Broadcom Inc. (AVGO) Earnings Call Transcript & Summary

Hi. Good afternoon, everyone. I'm Craig Hettenbach, one of the semiconductor analysts at Morgan Stanley. Very pleased to have with us management from Broadcom today to dig into their broadband business. Before we get started, I do need to remind investors for disclosures. You can reach them at the Morgan Stanley website, www.morganstanley.com/researchdisclosures. And so with that, today, from Broadcom, we have Hock Tan, CEO, along with Senior Vice Presidents, Rich Nelson and Greg Fischer. Just a brief background on the SVPs. Rich is the General Manager of the Set-Top Box and Cable Products Division. He's responsible for managing that portfolio. Prior to joining Broadcom in 1995, he was Consumer Accounts Sales Manager at LSI. Greg is the Vice President and General Manager of the Broadband Carrier Access Products Division. In this role, he's responsible for driving carrier access semiconductor solutions, enabling wireline and wireless broadband services to and throughout the home. Prior to joining Broadcom in 2004, he served in various executive roles at Conexant, including Vice President of Marketing and Vice President and General Manager of the Video Products Group. Following the presentations, we will have time for Q&A. So you could submit your questions that I can relay to the management team. And with that, I'd like to thank the Broadcom team again and to welcome Hock to kick things off.

Thank you, Craig. Well, I'm pleased to be here today for our next analyst event of 2021 and kick off our broadband, for want of a better word, teach-in. I'll start with a few words about Broadcom, of course. But more importantly, the critical role broadband plays within the communication ecosystem. This show is all about Rich and Greg, who will lead the discussion of our broadband franchises. So to begin, Broadcom today is a leading provider of technology to the global IT ecosystem and a critical partner to the world's largest enterprises, including most of the Fortune 500. From the start, we have stayed true to how we build our category-leading franchises. Each has 3 common attributes. First, mission-critical technologies that ensure a sustainable end market; second technology leadership; and third, #1 market share position in each vertical. You'll hear today how our broadband franchises fits squarely within this criteria. So if you look at the slide, how did we grow from 8 to 25 franchises today? Through a series of acquisitions and sustaining this through substantial R&D investments. Since our IPO in 2019, shown on the right side of the slide, revenue has increased to $24 billion by fiscal 2020 or a 16x growth. During the same period, we drove R&D spending 25x. And as validation of our business model, we have been able to grow operating profit 84x. Next, underpinning our technology leadership, these are our roots, which come from the great innovations of American technology icons, such as Bell Labs, and you see it here in terms of a genealogy slide, Hewlett-Packard, LSI and Broadcom classic. We gained this heritage and exceptional engineering talent that goes with it through our acquisitions. Most importantly out of this slide, I'd like to point out that Broadcom has one of the broadest IP portfolio in the semiconductor industry with more than 20,000 core fundamental patents. Moving on, next slide says it all about where Broadcom plays. Now we may not do computing nor memory, but we provide, as shown here virtually, all the connectivity throughout the IT ecosystem. We address the need for increased bandwidth and speed end-to-end from cloud and enterprise data centers on the left, sorry, and all the way through carrier networks to access on the right and eventually to even end-user devices. In fact, we are so well represented in this ecosystem, we believe 99.9% of all Internet traffic today has to cross at least one Broadcom chip. Next, and as highlighted here as a subset, the focus of today's teach-in will be our products and technologies within the broadband space. While to many of you broadband may seem no more exciting than plumbing, the proliferation of WiFi to enhance the final 100 feet of connectivity in the home, even in offices, has provided exciting growth to what has been a relatively flattish industry. And like plumbing, broadband has become an essential need, highlighted in this work-from-home environment. Today, you will hear why we believe as essential technology enabling our digital future, broadband is now on an increased growth trajectory over the next 5 years and how Broadcom is virtually the last provider of scale of silicon technology within this space is in a great position. Now many may also ask about 5G and what that may imply for the future of broadband. This is simple to look at. 5G is a technology designed for communication on the move, while broadband is built for the home when you're at rest. So by this behavior, you will not be surprised to hear that data consumption in broadband is 8 to 9x that of cellular. Ask yourself this, when you watch Netflix at home, do you use 5G? Of course, not, which is my point exactly. Cellular will have to coexist with Broadcom into the future. Next slide, please. Broadband for us generates about $3 billion of revenue annually with end-to-end solutions spanning cable, digital subscriber line or DSL and fiber or PON, supporting over 100 operators worldwide to deliver last mile connectivity to more than 1 billion households. I'll let Rich and Greg explain the significance of this opportunity, but at its core, broadband enables the interconnections of society. It's how the world reaches all of us and on how we reach the rest of the world. I imagine, as an example, nearly all of you on this Zoom call now are using WiFi technology that is crossing Broadcom chips in this very moment. And the same will apply, by the way, when you're done with work and go to stream content on Amazon or Netflix. It will remain the dominant form of data communications going forward, not 5G. And even in a post-pandemic world, the need for unprecedented speed and bandwidth will remain given the new dynamics of how we work, live and play. And with that, I'm now pleased to turn the presentation over to Rich.

Thank you, Hock. Good afternoon. My name is Rich Nelson, and I'm the Senior Vice President and General Manager of Broadcom Set-Top Box and Cable Modem Products Division. Moving to Slide 10. Today, I'm going to give you an overview of the business and talk through the numerous advancements Broadcom has led and continues to lead in this space. We build highly complex integrated circuits ranging from chips that go in a cable operator's head-end, also called the CMTS, to the devices and equipment in our homes called cable modems, which together deliver high-speed cable broadband service many of us enjoy today. This cable modem can then stream video over WiFi throughout the home to a set-top box, which also contains Broadcom silicon. Think about this as the last mile to the consumer. Turning to Slide 11. When I joined Broadcom 25 years ago, we were working in 2 primary product areas, an Ethernet physical layer device and a digital cable receiver. Those core devices have evolved throughout the years with the digital cable receiver becoming a key building block for both of the products and our business unit, video semiconductors for the pay-TV set-top market and semiconductors for the high-speed cable broadband market. Leveraging our initial strength in cable receivers, we expanded our products to support pay-TV video delivery via satellite and IP networks in addition to cable. The video set-top box market has rapidly changed in recent years from a broadcast, cable, satellite and IP set-top box market to a streaming set-top box market where operators or other content providers like Netflix streams content over the customers' broadband network to a WiFi connected streaming set-top box. This trend of delivering video over broadband has also helped fuel demand for higher-speed broadband to the home, which we provide the technology for via our cable modem product line. To put this into perspective, Comcast reported in their 2020 network report that over 70% of the network traffic was video, thus making video the key broadband application. As you may have heard from my colleague, Ram Velaga, who presented on the networking business back in January, the networking business has continued to advance as well, moving from the initial Ethernet physical layer device shown here to the networking product line that he presented to you. As Broadcom has continued to make advancements with these technologies, we have added significant intellectual property to design sophisticated systems on a chip or SoCs, which are the core of our set-top box and networking businesses of today. Turning to the next slide. Designing these SoCs is very hard and requires targeted expertise. It starts with our intellectual property building blocks at the center of this slide, which are created by our world-class engineering team. We stitch together those blocks to create the SoC. We use our knowledge of what we can build on a chip and combine it with our expertise of how that SoC will function in the overall system to specify a new chip. We then pull the necessary building blocks from our portfolio and use our proven design methodology to produce a device that offers superior features, performance, quality and reliability. This methodology created and utilized by our experienced engineering team gives us the fastest time to market and allows our OEM and operator ecosystem partners, with whom we closely collaborate, to deploy these advanced products and features and scale to consumers. Moving to Slide 13. One key differentiator for Broadcom is the deep partnerships we have formed with leading OEMs and operators, as just mentioned. Our advanced technology road map and portfolio have enabled many consecutive generations of successful products and has resulted in deployments with more than 100 operators and partners around the world over the last 25 years, a sampling of which we show here. We worked closely with these partners to develop a long range road map as it typically takes over a year to design an advanced SoC. And we want to make sure we are optimizing our research and development on products that will yield a strong return on investment for Broadcom and our partners. These Tier 1 operators remain focused on timely differentiation and innovation to sustain and protect their video and cable broadband franchises. Broadcom has established a reputation as a trusted partner who executes in bringing to market many successful groundbreaking technologies and products. For context, we have shipped over 1 billion set-top box chips and over 500 million cable modem chips into these markets, which we serve. The next slide shows you our history of pay-TV set-top box innovation as the market moved from analog to digital. Over the years, we have taken our initial digital cable receiver product, which I mentioned at the outset of today's presentation, and combined it with many new technologies to meet the needs of the pay-TV set-top box market. Through acquisitions and R&D investments, Broadcom has added best-in-class video decoding expertise, which we have combined with our receiver heritage. The consumer has many choices in video and the operators competing for their business need to innovate. Broadcom provides that innovation, helping them introduce new products from set-top boxes with integrated DVR to set-top boxes with integrated WiFi that support the 4K televisions in the market today. Innovation is critical for us and our partners as it creates new products to replace existing set-top boxes in the home and new products drive new revenue and profitability for Broadcom and the operator. Slide 15 is all about the future. As I mentioned in the previous slide, we are continuing to build industry-leading technologies for our set-top box products, and the next area of integration will be machine learning cores for video and voice recognition as well as other applications. With these advanced cores, we will enable facial recognition for each end user, integrate video calling and add features such as picture in picture with zooming capability. Machine learning cores will also support advancements in video recognition to allow consumers to search for content via far-field voice recognition and text to speech. Finally, these new technologies will give consumers a better overall user experience with increased security and improved personalized content with recommendations. We are excited to introduce these capabilities as AI and machine learning applications continue to advance in the coming years. Importantly, we are well positioned to lead the rollout of this technology. Turning to Slide 16. Like the other areas of our portfolio, there have been significant advancements in our video SoCs. And what you're looking at are the key building blocks in a recent streaming set-top box device. As you can see, we combine many technologies, including WiFi 6, which is used to stream content to the set-top box, a powerful quad CPU core to run advanced applications, an advanced security processor to protect content and the machine learning processor discussed on the last slide. Together, these components and the others shown here make this the world's only complete streaming Ultra HD SoC. Importantly, all of our SoCs are supported by robust and stable software from Broadcom that allows our partners to deploy in a timely fashion with the features that their customers want. These innovations will keep Broadcom ahead of the competition and support new set-top box players as they require our advanced security and software to roll out cord-cutting alternatives, running new content from streaming options like Netflix, Prime Video, Disney+, Hulu, Peacock, ESPN+, HBO Max, Paramount, Apple TV+ and the many more options available to consumers today. Moving to Slide 17. This highlights Broadcom's end-to-end solution to diagnose, manage and secure set-top boxes and cable modems. One key area of our differentiation is a series of products we call Broadcom Analytics System, BAS for short. The essence of this product is to leverage the ability of our chip to record information regarding events happening inside the consumer's home and present that information in a way the operator can act on to improve the consumer's experience. BAS allows operators to proactively resolve issues long before the consumer realizes they exist. This product could help reduce operational expenses as well as customer churn. Turning to the next slide. As I mentioned at the start of my presentation, the other product area my business unit addresses is the cable broadband market. Broadcom has been a leader and innovator in this market for decades. And I have listed some of the major milestones on the right-hand side of Slide 18. This market interoperates on an industry standard called DOCSIS, which Broadcom was one of the original authors of the DOCSIS 1.0 specification. In addition to the development of the first integrated DOCSIS MAC-PHY in 1998, we developed the first single-chip DOCSIS cable modem in 2000 and the first DOCSIS full band capture modem in 2011. As for a recent example, a few weeks ago, our silicon was in the modem which received the first certification for the new low latency DOCSIS specification. The cable gateway on the left-hand side of this slide uses an SoC from my business unit as well as WiFi from the BCA business unit that Greg will be speaking about next. Broadband connects the gateway to the Internet and then WiFi distributes it throughout the home. The WiFi and the broadband router connects to WiFi-enabled client devices in the home such as laptops or tablets or phones or set-top boxes or cameras or any other Internet of Things, called IoT, devices in the home. This was especially important in 2020, which was a historic year for cable broadband. In fact, Comcast stated in the report I referenced that during a 4-month period in the middle of the pandemic, their network experienced almost 2 years of traffic growth. Because of the continued investment operators have made in their networks as well as their investments in advanced products from Broadcom, they were able to support this unprecedented surge in broadband demand. As with set-top box, the intense competitive environment cable operators face has led to innovation and the deployment of new products to enable them to keep their leadership position and to meet the kind of traffic levels experienced in 2020. This constant upgrade cycle drives our revenue. Moving to Slide 19. Similar to the set-top box market, we have built up a portfolio of key building blocks. These include technologies from a full band capture cable tuner, to complex high-speed analog-to-digital converters built in our standard CMOS process, to secure crypto cores to help keep your broadband safe. Other key building blocks we have built are a digital signal processor for voice applications, a DOCSIS media access controller to run the DOCSIS protocol, a high-performance CPU to run the system software as well as an Ethernet switch. We have integrated together these, along with the other pieces of complex intellectual property listed here, into our single-chip DOCSIS 3.1 SoC, which has industry-leading performance and integration. You can see at the top, I've put in bold digital cable receiver core, which, along with the Ethernet physical layer, also on bold, were the 2 original Broadcom products previously discussed and are now just 2 of many complex building blocks 25 years later. The focused expertise and engineering scale to build these devices makes Broadcom the right long-term partner for the industry. On Slide 20, you can see how the DOCSIS standard has evolved over the last 20-plus years to deliver more high-speed bandwidth to consumers. As I mentioned, Broadcom has helped develop each generation and has been the industry leader in DOCSIS for decades. As Broadcom has continued to innovate and drive change in DOCSIS, one thing has not changed. Our operator and OEM partners rely on our next-generation leadership and investments in our R&D to ensure the successful deployment of cable's next-generation standard called DOCSIS 4.0, which is in development now. I will get to this shortly. Turning to Slide 21. Also consistent with our set-top box products, having robust and stable software with differentiated features is critical to our success in forming the partnerships with the key OEMs and operators. Today, Broadcom's cable modem code is running on more than 100 million active units and provides opportunity for embedded features unique to operators to reduce total cost of ownership via these vast licensed features. These advancements have enabled the path for Broadcom to support legacy devices and future joint development agreements. As this industry continues to evolve, Broadcom's software will continue to be a point of strength. Slide 22 discusses how Broadcom is the only provider of end-to-end DOCSIS solutions as we have not only invested in the SoC for the cable modem in the home but also the SoCs that go into the cable operator's head-end. An end-to-end solution enables and powers the next-generation DOCSIS standard, creates opportunities for competitive advantage and drives faster time to market for advanced cable services. In addition, having an end-to-end solution drives deep system expertise and enables us to rapidly deploy new features to help meet the consumers' ever-increasing demand for bandwidth. My final slide gives you an overview of the future of DOCSIS. We are developing with our partners the next-generation 10 gigabit per second DOCSIS 4 standard, also called 10G. 10G is critical for cable operators to maintain their broadband leadership as new technologies such as 5G wireless, satellite-based broadband and fiber continue to emerge. Competition, along with the trend of consumers needing more bandwidth with lower latency, will keep upgrade cycles going for many years to come, benefiting Broadcom, cable operators and consumers. We are excited about this next-generation development which will lead to innovative new devices in consumer's home powered by Broadcom and allow cable operators to leverage their network and maintain their market-leading broadband position. In conclusion, our set-top box and cable modem business is just one of the many leading franchises within Broadcom, which outpace the market in terms of innovation, product quality, differentiation and engineering execution. We are proud of the work we have done in this space since our inception and we'll continue to innovate and lead as the industry continues to evolve. With that, I will turn it over to Greg Fischer for his overview. Thank you.

Thanks, Rich. Good afternoon. I'm Greg Fischer, Senior Vice President and General Manager of our Broadband Carrier Access business or BCA. Rich spoke about DOCSIS, broadband and video. I'll focus on our franchises in fiber-to-the-home, in WiFi access, plus the evolution of our DSL franchise, beginning then with Slide 25. BCA serves the telecom last mile from service provider infrastructure, DSLAMs or fiber nodes, to the consumer premise or consumer premise equipment. WiFi really completes the last 100 feet, connecting our devices in our homes to broadband services. Broadband is now an essential service. Fed Chairman Jerome Powell recently referred to it as a classic example of 21st century infrastructure. And there's plenty of policy discussion in the U.S. about universal broadband. But you'll see ours is a very global business. Like our DOCSIS business, this is an end-to-end franchise, which is important because business cycles begin with infrastructure spend. And early knowledge of network protocols and interoperability begin with service provider infrastructure, which then enable first to market in the larger consumer premise business. Turning to Slide 26, let's talk about market dynamics. Increasing speeds are already evident prior to the COVID pandemic. Cisco's Internet report forecasted doubling in average speeds globally between 2018 and 2023, and video streaming and online gaming were already multibillion-dollar industries. However, the pandemic accelerated the need to handle more traffic at higher speeds, work and school from home, more simultaneous clients and traffic types, future applications, including virtual reality and IoT, all drive growth. AT&T and the National Cable Television Association each reported 30-plus percent increases in downstream traffic last year, but more impressively, a 55% increase in upstream traffic. And I'll come back to that when we talk about fiber in a little bit. We believe the pandemic has changed many behaviors for the long run. More performance in these systems will equal more signal processing, which equals more transistors, resulting in more Broadcom semiconductor content per device. Moving to Slide 27. Our carrier access and WiFi franchise address a $3 billion semiconductor addressable market with more than 1 billion fixed line subscribers globally. Wireline and WiFi are how the world connects to broadband. Various fixed wireless and cellular schemes have been around for a while, but broadband traffic growth remains predominantly wireline while cellular equals mobility. In fact, wireline traffic is still growing at a rate of more than 10% greater than mobile and cellular traffic. This is because license spectrum is expensive. And the better, longer reach spectrum is the most expensive, yet doesn't offer the wide channels needed for gigabit broadband. Higher bands with wider channels don't propagate well and require significant densification of cell sites. That's why today's fixed network traffic is at least an order of magnitude greater than cellular. And it's predicted that more than 70% of future 5G mobile devices will offload traffic to WiFi. Our fixed line and WiFi markets run in 4- to 5-year technology cycles, each generally having 2 generations of product in a cycle. We're in the midst of such a cycle today with the upgrade to fiber and WiFi 6. Broadcom's leadership started with the acquisitions of Element 14 in 1999 and Epigram and later BroadLight in 2012. Since then, we have more than 20 years of execution across 5 generations of technology. With each generation, the problem gets tougher and the number of suppliers has consolidated. Our consistent investment, our staying power and execution throughout this period have made us #1. We support more than 100 operators worldwide and 80% of the WiFi 6 access point infrastructure, the latest generation of WiFi, has been built on Broadcom silicon. This is truly a global business opportunity with a diverse footprint. Moving to Slide 28. It's this diversity that brings global scale to our business. We have operator customers in pretty much every country of the developed world and much of the developing world. Each region has unique regulatory, demographic, physical cable plant and competitive dynamics. Whether it's net neutrality and universal access in the U.S. or unbundling in Europe or massive investment in fiber in China, each market has unique growth drivers and timing. Our IP portfolio and engineering processes, as Rich described, uniquely position us to turn this diversity into opportunity. This is key to our differentiation, our ability to have global reach and impact for our customers. Moving to Slide 29. OEMs look to Broadcom first. Our time to market captures the leading edge of the market, developing early mind share and early product maturity. Our products are higher performing and are feature and software-rich. We enable first to market, but we don't enter at the low end of the market, preferring to capture a richer portion of the early spend. Finally, our ability to integrate is unique amongst our peers. Turning to Slide 30, let's talk a little bit about integration. Our hallmark is the ability to integrate a best-in-class IP portfolio into multiple complex subsystems on a single piece of silicon. In a typical broadband CPE, you'll find high-performance analog, a broadband modem signal processing, Ethernet, Ethernet PHYs, WiFi, including RF, a high-performance data path, a CPU and a memory subsystem, all integrated into a sophisticated CMOS system on chip. Integrating enables cost and power efficiency and manufacturability that allows OEMs global scale in the hundreds of millions of units. Our IP portfolio and chip integration process allow us to quickly and efficiently create derivative products to address this diverse global business opportunity. All of this is achieved with a consistent team or some of the industry's most experienced and committed engineers and scientists. Turning to Slide 31. Just as important, our software provides time to market for our customers. Software pulls together these complex subsystems and allows us to add additional areas of differentiation like our speed test that tests the speed of a wireline from the central office to the CPE, deep packet inspection that allows us to add quality of service to specific applications, security and full CPU offload of the latest WiFi traffic. We have an estimated 1.4 million man-years in software development, ensuring that our software development kit provides continuity, commonality and R&D leverage across the portfolio. Turning to Slide 32. Let's discuss our first product area, DSL. Our acquisitions of Epigram and Element 14 gave us the physical layer modem expertise needed to lead in a copper broadband market. Beginning with ADSL2 and a megabit per second data rates, this technology has scaled to a gigabit symmetric service over a copper phone line over the last 20 years. Since the beginning, we have deployed more than 1 billion DSL connections into service provider networks worldwide. Analog and digital signal processing, along with software protocol stacks, create a wide competitive moat in this market. We're also the sole provider of DSL infrastructure, which again allows us early access to markets and interoperability. Aside from increases in speed, our DSL SoCs have scaled with new application needs, including security, virtual private networking, home automation and the latest generations of WiFi. Copper speeds are, however, limited at some point by distance and maintenance costs. Turning to Slide 33. We'll talk about fiber. Broadband telcos are moving to faster and more reliable fiber networks. Fiber provides greater reach and faster upstream speeds at distances of up to 12 miles for 10-gigabit XGS-PON. It's not uncommon in legacy networks to see a 10:1 ratio between downstream and upstream data rates. You'll recall from earlier a 55% growth in upstream traffic. Fiber enables symmetric service profiles up to 10 gigabits per second today. And most operators should at least quadruple their upstream rates as they transition to fiber. Fiber will bring better support for video conferencing, cloud computing and eventual virtual reality applications. Today, Broadcom is the world's largest supplier of silicon to residential fiber applications. Last year, operators began deploying 10-gigabit residential fiber networks, another first with Broadcom silicon platforms. We're also the only merchant supplier of OLT or optical line termination infrastructure silicon. We gain R&D efficiency and a common software platform with our DSL CPE and WiFi businesses, making these 3 franchises very synergistic. Broadcom has successfully combined WiFi 6 with the transition to fiber, bringing a content-rich platform play to the latest generations of broadband over the last few years. Moving to Slide 34. We talk about our WiFi business. WiFi has become synonymous with the Internet. More than 100 million U.S. households use WiFi to connect with broadband. Comcast reported 22 billion WiFi sessions on its XFINITY platform last year alone. There are now an average of 10 WiFi clients per home. AT&T has projected this to grow to more than 30 in the next few years. Handling more clients and more performance generally requires more frequency spectrum, more antennas and multiple WiFi access points per home. It's not uncommon now to see 5 or more Broadcom access point chips per home covering multiple frequency bands and multiple access points in the house. At the same time, Cisco also predicts 50% of WiFi traffic will be machine-to-machine or Internet of Things by 2023. This is a 33% growth rate. This mix of low rate, low power IoT traffic, dozens of clients with high-speed latency-sensitive applications like video presents a unique challenge for WiFi networks. WiFi 6, the latest generation, enables sophisticated four-dimensional traffic scheduling to handle this combination of devices. So multi-gigabit low-latency WiFi and whole home coverage are essential parts of next-generation broadband. Turning to Slide 35. Broadcom serves 3 market segments with our WiFi silicon, service providers like Comcast and AT&T; enterprise OEMs like Aruba and Cisco, and OEMs who sell through retail channels like NETGEAR and ASUS. Service provider upgrades are a bit more than 70% of the business these days. In the enterprise market, Cisco also forecasts 3x growth in the number of public WiFi hotspots by 2023 as WiFi will be increasingly used to offload 5G networks and for MVNO traffic. Retail growth is driven by multiple access points or WiFi extender kits, which have become popular during the pandemic. We've built the industry's broadest WiFi 6 portfolio, 8 devices launched and more than $1 billion sold since introduction less than 3 years ago. This, in addition to more than 450 million WiFi 6 client devices deployed by our sister divisions in handsets, tablets and set-top boxes. We continue our list of innovation with the introduction last year of WiFi 6E, which enables 6 gigahertz spectrum, the first new WiFi frequency band in more than a decade. We expect this will bring about more tri-band routers or routers that have 3 radios per box, further increasing our TAM. Moving to Slide 36. Just like in wireline broadband, we have a long history of leading WiFi standards transitions, too. We started with the market's first 11g products in 2003, followed by 802.11n, enabling multiple antennas or MIMO. And then in 2013, 11ac enabled 5 gigahertz and HD streaming. Now WiFi 6 and WiFi 6E bring whole home coverage, gigabit speeds and advanced scheduling for the high client counts in homes today. We've already started on WiFi 7 that will bring 10-gigabit speeds and greater reliability to future broadband offerings. Before turning it back to Hock, in summary, we are the world's largest provider of end-to-end connectivity to the last mile and the last 100 feet. We lead with world-class integration and execution and a first-to-market investment approach. And we benefit from strong business and technical synergy between our broadband and WiFi leadership franchises. With that, thank you, and I turn it back to you, Hock.

Thank you, Greg. Well, I hope that you leave today's presentation with a much better understanding of how critical is broadband and why we believe it is here to stay and even grow. And with our differentiated technology and very strong partnerships with operators and OEMs, we believe we will continue to be the leading provider in this space. So now let me turn it back to Craig and the audience for questions.

Great. And thanks so much, everyone, for the overview there and all the details. Just first question from the webcast. Just trying to get a sense of, you mentioned the business is $3 billion, kind of where has it been in recent years and kind of what do you see as the growth trajectory as we go forward?

Let me take a stab at it, Craig, and Rich and Greg, you can put in more color in your specific areas. But broadly, now this is a business until the -- and you see the changes, 2019 WiFi 6 showed up after several years of 802.11ac as you saw. And with WiFi showing up with its better performance, we saw broadband starting to actually take off. And it's also interesting that the pandemic hit in 2020, which drove that growth even faster. And I guess just broadly, one best indicator anecdotally, I would say, as something for you guys to chew on because it was quite an interesting input I got is, just as it happened this morning, I was on the phone with the Chief Technology Officer of one of the largest operators, telco operators in Europe. And that broadband as it is in America, in Europe has turned into a priority investment. And so he was telling me just looking at our plan, and these telcos have kind of, a lot of them have very long-term plans. And he basically volunteered this. What I'm saying is, our spend with you on broadband over the next 5 years will be 2x what we spend with you over the last 5 years. Rich, Greg, anything to add?

Yes. This is Greg. I would add certainly that I mentioned that we typically have 2 generations of product within a 4- or 5-year technology cycle. We're currently shipping in the midst of a first generation of such a cycle. And we'll be launching over the next year a second generation within this cycle. So momentum continues to build. The product pipeline is loaded at this point. And because of all the dynamics that Rich and I and Hock have discussed, we anticipate indeed the next 3 to 5 years to continue a very strong product cycle for us.

I would say from my side of things, video has been a little challenged by the pandemic. So that's more of a flattish type of situation, but the cable broadband is growing to certainly make up for it.

Got it. And then just a follow-up question. Hock, I think bigger picture in semis, the view is it's a mid-single-digit grower long term. Can you just maybe give some context of broadband specifically? Is that within that type of long-term semiconductor growth? And also if there's any meaningful differences of kind of margin for this business versus some of the other franchises.

That's a very interesting question because what you're basically saying, Craig, is with this pandemic, we're just pretty, in many ways, you might call it very disruptive to the way enterprises, people, society behaved. And we have certainly behaved in 2020 and so far, most of 2021 in a manner where there has been accelerated adoption of digital technology in the way we live, in the way we work and certainly in the way we play, too, but certainly in the way we live in the world. Would that mean that the 5% or mid-single-digit growth of semiconductors might be reset to a high percentage? And I think, Craig, that's how I read your question. And my answer is, I don't know. I would like to believe that this pandemic is an event that is quite disruptive, but is it enough to change the trajectory of semiconductor and technology, I would say technology consumption and adoption and by extension semiconductor growth. We like to think it probably will happen given that we have been consuming technology much faster in this past year than we have probably the last, as you heard people say, last 3 to 5 years. So are we on a new trajectory? Possibly. But the fact of the matter is, I don't know. We'll find out by 2022.

All right. And then the competitive question coming through from the webcast on the set-top box market. Just how Broadcom differentiates? If you look at other offerings running on Android and capable of the same streaming on things like Netflix and Amazon Prime, how is the company differentiating and staying out in front in this area?

Rich, you want to take that?

That's a good question and it consumes quite a bit of my team's energy, so very applicable. Over the last 25 years, we probably had 20-plus competitors in the video SoC marketplace that have come and gone as far as our competition, and we certainly have new players emerging today, mostly guys from the Far East, China and Taiwan. And so I think that from a Broadcom point of view is that we have a very experienced team who has been doing this for a long time. And I think in technology, having that expertise is the absolute key to having a team that can execute and get things done for our customers. And that's not only having the right chip with the right features and the right capabilities but also the right software support. And as an example, I mentioned our analytics system where we have extensive capabilities that are enhancements on top of Android or other middleware solutions that allow people to have maybe a little bit better security or a little bit better capabilities of knowing what's going on with the consumer's home to create a better experience. And I think the experience of the team, the knowledge that we have, the introduction of new technology is key as well. Things like machine learning require a certain level of expertise, not only on the hardware side of things, but the system and software that I think my team is very experienced in. And I believe our team will continue to be the most successful company in this space as we've been for the last 25 years.

Got it. All right. Hock, well, you knew this was coming on the supply chain side of things, a question there. Just what you're seeing for this particular business unit and then maybe more broadly in terms of what type of impact the industry supply chain shortages are having on Broadcom?

Okay. Well, let's start broader base, then we can narrow down to what are we seeing in broadband. You can probably say that. And you have heard me talk about that in our last earnings call. And anybody who ask me a question on that, that I can talk, I'll say it. If we are right now, I mean, there are 2 things going on. One is, I think, as you correctly said, Craig, in the past, over the past 10 years or so, maybe less, the semiconductor industry has matured as a whole industry. I'm looking at it completely. Unlike, say, 20, 30 years ago, when the industry was perhaps growing 30%, even 50% a year 40 years ago or 2x annually 40, 50 years ago. Things have matured. And over the last 10 years, I think the industry has grown closer to mid-single digits annually compounded, not every year but compounded. And we have gone through, but we still go through cycles. And the reason obviously is as demand goes up long term in, as I say, in a fairly steady manner, supply comes in, in lumpy amounts. And that tends to lead to oversupply, undersupply, oversupply, hence, the imbalance cycles of demand and supply as we go through cycles. Now over the last 10 years, as the industry demand grows to mid, kind of mid-single digits, as I say, with GDP, global GDP plus, the cycles have been more modulated, low small side. The cycles have not been as extreme as it used to be, but they still are cycles. What we are in today is a cycle, an up cycle of imbalance between strong demand and the lack of supply, so constrained supply. Here, to some extent, it's been exaggerated a lot by the pandemic of 2020. Because you recall, 2019 was a downturn for the industry as a whole. After a decent upturn in 2017, '18 kind of pursued a rollover and '19 was a downturn. So as we emerge out of '19, supply inventory throughout the entire ecosystem was light. Capacity has now been much, not much investment in capacity in those last couple, in those last year or 2. And we come in here and we hit into a pandemic, which triggered among other things, as I mentioned earlier, an accelerated adoption of digital technology in certain sectors. One area, obviously, is in work-from-home environment. In PCs, you saw the PC industry take off. Even in smartphones, just talking about consumer device, you stay at home, you want to get the best mobile devices, but also to connect those stuff, broadband took off like a rocket. And you heard both Rich, Greg and I, all of us say that. And it took off. It took off beyond our biggest dreams. And they are still, by the way. The question is, will it sustain? But it is very, very strong because those are needed to enable the work-from-home environment, the connectivity. And of course, as we all go online, the public cloud guys also exploded in their network spending. We saw all that strength. And that exacerbate what is otherwise the demand recovery anyway. And meanwhile, supply is not ready to provide it. So we enter into this imbalance today and it still continues. But what we also see, in particular, coming down to broadband is an interesting phenomenon that Greg particularly touched on is, it's not just about telco operators spending more, which we had seen in late '20 and now early part of '21 on extending connectivity to the customers, to the consumers and households. We see them planning ahead towards, we got to have more broadband. We got to develop more broadband to start coming in with new product cycles. And we are already starting to see that happen, clear programs among all the operators, Europe, U.S., in particular, for '22. So we are seeing '21 demand in broadband, which is already a super surge demand that is for existing products, which is WiFi 6 EPON, 2.5-gig, 5-gig EPON or standard DSL and cable modem DOCSIS extending in '22 to next-generation products. And so we see this strength to continue, especially in broadband into '22, right through the end of '22. And we see that also in terms of line of sight through the programs that we've been awarded and the orders we have already started to get for calendar '22.

Got it. Early in the presentation, the theme of universal broadband was mentioned, and there's some questions just around stimulus. I know there's a lot of things still to be determined in terms of next steps and what happens. But can you maybe just talk about that as a backdrop in terms of potential additional driver of growth as we go forward?

Greg, you want to try that?

Yes. Yes. I think that obviously there is a long way to go before we know what potentially is in such a bill and what it looks like. There were broadband stimulus in the bill in 2009 for economic recovery. It took about 5 years before that played out. So I think that the themes that Hock just discussed regarding our nearer-term growth are much more prevalent. We think anything that's in stimulus is probably longer term before it plays out. And I think it will favor probably some of the smaller midsized equipment vendors and operators in the U.S. And Broadcom, I think, are well positioned for that.

Rich, any thoughts on cable side?

No. I think that long term, it's a continued investment cycle kind of, as Greg said, I think that longer term, it probably will be a little bit more focused on the rural areas and maybe some of the smaller cable operators or places that have operators that are in rural areas. But shorter term, we don't see that playing out probably for a while.

I would like to also add in, in the sense that, what I believe we are seeing to a large extent, what I mentioned earlier about '22 pushing out is in specific in some areas like with this pandemic and this strong work-from-home environment and as you mentioned, Craig, governments are putting money in. And one of the first things they're now putting in most obvious things on work-from-home environment driven politically probably by learning, schools from home, that governments, society is starting to understand that children without PCs, without connection to PCs in this environment cannot learn. So it becomes a hot political potato. And so the investment into broadband is just very, very strong. And what we're also seeing to make that investment happen quickly is a lot of these operators, Craig, is investing into upgrading fiber. PON is one of the quickest way and most efficient way from everybody's point of view, all operators, to get increased bandwidth, extended bandwidth out to the community. So we see a lot of investments upgrading into fiber. We see that, as I mentioned, Boris Johnson talking about putting 20 million homes in the U.K. in fiber. We've seen in the U.S. the same happening just as people talk about 5G, when they know 5G cannot handle, as we talk, what PON can do at a cost that operators, telcos can afford. And my sense, if you ask me is, I think over the next 5 years, and I can see beyond that 5 years, I see broadband broadly and broadband involves cable modems, involve fiber and associated with even WiFi, probably growing at a rate that probably hits double digits on an annualized basis, something it has not done for the last 5 years.

All right. Maybe Greg and Rich, if I can ask you just the synergies between your respective business units in terms of technologies and also kind of seeing industry trends develop. Can you maybe just touch on how you guys kind of work together and collaborate and any benefits around that?

Yes. I think, first of all, here in the United States and in places in Europe, the DOCSIS market that Rich represents competes with the telco markets. So there's actually a healthy dynamic there, those 2 segments of broadband driving each other as they try to acquire subscribers. And so that has always driven our business. I think, obviously, the WiFi piece is a piece that cuts across all of these businesses. So there's a lot of cooperation, of course, as well as we put WiFi devices on to DOCSIS and set-top box products.

Yes. I mean, just historically, our 2 teams at one point were together and now they're separate. Greg and I have been peers for a long time, and I think there's a lot of things that go on between our 2 businesses on a daily basis as far as optimizing various capabilities and technologies, whether they're some of the intellectual property building blocks that we showed you earlier or the design methodology or software to even a product like I showed of a cable gateway that includes an SoC from my group as well as Greg's group. And the key thing from an operator or an OEM is wrapping that all together and delivering it first to market, which our 2 teams have been able to do. And I think that strong engineering execution is very consistent between our 2 groups.

Got it. And we've mentioned before some headwinds to video, and I think about kind of satellite set-top with live sports in the last year, right? Any signs of optimism there in terms of at some point, could you see some improvement in that area?

Yes. I think that's a fair question. I think live sports as well as the concerns of people letting people into their homes to install new equipment certainly were a headwind for pay-TV and satellite. There's no question about that. It's hard to predict the future, but we are seeing cautiously optimistic changes in those as sports have come back in certain marketplaces and things. So at this point, we're cautiously optimistic on video. Broadband, on the other hand, continues to be very strong.

Understood. I want to touch on WiFi. I mean, that's certainly one of the strong legacies of the company. And you shared some figures which are helpful in terms of WiFi 6 and the transition to 6E. Can you just touch on that in terms of the leadership that you have? And then I guess more importantly, how you're able to kind of sustain and build upon that on the WiFi side of things?

Yes. I mean I think it starts with hiring and retaining the best people. And we have people who hold themselves to a very high standard. They're very accountable. That, combined with focused investment, we built the right products for the right time, people and then consistent investment have allowed us to lead in the space for the last 20 years.

By the way, Greg, just so I don't forget, we also do WiFi, as you well know, into the handset, the high-end smartphone handset business. Now they are the same fundamental core building blocks, but applied across 2 different segments and obviously, quite a lot of differences, but a lot of common technology that we built. And as you all know, we have arguably, perhaps some people will say, but I would say we are probably, we have the best, most leading technology in WiFi connectivity simply because of the scale of our investment on both on the high-end smartphone market as well on the access gateway enterprise market. We probably have the most technology and the most development in WiFi of any company globally.

Got it. I know this is focused on broadband, but Hock, I did want to ask one question outside of broadband. There was some news, I think, a couple of weeks ago about one of the cloud titans looking to develop some of their own networking chips. This is not a new phenomenon in terms of some of the interest for those companies, but would love to just talk about your franchises, in particular, on the Tomahawk and networking side. But just how you think about that? And then maybe you can draw it back into this franchise here in terms of leadership and making sure you're continuing to drive growth.

Sure. I think on a broader context, each of the franchises, and that includes what Greg and Rich runs, is involved in the switching and routing franchise, which Ram Velaga runs, who presented in January this year or for that matter, a whole bunch of other franchises we have. They are franchises for a reason. And these are franchises I should add in technology, semiconductor technology largely, but it is technology because many of them, as you hear today, includes software that goes with it. And these are very, very complex products to develop, very, very hard to work on. And we've been working in all these areas for a long time. In the case of cable, video, for instance, 25 years digital form. In the case of networking, we've been doing that over 15 years, closer to 20 years. So it's not easy, very, very complex to begin with. You can say you want to do it. The question is, first, you have to say you want to do it. So maybe there's some truth in that question there, too, but second part is you've got to get it there. And the bigger picture is the financial, the bigger model, the business model. If you are doing, if you are public cloud, why would you buy the cow when you can get the milk is the best way to describe it. And another way to look at it is simply this. You spend 35% of your spending on data centers if you are public cloud in data center, 35% of your spend goes to computing. 43% goes to storage and memory. You spend less than 12%, 13% on switching networking. You have plenty of other things to look at as targets before you worry about going after a space that is one of the most difficult and technologically complex area for you to spend on. So my answer to that is, no, that's not abnormal to hear people want to go about in switching and routing. And we're just very confident this is not something that can be easily accomplished, if at all.

Understood. I appreciate your color on that. Maybe just bring it back on the broadband side to Greg and Rich. If I think about some of the themes, be it high-definition video conferencing or 8K video streaming, virtual reality, are any of those at a point now where you're seeing kind of a stronger inflection? Or how are you thinking about some of these themes overlaying the growth opportunities that you see?

Yes. I think for sure, clearly, over the last year, the themes of video streaming and conferencing have become things that are more commonplace in everyone's home. I think about how families get together now, right, doing Zoom conferences or various video conferencing. Those are things they just didn't do before. And the traffic numbers that we see from the operators bear that out. And again, we think those are things that are going to stick around. We think people will continue to do those things and continue to put those traffic loads on to the networks, which is really what's driving this upgrade cycle now.

Yes. I would say from my perspective, historically, broadband has continued to increase bandwidth and new applications have emerged to consume that. I remember the first video conferencing applications long ago, everybody laughed at those. Today, we're on a Zoom call with I don't know how many people here. So I think that these new applications, whether it's a pandemic or not, like Greg said, are here to stay. And then we'll want those to get better. So the one obvious thing that I have personally seen throughout the years is video as it went from standard definition to high definition to 4K, the amount of bandwidth needed to transmit that signal goes up significantly. So we would rather have our Zoom in 8K. We'd rather have our videoconferencing with work. So I think that there is an unlimited capability to continue doing that. And the reports that Greg pointed out about Cisco kind of have bear that out for the last many years. And we saw a big uptick in the pandemic. And even today, I have a lot of friends and relatives who upgraded their broadband and their WiFi. I haven't heard anybody who said, yes, and when the pandemic ends, we're going to go back to a bad WiFi or older WiFi, never bad WiFi, older WiFi or older broadband. I think the trend is only in one direction in this space.

Got it. And then, Rich, just following up on kind of DOCSIS standards, kind of 3.1 and development around 4. Can you just talk about how important these standards are in terms of catalyst for upgrades and growth in the business.

Yes. I think that they are the fundamental requirement. Without new standards, the consumer wouldn't get new bandwidth and quite frankly, I couldn't sell new products. So I think it's absolutely critical for the cable operators to keep their leadership position. It's critical for us to keep sustaining additional revenue, and it's critical for the consumer to keep getting a better service. So a stagnant market is not what we're looking for as a technology provider and the evolution that I walked you folks through on DOCSIS has been key for that. And like I said, we're already working on the next generation because in a lot of markets the cable guys have gotten strong market share, and they're looking to continue to be successful for franchises with new and innovative products.

Craig, here's the interesting thing, and then you probably picked it up when Greg mentioned it earlier, too, which is, as we said, we do cable modem on cable. We do DOCSIS. That is DOCSIS, sorry. We do PON, fiber, and we still do copper and it all may terminate into WiFi. And the bandwidth for WiFi has gone very, very high with ax. So each of these protocols do not apply across all operators. Some operators are doing cable, some are doing fiber, and less and less are doing copper these days but still are. And they compete against each other in any locality, in any community and country, in many cases. So it's an interesting observation that we observe where 5G shows up and suddenly cable guy says, I do need DOCSIS 4.0 because I'm going to compete against them in getting the pipes to go big and now the bandwidth to be big enough to actually compete against that. And for sure, fiber, rolling out 10-gigabit fiber and eventually 25-gigabit fiber is another way of telcos who may not be thinking 5G as much to say, this is how I'm going to compete against that and not lose subscribers. So we're sitting here and watching all this happening actually as we go through this expansion of broadband.

Okay. Another question from the webcast, kind of bigger picture, Hock, when you think about these franchises and really what your approach to M&A has been. And so as you evaluate M&A, can you maybe just touch on the importance of adjacencies to kind of current franchise or technology, how you're thinking about semis versus software, just latest bigger picture thoughts on the M&A side of things.

Well, when we buy a company, make acquisitions, and you've seen that the last 8 years or so when we've been doing it, we're not necessarily trying to overthink this and figure out, I got to have a strategy. There's a strategic hole in my product portfolio that I have to fill to help those others. We don't. As we have indicated multiple times, every product franchise we have has to be stand-alone on their own merits. They better not be dependent on a sister division to stay alive because if they do, then they are not a franchise, and they don't deserve to be on our portfolio. And they're very, very stand-alone. They may collaborate, and they do, as Greg and Rich have talked about. There is similarity. They are building blocks that are similar. We use that. But each of them out there has to be on a stand-alone basis to basically make its own way, to sustain its own way and be able to sustain on its own right rather than try to prop up the other guy. And so by extension, when we do M&A and we look at any particular candidate. First and foremost, that candidate has to meet the criteria we talked about, which is a very sustainable end market that exists in the past and continue in the future. Got to be the #1 technology and the #1 market share. Then we buy it. And it doesn't matter how strategic or adjacent it is to existing franchises we have.

Okay. I wanted to come back to just trying to get a rough sense of the business to the extent you're able to provide any color of just, if I think about this broadband business on the access side versus the customer premise kind of rough splits and also just from a margin profile roughly how it compares to kind of overall semiconductors on an operating margin basis?

They are roughly at our corporate average. Now infrastructure, now the central office, of course, generally been smaller volume carries typically a higher margin than CPE. But we kind of look at it that we need both end-to-end. So we look at it as one anyway as opposed to CPE versus central office in broadband. We take it as a whole, whether it's in cable or whether it's in PON or DSL. But overall, the margins we enjoy out of this broadband is, as you would expect, it's a lot of R&D investments, huge, but it drives for us operating margin that is pretty close to our corporate average.

Great. Appreciate that color. All right. I think we're coming close to our allotted time. All the questions I've addressed through the webcast and also the questions that I had. So I just wanted to say thanks to Hock, Rich and Greg for your time, a really detailed overview of this business segment.

Thank you, Craig.

Yes. Thank you, Craig, for your time.

Thank you very much.

And thanks, everyone, for joining in. Appreciate it.

Great. Thanks so much and have a great day, everyone.

Thank you.