts crack me up. They get paid hundreds of thousands of dollars a year to pretend to know the semiconductor industry...

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    Last edited by Daniel Nenni; 09-11-2018 at 06:27 PM.
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    Steve Blank wrote a column recently, reacting to the Global Foundry announcement discontinuing advanced node development (and thus stopping scaling). The title was Moore’s Law is dead. Which it may be, for certain things. But his point was the environment has, at minimum, changed, and new approaches to grow may be required.

    So we’ve seen Intel become a conglomerate, defocus on semiconductors, and the results haven’t been good. Is Intel touting Mobileye and McAfee at the expense of their core business? It seems that you can’t do so many disparate, difficult things, well. So that is the challenge for Broadcom, how to do software and hardwell well without shortchanging one or the other?

    You could note IBM dumping their hardware businesses (PCs, then semiconductors), to focus on software. It seems like software drives out hardware eventually. And we may yet see that happen at Intel.

    Broadcom’s pivot is big, impactful, but I think it will destroy value, as it has done at IBM and Intel, and indicates desperation. It indicates a lack of confidence in their core business. I wouldn’t be a buyer.

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