Broadcom's Management Presents at Deutsche Bank dbAccess Technology Conference (Transcript)

Sep.10.13 | About: Broadcom Limited (AVGO)

Call Start: 13:20

Call End: 13:55

Broadcom Corporation (BRCM)

Deutsche Bank dbAccess Technology Conference

September 10, 2013 01:20 pm ET

Executives

Eric Brandt - Executive Vice President and Chief Financial Officer

Chris Zegarelli - Senior Director, Investor Relations

Analysts

Unidentified Analyst

Good morning, everyone, here in the west coast. Good afternoon for those of you on the east coast in the east coast. People are filtering out of the latest keynote, but we are going to get started here. We are happy to have the CFO of Broadcom, Eric Brandt, as well as the Head of Investor Relations, Chris Zegarelli up on stage.

No presentation this time, we are just going to go straight into Q&A, and as usual later we will open it up to the audience for questions. Only thing I ask beyond asking questions is always a good idea, is when you do please wait for the microphone, so those on the webcast can hear you.

With that, Eric, why don't we, to jump into some of the questions? A general topic I have been asking heading into these Q&A sessions today with companies is, kind of an overall on the macro view. For last years, the back half of the year is falling off relatively hard whether it's supply or demand, so give us a little glimpse on what you are seeing from the supply and demand side of things heading into this year and how it's different if at all from last year.

Eric Brandt

It's hard to. I mean, each thing has its own specific reason why it goes up or down and each year had its reason. I would say in aggregate, I don't think it has changed a whole lot this year. I think there has been some pent-up demand as people waited for the economy to turn around and tried not to spend money. In some cases, people certainly had to spend money and that's probably most true I would say in places like data centers.

Beyond that I think the relatively muted economic outlook triggers a relatively muted semiconductor outlook and I don't think that it's substantially better. There are points in time certainly at the beginning of the year, where everybody starts with high growth rates and the growth rates down. It appears though in the middle of this year, peoples view of industry growth rates have been a little bit more robust than continuing to slide down, but beyond that it's hard to see what the discernible difference is.

Unidentified Analyst

When you think about it, its seasonality is even a valid framework at all to look at what are the puts and takes versus normal seasonality for you guys? Remind people of what that was for your third quarter guidance, but also if you remind them what normal seasonality is for the fourth quarter. Any puts and takes you have coming this year?

Eric Brandt

Take it with the appropriate caveat, right? That seasonality is built on historic view of two things. One is, what the historic growth rate of the business has been, so the variations and the standard deviation around that the average growth rate of the industry changes as the industry growth rate changes, number one. Number two, it also changes for mix. Now, we try to adjust for mix, so I think on the second one, we can to some degree adjust. On the first one, it's very hard to do so.

Typical seasonality for us, which is built on the back of a comp semi market industry that grows at about 10%, I think it's grown last couple of years flat to maybe two or three. You see two phenomenon, one is you see some compression of the standard deviation or movement around that average and occasionally you see sort of one quarter to another quarter more pronounced movement and I would say that's because to some degree some people expect the seasonality and they may move more aggressively to behave according to seasonality, particularly true in a consumer entry product and you are starting to ramp products into Q2 or Q3, and then all of a sudden you don't actually see that underlying 10% growth. You see a 3% growth rate and then it comes back down.

Normal seasonality for us in Q3 would be again on the back of an industry growing about 10%, will be high single digits, low double-digit growth, sequential. Normal seasonality in Q4 is flat to down a couple of points.

Unidentified Analyst

Is there any aspect? This year I think your guidance was up about 5% at the midpoint. That might just be the product side with the royalties going away. If you don't go up, is there an aspect if you don't also come down then in the fourth quarter? Seasonality mutes itself?

Eric Brandt

Well, you are saying offset versus muted. It's mute versus offset, if you don't go up as much, maybe you don't go as down that would be offset. I would be mute as you don't go as much maybe don't down go down as much. In other words it's sort of compresses. It's direct. I just don't know at this point.

Unidentified Analyst

What about in…

Eric Brandt

I might also comment that the standard deviation on those averages is larger than the number.

Unidentified Analyst

Exactly. Never want to get math involved. What about on the ASP side of the equation and that sort of slow growth environment and this is again more of a sector wide semi sector wide question. If the growth is flat to up 5 as opposed to the up 10 that you are talking about, how do you handle the ASP pressure and what have you seen over the last couple of years on that front, because I would assume it's been a bit more pronounced.

Eric Brandt

If it had, it's been slightly more pronounced. There have been pockets where it has been stronger. There has been some places where on the infrastructure side, we have been perhaps a little bit more aggressive in some of the deals we have cut and cost cuts were willing to go down, but probably the place where it's been most noticeable is in 3G, where the pricing curves have come down quite significantly in 3G over the last year or so.

Unidentified Analyst

When do view that as the opportunity to get into the handset side of things in general. Can you talk a little bit about the acquisition of the Renesas LTE asset that you announced last week. What was the logic behind doing that deal and what we as investors supposed to take away as far as what that says about the investments you have been making for quite some time in LTE organically?

Eric Brandt

Sure. This was not an easy decision for us. It was something that we debated for a long time. In fact it's something, most people know that this asset has been for sale for a while and there hadn't very, many takers. Earlier in the year, I think, there was a part. We were probably not as excited about it earlier in the year. There was significant progress made over the last nine months such that. There was a particular company that was actually ready to take it into production.

In think in addition given their headcount structure and where their people were around the world. There was a very challenging acquisition for anybody to digest when it initially hit the market. To some degree the movement on the part of Renesas to move, to shutdown the business and give the termination notices liberated certain capabilities in terms of your ability to take on less people and make it more digestible in terms of asset and actually put a more defined timeline in terms of how you are going to reduce down the size of that business to a more acceptable or digestible size.

The strategic consideration was as follows. We have currently a healthy product, which is under development. That's undergoing carrier certification at AT&T. We've said that. It's a thin modem. We expect it to get carrier certification at the end of the year. It's still undergoing engineering work and the trade-off was ostensibly to take an SoC, where our SoC was probably back half at least or maybe early '15, but certainly back half of next year and move it up to the beginning part of next year in exchange for sliding the thin modem out.

If you think about the thin modem, it would have had a single carrier or so, we would have rolled additional cert simultaneously and replace it with a product that actually had five carrier certification.

Number one, it hits the market more at a place where we felt the customers were willing to try a new supplier. It provides and SoC, which is cost effective, brings a meaningful product to the market, comes with certification and is ready to ramp now, so instead of waiting for the timeline to move, waiting for the timeline to hit and things moving to the right which they inevitably do and there are being sort of more uncertainty and smoke around the choice, we traded the use of about $165 million of foreign cash for more certainty around our LTE business and the ability to evaluate it the same way we evaluate the rest of the businesses in the company, so that we could be able to figure out whether we are actually going to deliver what we said we were going to deliver.

I think the other thing is that it was important to us and I think there was an opening of the market to establish truly the second player in terms of technology in LTE. There was a lot of discussion from a variety of our competitors about the fact that they would be there at the end of this year. It doesn't look like many of them will or at least they will be in cut down versions of what they originally anticipated and this sort of lead products into the front.

As a result, we have had customers and I mean more than two, because every time I say customers, people go oh, it must be two. We've had customers send us and communicate with us saying, we are very excited about the acquisition. We know about this part. We were unwilling to invest in it, because we didn't believe that there was a long-term plan for this asset. Now that's in your hands, we are very excited to talk to you more about it.

Some of them more advanced than others and so where you are as you wind up being in a trade-off between taking on additional operating expenses for greater certainty. I don't think any of us like taking on additional operating expenses and quite frankly we would rather than we didn't, but bringing clarity to the plan, being able to measure the plan, having a set of financial metrics for the business and recall we said that if you just look at this deal, just look at the assets we acquire. We believe there will be $0.10 to $0.15 dilutive next year as we are ramping down operating expenses and ramping up revenue both of the dual core product and the quad core product.

We felt that if you get to the back half of the year and you have an asset that is neutral or even potentially accretive as it turns out to be so and the ramp is better and we are able to take cost out faster then we have actually established ourselves in the position, we've cleared up uncertainty, which we think is important for our investor base around whether we will actually have something we can sell on a product roadmap that is viable for multiple customers instead of just one.

Unidentified Analyst

As far adding comfort removing uncertainty, when you up the theme, obviously there wasn't a chip that was right into the market at that time, but that was supposed to be the asset to bolster the organic effort and lead to the organically delivered part and obviously it hasn't done so at the timetable, during the timetable that you were looking for. Help investors get more confident that this is the one that actually changes the outcome.

Eric Brandt

Look, the companies that have been investing in LTE to bring an LTE product to market were investing probably over a 10-year period of time. We bought these, we tried to short circuit it and [pour] and I think we got pretty darn close with what we were about to do given the timeline that we anticipated launching our product.

This is just further advancement of steeper curve. I believe that we will integrate and take the best of both as we have done in other companies. We are very excited about the engineering talent that comes with it and the history that they have and the relationships quite frankly they have with a number of the handset companies, so it's hard to know why this time will be different. I think that the thing that I would put my hand on is, I would rather make sure that it's more transparent, so that you know whether it's different or not as opposed to it being uncertain and murky whether it's different or not and this acquisition does make that more certain.

Unidentified Analyst

Should we expect to see that traction begin in the first half of next year, because you talked about this stuff is pretty much ready to ship. What's the progression that investors should be able to see with that increased transparency that you are talking about?

Eric Brandt

Consistent with what we said on the call, this is a part that's ready to certify today is production volume and inventory and there is at least one handset design which is pretty far along that you could move fairly quickly. I think in the next three months, we will see whether we have that design engagement and potential production models to move into the first half of the year. You will see whether there are model shipping in early 2014. You will see the announcement of the quad core part and the sampling of the quad core part early in the year. Then I think that the next piece will be, you will just be able to watch the revenue ramp and then eventually the ramp of the quad core part in the back half of the year.

Unidentified Analyst

When you start integrating this with your own technology and remind us that part of the quad core idea launching, do you have to re-cert at various carriers?

Eric Brandt

In the case of quad core, no. The quad core is the exact same modem we removed the 2A9, we replaced them with Quai7 and they stay in the footprint of the dual A9, so there's actually no change to the footprint of the die of the chip, so it's the exact same model. There's no re-cert required. As we move to the integrated technology between our thin modem and their modem technology, there will be an additional cert requirement. Some of it shorter as you are certing the new features and interactions of those features as opposed to the older features which have already been certed.

Unidentified Analyst

When you look at the baseband effort in general and Broadcom is not necessarily different from anybody other than the leader in the market. As you said people have been investing for the better part of 10 years and you really other than the guys at the low end, you haven't seen other high end guys come in and be terribly successful in this market. Why do you think that is, because it doesn't seem to be a lack of investment.

Eric Brandt

I think, it is a timeline and this is not a normal. I don't know what normal is, but in some respect it's not a normal semiconductor timeline market, because of the certification process is required and I think that what you have seen is that people have thought that they could use their traditional models. I get 10 smart people in a room and they start thinking about this problem in 18-month I got 50 people working on and the chip comes out. This is a much more complex problem than that and it takes longer to do it, and when the chip comes out, there is a lot more certification associated with it.

As a result I think that where you would have expected smaller companies would have been widely successful and become larger companies they have been unable to do so and where you have seen larger companies I think there have been other issues, whether it's been technical issues in what they have done or heritage issues. It's hard for me to say I am not inside those companies, but it suffices to say that people who actually focused on this Qualcomm and will put LTE aside and MediaTek has actually made decent headway in what it is they are doing.

I think LTE is very, very challenging and it's hard for everybody to do it and people who thought they will be able to do it faster did not and I continuously discover that and one of the reasons why this asset becomes attractive again is that you short circuit that with something that actually does work, but it's a challenging problem to solve.

Unidentified Analyst

On the OpEx side involved this and then even in general and your baseband effort. You have done a good job and pride yourself as far as I can tell on controlling OpEx and generating returns off of that, but it seems like you have been spending better part of $600 million, $700 million a year on the baseband effort, adding another $165 million to buy this asset and kind of $75 million a quarter down to $30 million exiting next year, is there an aspect to this where you zero sum game or if you are going to add on one side you turn on the other, because you have been spending a lot already, so investors are always wondering why this one is going to get you over the…

Eric Brandt

Interesting question, so it is something we consider every year as we go through the process in the summer we start doing our portfolio analysis, so we make decisions about businesses we are going to investment and not invest in or exit etcetera.

As I mentioned earlier, we are not terribly happy to take on additional operating expenses. Certainly where our operating margins have been running recently, although again with the guidance we should be we back in the targeted range, but we are very sensitive to the amount of cost we take on. We will look at opportunities to reduce cost across the board consistent with our portfolio process such that we can actually manage our cost structure.

I think the challenging thing with this has been is that as you point out a very large investment and because we have been very committed to managing our business within a targeted operating mode and try to manage our operating expenses is tightly as possible, you make certain choices about places you will not invest and things that you will hold basically frozen and a good example of that is infrastructure business where you see a decent pickup in the revenue and the operating margins move from 24 to 30. Why? Because there is no growth in the operating expenses in that business, so it's highly levered to the bottom line and so this is a calculated choice on the part of the company.

I think that there is a limited amount of time to prove that we can actually execute against what it is we are doing, because as we hold our growth and spending in the broadband business, in the infrastructure business and even in the wireless connectivity business, there is a limited amount of time you can do that with no damage technologically or relative to your market position, but you can't do that forever and so as a company one of the reasons and one of the reasons why we spend the $165 million in this asset is accelerates our ability to see that visibility and determine whether this is a good business for the company and a good business for our shareholders and when and where we can begin to invest in those other businesses and so I kind of view it very much as a period of time where we really can either put up or shut up as a company and I think we have to put up.

Unidentified Analyst

That was actually going to be my next question and the last one on the topic was, is LTE and then this acquisition they put up or shut up moment in whether it's 12, 18, 24 months whatever the timetable is, if it doesn't work out do you look at all strategic options?

Eric Brandt

Look, we look at all strategic options. As a company, we are trying very much to be financial Stuarts just like everybody else is. I would say our decision making and choices are probably more driven by what I said in your last question, which is we are sensitive to the fact that we have three very healthy businesses. We have a very healthy broadband business, we have a very healthy infrastructure and we have a very healthy connectivity business and the strength of those businesses has given us the ability to make the investment in the baseband business, but it can't go on forever without a return, because at some point it begins to do damage to those businesses in terms of our ability to invest in them, continue to grow and hold the market share and grow the market shares we have.

If you ask me whether I have [got] the timeline on anything, but if you ask me what the real strategic consideration to the corporation is, is you are not going to allow this shiny new thing to damage the thing that's generating the cash that returns and feeding the kids for any prolonged period time if you believe that ultimately it's going to do serious damage, so we have felt all along that we could support this investment. I think as the growth rate of the industry has come down, the pain that we sort of foretold for everybody, we felt as well.

I believe that this is an important moment for the company. I think this is an important moment for us to prove that we can do this and make a real business out of it and I know that the management team and the board of directors believes that we are committed and if it turns out that this isn't the right thing to do, we would consider any and all options in front of us.

Unidentified Analyst

Why don't we shift the gears onto, stay within wireless, but shift it over to the side that like you said feed the kids on the connectivity side of the equation. Over the last, well, couple of years, you had a lot of noise from your competitor down south about penetrating into that market, but in the last couple of quarters they have got a little more traction it seems less than sockets. Talk about the market share dynamic you see on the connectivity side and what Broadcom does to stay ahead?

Eric Brandt

It was investable that they would get some socket. I think, this is a conversation we have had for probably five years and the name of the person who is going to win. The connectivity socket wins every 18 months, right? First it was Atheros, then it was Marvell, then it was TI, then it was Marvell again, then it was Qualcomm, then it was Qualcomm again. Inevitably, we felt that at some point we would lose some of the share we have some of the very strongest share we have and we have modeled accordingly.

Having said that, we continue to hold our market share because we continue to provide the leading edge technology just like they provide Qualcomm provides leading edge technology on the baseband side, the leading edge technology on connectivity. We have products that perform better on lower power, have better coexistence and to the extent that we continue to perform at that level and by the way this is no different than the way we compete in broadband or the way we compete in any of the businesses we are in. To the extent that we are able to do that, we believe that will continue to hold share and to the extent that we can continue to make the investments to not fall behind technologically, which again goes back to the strategic question about the investment in baseband. We believe we will continue to do so.

We continue to be the product on the product on the high end, because if you look at the features that are provided or communication features of a high end smartphone or tablet, many of those are related to the Wi-Fi capability of the device not so much the cellular capability of the device and so we have done well. I think in places where it has been somewhat of a challenge is, when you get to the good enough and so when the chipset delta is essentially zero or $1 and our chip ones that have been $1 more than that, the customer has to make a difficult choice and for some devices that users experience is justified by that additional cost and in some cases the customer decides or the OEM decides that it's not.

There have been some places where I think you have seen that and probably more headline related than actual volume and performance wise, because fundamentally our connectivity business performance is up meaningfully year-on-year. On units it's up meaningfully and the profitability has been extraordinarily strong, so I don't see it as an issue although it tends to be headline. I look forward to the day when the flip turns around and somebody picks up the phone that has a Qualcomm baseband that has a Broadcom LTE baseband and they go holy crap, Broadcom is picking a ton of ship from Qualcomm.

The truth of the matter is, this market will equilibrate to some degree. I think we will maintain very strong share on the high end. I think in the mid-range where it's good enough, perhaps more closely aligned with what our baseband share is and then obviously outside of the handset, in the embedded space, I think, we will continue to do very well.

Unidentified Analyst

You mentioned a little bit of delineation between the units on the ASP side of the when you have a competitive threat and the same thing you going into the baseband side of things. There's winning and losing the socket, but then there is the ASP damage that the battle can do. Which one do you think we are going to see first if either?

Eric Brandt

I think the product is sufficiently differentiated that it's really winning the socket at this point except for some of those who are good enough and even in the case of good enough, it's the simplicity question for the customer. I don't think this is sort of a race down the curve on ASPs too much on the connectivity side and that's why when you asked about sort of what's been the trend in ASPs, the connectivity ASPs have been relatively consistent.

Now, there have been connectivity thought kind of a salt tooth where while you are within a particular technology will pick in. You are shrinking the die size and you are sharing the benefit of that. To the extent you are shrinking the die size 60% over two year period, you are probably going to see 30%, 35% ASP declines, because the customers expect that. Then you add functionality like AC-DC double-digit increases in ASP, so you get the salt tooth, so sometimes you can lose sight of sort of what's going on when you look at the macro, financials and we do our best to try to explain that to you. I know people spend a lot of time on the phone with Chris to try and understand that as it relates to what's really going on in the underlying performance of the business.

I think as we look at the business, the underlying performance of the business continues to be strong as we look at the designs, the highest end devices, we continue to win the highest end devices at least at our proportional share if not in cases more.

Unidentified Analyst

Let me take a shot and see if there's any questions from the audience and if there are just raise your hand, but please wait for the mike. Everybody, once again? Perfect. Why don't we get outside the wireless side considering that it's only half of your business and talk about the rest of it.

The infrastructure side of things that are really, really strong pop up last quarter, ironically, you did a little bit of a write-off simultaneously on the NetLogic asset. Talk a little bit about what's going on? What drove the, I think it was about 19% sequential increase in that business by whatever, end market or customer type that you wish.

Eric Brandt

That business continues to do well principally. I mean, it was up across virtually all of the businesses, but I would say the strength of the performance came at in the data center side as people were doing pretty significant data center builds and probably more on the cloud would you say first. More on the cloud and some of those white box that go into those cloud data centers.

I think some people attributed that strength very much to Trident II, Trident II actually only sold a small amount in the quarter. You will see Trident II this quarter. I think the good news is there are data centers and cloud-based data centers going in and there's more and more service providers are moving to SaaS based solutions, I think you are going to see more and more of that. It's going to be harder and harder for companies to do on-prem related things. They are going to have to do more and more offside and as they more offside, you are going to see more build of these large data centers and we are in a good place for that I think you are seeing that some of that pent-up demand begin to show itself last quarter and into the guidance we provided this quarter.

Going forward my hope is that the service provider market turns on. There are some signs that the service provider market is alive and I think it's inevitable, because the data rates begin to pick up and the networks get full and these guys have to start spending money. China is going to build out an LTE network at some point and so if we are lucky they ham and egg each other and so you see a kind of steady growth rate on an ongoing basis. We have seen this sector go sort of run up and then run down and run up and run down. I think there are some signs that would suggest that the infrastructure builds which have been held off for probably 24 months are beginning to come back.

Unidentified Analyst

Just so investors know how to frame this, out of the roughly 25% of your sales that that sector infrastructure represents, how do you split that up between data centers, service providers and I don't know enterprise the last split?

Eric Brandt

Yes. That's a fair question and I can just give you a high level view on how we look at the infrastructure business. From a service provider perspective, we think of it as running north of 40% of the total revenue on the infrastructure side. Data center is actually running north of 30% now and the rest of it is the enterprise and SMB segment, which is also running in that kind of low 30s range as well, so the biggest growth drivers to Eric's point has been data center which several years ago it would have been teens in terms of the percentage of that mix now trending closer to 30% and the service provider business, while it goes through those expected ebbs and flows has been a relative top performer on the growth side as well and enterprise has been more of a consistent performer. That's how we think about it in terms of relative growth rates.

Unidentified Analyst

China starts doing 200,000, 400,000 base station stuff that has appealed the companies, so excited, the exposure you guys have to that within the service provider sub segment…

Eric Brandt

It is quite good. I think we said in the 3G base station, we had about what? $50, $60 worth of switch and silicon I think it's probably closer to $80 or higher, right, in an LTE. What's the number I don't remember.

Chris Zegarelli

It's been between in $100 range and we are assessing processor exposure on that side as well and we did start to see some of that rolling through the numbers in Q2 as well. Service providers up nicely as well. Obviously data center was the biggest relative grower, service provider performed well. Part of that could be inventory levels getting back to more normalized level, but there is underlying demand based on the tender activity that we have kind of been seeing globally, so it just speaks to the strength of the portfolio both, in switching and continued traction of the processor side.

Unidentified Analyst

This leads to my last question on the infrastructure side of things. That's going up 19%. Clearly, it was a nice positive surprise and we saw that from a number of companies, so something obviously went well for the industry. I think you guided slightly up in this next quarter. Given that you have the service provider side showing some kind of life, you don't want to get too excited about it even though plenty others are, and you have the Trident II commentary that you are talking about. I am sure there's some other new product as well. Why is it slowing from the 19% down to whatever…

Eric Brandt

I think some of it was that inventory levels were probably unnaturally low going into Q2, and there was some snapback of some of the inventory level, and what we are try to do is be reasonably cautious at this point to know whether there have been you know over the last three years infrastructure companies have probably called the bottom seven times and sometimes it's hard to tell when you are sort of going over a bump in the road, whether it's actually a hill or it's just a bump, so we tend to be cautious in our view. We feel pretty good.

I think, you know, the fact that we saw 19% growth in Q2 and we projected growth into Q3 is a good sign and we believe we have a product cycle behind it and so I would say we are more on the positive side, but we try as you know to be conservative and cautious in what we do.

Unidentified Analyst

As far as the end markets that wrap up on the broadband side of things, talk a little bit about. People conceptually think of set-to-box units slowing and from my perspective that sub-segment often times with acquisitions added in there as well and they [tend to] business, how do we think about the growth rate potential in broadband?

Eric Brandt

Broadband as a feature set that drives growth in that business and probably offsets any sort of flatness in the subscriber base in developed markets or even decline in subscriber base in developed markets. Couple that with some geographic expansion, principally in Latin America and now in the Russia and some of the sort of countries in that part of the world, I would say you will see pretty growth. Now, those tend to be less featured devices, so they don't carry the same ASP, but they do add some points on growth drivers.

Then I would say you have product transitions, you have DOCSIS 3.1, probably back part of next year. You have small cells beginning to go though after off of the small base, so for Dan's business it would sort of be mid-to-high single digits over a long period of time is probably the broadband business probably a reasonable assumption for that business. I think it has had a history of stair stepping, where it's done much better. Last year, they had what looked like 5, but if you took out the digital TV business, it did closer to 11, so it's actually pretty healthy business. The operating profit in that business has been running around 24%. Again, so I think we have been very judicious in terms of the way we are operating our core businesses.

Unidentified Analyst

Last chance for questions from the audience. Why don't we wrap up then with the a balance sheet question and specifically on the cash you have. Last quarterly clearly disappointed investors for a number of reasons and you saw the reaction in your stock price. If I remember right over $5 per share in cash.

Eric Brandt

Yes. Give or take.

Unidentified Analyst

Right. A lot of cash on the balance sheet.

Eric Brandt

Yes.

Unidentified Analyst

How come we haven't seen any more overt share repurchase plan kicking in, those sorts of things if you truly believe in the great LTE et cetera, et cetera?

Eric Brandt

Yes. Remember we have to split what our cash is in the U.S. versus cash non-U.S., so we generated probably about probably 25% to probably 35% of our cash flow from operations. Probably 25% to 30% of our free cash flow, because more of the CapEx is in the U.S. If you take the number we did last year of $1.9 billion, which is around that number I would call it $500, say, $500 million is roughly what the U.S. free cash flow is.

We payout $260 million in dividends, we planned, if we bought back what we issued to buy back some-$400 million worth of stock, so we continue to spend money actually on the stock buybacks and I would say that the movement in our stock is not lost. It's in a while none of you will share your trading strategies with me, I won't share my trading strategies with you, but you can presume that we did not lose sight of that. To the extent there was weakness in the stock, we took advantage of it.

Unidentified Analyst

Was there any limitation on the ability to take advantage of that because of the at that time pending Renesas deal?

Eric Brandt

Some. We tend to put in 10b5 plans, which enable us to buy the stock on 10b5s, so for the most part I think we are actually able to manage it, because we sort of stay out of black out windows. Our authorization is to buy back about 2x what we issued. That would put us close to 25 million shares. We had bought 6 million shares through the first two quarters of the year and I think you will see healthy repurchases through Q3.

Unidentified Analyst

I think, we are exactly on time, so Eric and Chris, thank you very much for your time.

Eric Brandt

Thank you.

Question and answer session

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