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Broadcom Corporation (NASDAQ:BRCM)

Cowen Technology, Media & Telecom Conference

May 28, 2014 9:30 AM ET

Executives

Rajiv Ramaswami - EVP and General Manager, Infrastructure and Networking Group

Analysts

Timothy Arcuri - Cowen and Company

Tim Arcuri - Cowen and Company

Thank you everyone, I think we’ll start now. Thank you. I am Tim Arcuri, I am the semiconductor analyst here at Cowen, and we’re very pleased to have Rajiv Ramaswami from Broadcom. He is the EVP of the Infrastructure and Networking Group and also pleased to have Sameer Desai, who is from Investor Relations. So I’ll ask a few questions and then we’ll open it up to questions from the audience.

So I guess first of all Rajiv I just wanted to ask about June guidance and based upon the June guidance at the midpoint and your commentary, ING is going to be up between 25% and 30% year-over-year during the first half of this year. Some of this is due to easy comparison, data center and infrastructure. But can you talk a little bit about what has changed in the past couple of quarters and the underlying growth drivers that has allowed the business to grow this much year-over-year?

Rajiv Ramaswami

Tim first of all glad to be here and thank you for having us at your conference. So our growth drivers haven’t really changed substantially, it’s -- and what’s been a pleasant surprise is how long they have been running. So if you look at, let me start with the data center piece that’s been the fastest growing segment, 30% of our revenues to-date. And the trends which I would say are multi-year trends have been there now for some time, the first is increased adoption of merchant silicon versus ASIC in these markets. Second is the migration to public cloud and increased migration large scale data centers are being built out, as well as host enterprise private cloud. And then the third is the speeds and feeds transition going from a gigabit to 10 gigabit and then hopefully to 25 gigabits and 40 gigabits.

So these are the three trends that have continued to drive our data center business and it’s gone now to 30% of our business. And they have continued very strongly, we’ve seen continued spending from large cloud operators as they have built out their data centers and at the same time there has been this Cisco for example started shipping the Nexus 9000 to reduce Broadcom silicon so that’s an example of where we’re gaining share from an easy to merchant transition perspective. And then the increased adoption of 10 gig, you see Trident II coming along, Trident for example a set of the Dune products in large modular spine. So these drivers have been strong and they continue to be strong and that’s really what has driven the growth so far and including into Q2 in the data center side.

Now the other big driver for us has been in the carrier, service provider market which is about also 30% of our overall revenues. And over there it’s been primary wireless infrastructure build outs, LTE build outs across the world and certainly in China. And you have seen our first wave of build outs happen late last year, early this year that seems to continuing. Chinese carriers have announced more build outs, that seems to be transpiring well. And that’s also for us there is presence in base stations and they are also presence in backhaul and aggregation of core all of which is helping our goal so far.

Tim Arcuri - Cowen and Company

Can you talk just about how sustainable this growth is about six or seven months ago you were a little cautious on the ability of the business to actually grow and it turned out to be a lot better than you thought I think at this at that time. So can you talk a little bit about your visibility and sort of how sustainable you think that the current growth trajectory is?

Rajiv Ramaswami

Yes so while the underlying growth drivers are there in each of these segments and they are I think multi-year growth have kind of backed us in all of these both service provider and data center markets. The question is temporary, it is lumpy it’s going to be lumpy and the things that we were cautious about a few quarters ago I would say they are still cautious about. So for example if you look at on the data center side there has been a lot of capacity. And what we don’t have adds great visibility into this, what is the utilization of all these large data centers that have been built out? Are they running at close to capacity in which case the trends will be great, they have continued to build out, there is a lot of capacity sitting there that’s to be used, which would potentially mean that there is a slowdown. And we don’t really have that great visibility into that piece of the business. Now the underlying trends like I said continue to be strong but this could create a temporary pause, if they build out and then they digest the capacity they build out again.

Same thing on the carrier side, I think the indications in the carrier side that the LTE rollout will continue. We’re seeing certainly also more and more of these packet optical systems being deployed now whereas the optical transport folks are now incorporating more capabilities within their own DWD and platforms in terms of packet functionality. And that helps us to the extent that they can capture share from router ports that has, because the router ports tend to be more ASIC driven and the packet optical systems tend to be more merchant driven. So those are all I think again the question is how lumpy can this be, if there is a pause in LTE spending that will certainly impact us.

Tim Arcuri - Cowen and Company

And so do you think that you’re visibility today is better than it was six or seven months ago or is it just, it’s inherently unpredictable and…?

Rajiv Ramaswami

I think it’s inherently unpredictable, I wouldn’t say things have changed, I think like I said we have been surprised pleasantly on the upside about the fact this has continued and we had a bottom back in Q1 last year and since Q1 we have been growing every quarter. And because I thought eventually there will come a time where things slowdown.

Tim Arcuri - Cowen and Company

Can you give us, if you actually look at data center in particular do you sort of worry about some softness in that market toward the end of the year as we saw back in 2012 was there a unique thing that happened then that there can be some seasonal effect this year as there maybe was back then?

Rajiv Ramaswami

I would say back in -- first of all I don’t see a huge correlation between what happened in 2012 versus what could happen this year. And I would say in the 2012 the slowdown was much more significant and the service provider side then for us down in the datacenter side we really saw big box and carrier spending that really hurt us Q4 ’12 and in Q1 of ’13 which was a bottom. Datacenter relatively has been strong all through the period and again I think the only thing that could caused it to slow in the near-term is going to be the spending picture and whether the people continue to build-out or not.

Tim Arcuri - Cowen and Company

Can you talk a little bit about one thing that I want to spend some time on is just the merchant ASIC balance and so can you talk a little bit about how customer like Cisco thinks about captive versus merchant silicon and sort of how your customers are trying to balance the two?

Rajiv Ramaswami

So this is a constantly evolving landscape and depending on the customer you talk to you might get a slightly different perspective on this so large customers like Cisco now are publicly talking about this best of breed combination of in-house class of merchant I think so they’ve kind of come to the realization and they’re talking about it publicly that they will use ASICs and a chunk of that business and they will use much and where it make sense. And it’s a combination and that’s again I think they have driven to that realization by the fact that they’re not able to keep up necessarily with their ASICs cost of book in terms of innovation.

And so when things are changing rapidly for example in datacenter we’ve seen a rapid increase in terms of number of features needed in speeds and feeds growth and it’s much more difficult for in-house deployments to keep up, developments to keep up. And so there we’ve seen more increased adoption of merchant away the same thing when it comes to the service provider side as well very broad set of products needed to cover the service broader marketing in fact much broader than what’s needed on datacenter or enterprise because it’s just a much more complex carrier network if you look at the access to aggregation to core there are many-many different boxes to be built and today we have much and so we can optimize for each of those platforms.

Company can doing in-house ASICs can do we only afford to really build a few ASICs that would target specific portions of that network and what about the rest of the network you say -- and that’s starting to use more much in those portions of the network. So that’s kind of the dynamic when I would call it in the developed world. And then if you look at China for example though the dynamic is slightly different where company like Huawei there is an exclusive mandate to have more homegrown technology whether it’s high silicon in the case of Huawei or even at the Chinese government level where there is more of a need for technology development within China. And so there is those kind of demand sort of actually -- those trends that actually kind of dictating more ASIC development in China. Now there I think the way we went much over ASIC is simply by having better products so we have better products and what they can do internally then they will use this and if we don’t then they’ll end up going to their own silicon.

Tim Arcuri - Cowen and Company

Okay. Just on that front, can you talk about the Nexus 9000 and maybe when does that begin to become meaningful in terms of fundamentals for you? And maybe just talk about is there something particular about the decision that was made for that product merchant versus ASIC or is that part of the sort of broader trend that you just talked about?

Rajiv Ramaswami

Well I think this -- so Nexus 9000 is just very early in its lifecycle they have essentially launched -- they just launched it at Cisco and they are actually going to launch the next phase of it very soon, so the ACI piece of this. And so it’s really very early and these types of modular platforms have a 10 year lifecycle and we are the one of the 10 year lifecycle right now, so there is a long lifecycle and there is multiple generations of line cards that will be built overtime to speeds and feeds and continued growth. So I would say very early in the lifecycle of the Nexus 9000.

In terms of the trends of why did they adopt merchant silicon. They realized modular look up to him and so obviously when they got to this they started in Seimi to define these -- build these large datacenters projects they were trying to figure out what’s the best way to build a product and having known them for a long time it’s been -- the trend has always been to do ASICs for everything they can. And that would be their preference and that would still be in their preference going forward in my view. But the belief that the ASICs could provide them two things it could provide them significant differentiation in the market and it could provide them a type to market advantage.

In this case what they realized was that they were not necessarily getting both of those they will probably get softer type to market and they would get enough features that they could differentiate on software that what they decided to do was to go primarily with the merchant product in the market but complement that with an ASIC that they have build themselves and that they talk about. So that’s kind of being their approach and that’s made a lot of sense for them they were able to create some differentiation with the chip that they did themselves and get to market quickly without having to do the whole thing themselves.

Tim Arcuri - Cowen and Company

And do you think that’s a very unique approach or do you expect other customers to take sort of a hybrid approach like that?

Rajiv Ramaswami

Well I think the last guy could potentially take a hybrid approach and Cisco certainly can given the resource that they have. The smaller companies are likely to go with more of an all-merchant approach. And again the question typically is that the merchant is on this treadmill and overtime more and more features get sucked into every generation of silicon, so what’s the differentiation in one generation of ASIC may go away in the next generation where it’s captured by what’s in the silicon.

Timothy Arcuri - Cowen and Company

Just on that track, specifically on enterprise, I think Cisco is a little more positive last week on enterprise, have you seen that flow through to your own business?

Rajiv Ramaswami

And I would say when we guided up on in Q2 over Q1, we said it’s up over all the segments data center enterprise as well as carrier. So we are seeing that.

Timothy Arcuri - Cowen and Company

Okay. Questions from the audience?

Question-and-Answer Session

Unidentified Analyst

[Indiscernible]

Rajiv Ramaswami

Yes I mean I think Ultra HD and HEVC, some of the newer technologies in the set-top box market we are starting to see some growth this year. I mean I would say that most of the growth will start to occur next year that’s where we see a greater inflection, but we’re starting to see a lot of the set-top box specifications asking for HEVC and Ultra HD. But I think, when it comes to the real volume it’s going to be more towards next year.

Unidentified Analyst

[Indiscernible]

Rajiv Ramaswami

Yes I mean our footprint in the set-top box market is fairly large and broad. So these types of dynamics don’t have too much impact on our business. We do sell into AT&T through their broadband, video delivery business as well as Direct TV, so we have a good footprint in both areas, and we don’t see it to be a big impact either way.

Timothy Arcuri - Cowen and Company

Anymore questions from the audience right now? I wanted to ask, Rajiv, I was just talking to Sameer about this last week Scott was a little more, I think, open about the possibility, that the Company could potentially exit the wireless business, and that there seems to be a little more of a timeline on that. And as it relates to your business, if that would happen, do you think that you operate fully independently or would that be a net positive on your business possibly because it’s sucking so many development dollars. Would that free up development dollars for your business? Do you feel like you at a hamstrung and you’re not able to do things that you want to do because that business is actually sucking up so many development dollars?

Rajiv Ramaswami

Tim, that’s as quiet very much unplanned, because over the last few years we have been operating on my side of the house under a very tight OpEx constrain. And so you have seen I mean some of the benefit of that is revenues have gone up, the operating margins have gone up as a result of that. But it’s certainly not where I would like to operate independently. Left to myself, I would like to see more investment, and I think if we were to exit the mobile business obviously that would create a room to invest more in my space, and I certainly we as a builder for that segment would certainly welcome that. And I think there are again there are things, there are some growth areas that I still see for our business that is well worth investing in.

And our markets, the growth opportunities tend to be a little longer term for us. It takes time for us, just a cycle. For us it takes two years to build a product. And then another year for us it to start seeing coming out in the customer base and then has a typical life cycle of five to eight years. So it is a long cycle. But if you don’t invest now we won’t see the growth five years from now. So I would rather be in a position to have it invest. So if we were to exit the wireless business, I would assume that that would definitely free up some more OpEx for us to invest in ING.

Timothy Arcuri - Cowen and Company

So how do you think about what the right sort of the optimal operating margin is for your business? You’ve been in mid to high 30s I mean it’s been great. So if left to your own devices you would actually obviously you want to invest more in development, what’s the right sort of sustained operating margin for your business if it were a standalone business?

Rajiv Ramaswami

Honestly, we don’t think about it that way we think about operating margins at a Company level, and we try to manage that at a Company level, where we have this model of about 18 to 22 in that range and sort of we stack up all the businesses and see how we end up together. So we don’t really think about as what is the operating margin for this business, or that business or this business now. What I would say is, on my side of the house, typically it’s not like I have a big bet like mobile that I couldn’t make in if I wanted to on my side. My bets in terms of new investments would be on a much more diversified kind of basis, like lots of smaller investments that we would make. And that’s the nature of my business. We have fairly well diversified across customers, across product lines, it’s a lot of -- call it smaller businesses. And that’s the kind of the nature of investment that we would make more into many smaller pieces rather than sort of taking a big bet on one thing.

Timothy Arcuri - Cowen and Company

And just from a competitive point of view, have you seen any meaningful change in that competitive environment out there, say in the last couple of years?

Rajiv Ramaswami

Yes, I think we definitely have seen more competition trying to come into the market, right now I mean obviously people see the success we’ve had with switching, both in data center and service provider and that provides a target for a number of competitors to try and replicate it. What I would say is, we have faced multiple generations of competitors in the past and the things that keep us ahead are, first our ability to build and deliver on multiple generations of very complex chips in my neck of the woods the chips tend to be very large very complex, a lots of IP blocks inside them that we have put together and delivered. So we’ve executed on that end.

Second is that we’ve been able to keep up and also drive more features in to the market, an example, for example in data center so firstly with silicon all of our high density and enabling east-west traffic and large scale out data centers. And then along came network virtualization and the need to build network overlays and multi tenant data centers and that resulted in a number of features to be incorporated into the silicon, which we did and that triggered another wave of upgrades. So as long as we can keep doing that and keep the feature innovation up that’s a tough bar for others to scale to.

And then third is just a scale of R&D, we are, I mean we are out investing relative to our competitors and that allows us to be on this treadmill where we continue to generate multiple products and keep the roadmap going. So there’s definitely more competition we do expect more competition to come given what you see the business nature of the business, it’s something natural that more people try to come after us and what we try to do is to execute on all these three fronts like I said.

Timothy Arcuri - Cowen and Company

Could you talk a little bit about margin drop through, if you just sort of look at the operating drop through of the bottom, after early ’02 and ’13 bottom and you look at the operating drop through to the March quarter, it’s about a 70% operating drop through in your business. Is this a sustained level of drop through or has this been a sort of unique time because you have this correction and you’re coming of that correction since then. Can we sort of think about 70% drop through in your business as a sustained level?

Rajiv Ramaswami

Well again it kind of goes back to your earlier question about what’s the OpEx and will you invest more and again I would love to see more investment and as we invest more you’re going to see less drop through, and the question is the degree to which we invest, and it’s going to be smaller investments, like it won’t be a massive big investment that we make that’s going to be in the 100s of millions of dollars more alright probably we wouldn’t do that, but if they give us a little bit more freedom for example we could do somewhat more dilutive acquisitions that could enable future growth in the future or we could invest more organically as well so it’s that combination, that freedom of doing a little bit more of that would of course impact the near-term operating margins.

Timothy Arcuri - Cowen and Company

Are there particular areas that you feel hamstrung and are there particular verticals, either service provider, data center or you feel like you are not able to invest enough money that you could -- that if you were able to invest more dollars that you could get a significant return on your...?

Rajiv Ramaswami

Yes I mean I think I kind of look at this in, if I look at our portfolio and how we manage the portfolio, we sort of look at it that’s phase 1 is kind of solidifying the business we have and supporting the customer and getting activating the time to market for the products that we’re building. Because as our business has grown we have to scale that, the whole customer support, the ability to deliver software features on time because a lot of customers actually program to our switch of using the SDK that we provide. And having an SDK that actually exposes all the features in our silicon is beneficial for all of us. So just eventually supporting our current business is sort of priority one from an investment perspective.

The second is, kind of just again in the incremental roadmap enhancements, to cover our portfolio, where we have small gaps we would fill that up, where we new features that we want to drive into our existing portfolio and those would all solidify future revenue stream and then third is new adjacent markets and we clearly obviously are watching multiple adjacent markets at any given point in time I mean there is a lot of talk about armed serves it’s something that we watch, storage is another area that we’re kind of in, and we have talked about wireless infrastructure as a growth opportunity for Broadcom and certainly my group that’s is more than we could be doing there. So these are incremental areas where we could add more investment dollars. Whether it be organic whether it be through acquisitions.

Timothy Arcuri - Cowen and Company

Speaking of M&A, can you talk a little bit of NetLogic and as you look back on that what sort of went along and how did things not pan out the way that you thought they would when we acquired them?

Rajiv Ramaswami

I think the main thing that did where we actually bought NetLogic we also entered into -- that’s exactly the time we entered into the slowdown, we saw the slowdown coming and it hit us in Q4 and Q1, and a bulk of NetLogic’s businesses are exposed to the service provider market, I think probably 80%-90% of their business is service provider. And obviously the service provider slowdown really hurt that business. Now the good news is, I mean if you look at kind of what’s happened there is that the multi core processor business which is really one of the main reasons we bought them had been growing, it’s being growing double-digits year-over-year and it’s on a good trend, trend-line. So that’s been a good side, so the side of the business that got really hit hard was the KVP business or the TCAM business which is almost all service provider and dictated to routing spending, because they mostly sit in routers, so I think from a technology acquisition from a set-up technology building block, from a even light asset to get the near-term revenue I think on the processor side has been good, on the KVP side was disappointing as well I think in the other third piece of the leg that they had was the Opticon acquisition which was a digital front-end product and that’s been slow going in the market as well in terms of getting traction with that product and moving forward.

So, if you look at the net-net, I think the multi core processor piece of that is going very well. We announced our arm I mean high-end arm architecture late last year. We have delivered on multiple 28 nanometer products. We have actually completed our 28 nanometer development and moving forward we are focused on 15s in fact we have the next node for the processor development, so all that is going well.

Timothy Arcuri - Cowen and Company

Can you, just shifting to China, can you talk a little bit about China LTE and the infrastructure build out there? Can you update us on, there has been pretty seemingly escalating base station numbers every single quarter, so can you talk a little bit about the pace on that build out and whether it’s, whether you see any bumps in the road or whether it’s just straight up into the right stuff?

Rajiv Ramaswami

So, clearly if you look at what the carriers there are saying China Mobile, China Unicom, China Telecom, they are all investing and China Mobile has talked about the second wave of build outs, the first wave is kind of mostly done for them and China Telecom, China Unicom continuing and also deploying. So, if you look at what they are saying, it looks likes at least in the near-term, when I say near-term probably the next year, there’s going to be continued deployment of base stations and also associated backhaul with that. And again I mean if you talk to our OEM customers who are supporting these carrier deployments, they also say the same thing and they validate exactly the same statements. So, if you were to believe that then it would imply that the near-term kind of outlook is not bad, it’s just good. And then question is if you look longer term whether there will be a pause for example next year or when is there going to be a pause that’s a big question.

Timothy Arcuri - Cowen and Company

Questions from the audience?

Unidentified Analyst

[Indiscernible]

Rajiv Ramaswami

Yes, so first I would say there are three places where we sell wireless infrastructure, there is base stations, there is backhaul and wireless core, all three and in base stations we sale processors and switches in fact there is more processors than switches, switches are kind of a small portion of the base station build out. So, the processor is actually been more of the revenue is.

Now to you question on backhaul, so in backhaul we have microwave backhaul as well as fiber-based backhaul. In China, all the LTE deployments are all fiber-based backhaul, kind of the rest of the world backhaul tends to be more microwave oriented split, or net-net worldwide split is about half and half. But whether it’s microwave or fiber, both require switching and physical their devices, so microwave we need a physical end modem and in fiber you need just fiber files. But we do sell a lot of switches into those backhaul deployments and we have built over the years, we have built switches optimized for different places in the self right router itself as well as in the pre-aggregation boxes that sit on the other end of the link for backhaul. And we evolved those products over the years to be very specific in terms of the features and the size we needed for those applications.

And then the two kind of get go like in a ping-pong, so to actually deploy base stations, you need backhaul to manage the capacity being deployed and we have seen the steady migration to gigabyte in the backhaul today out of an LTE base station you are going to get several hundreds of megabits and if you start pulling some of those base stations, you are going to get not to the gigabyte and start seeing 10 gigabyte link sometimes. So, that’s obviously been helpful to our business and will continue to be a good driver for us.

Unidentified Analyst

[Indiscernible]

Rajiv Ramaswami

Yes, I mean I think in terms of other wireless division, there is a fairly significant investment and base trend going on it’s been going on for a number of years. Our view is that we want to return on our investment and we are constantly gathering information every week every quarter in terms of tactical milestones and commercial milestones in terms of margins and pricing. So, we are watching that carefully. We have never set a specific timeline in terms of when the decision would be made but our goal is to have that to be accretive to the business in one form or another.

Timothy Arcuri - Cowen and Company

Has there been any change Rajiv in your view that you -- that the business can still grow double-digit longer term given all that there is a number of different factors that move up and down but has there been anything to convince you otherwise that you can grow the business double-digit longer term?

Rajiv Ramaswami

No, not at all, I think if you have looked at this, I mean this year actually it’s done better than we expected and again I do think it’s going to be lumpy but I think I do see enough drivers in our business even without necessarily doing a lot of other new things and that we could see double-digit growth in the next few years. And then beyond that of course if we can add on and we can create the right set of add-ons and invest more, potentially long-term growth beyond that horizon. Most new things that we invest in today are going to really you start seeing fruition three plus years from now. So that’s a long-term view.

Timothy Arcuri - Cowen and Company

Okay. Can I ask just a little bit about Moore’s Law, and about how you sort of span your business in terms -- from a design perspective, given some of the challenges around Moore’s Law Scott has said many-many times about the fact that you’re getting a little smarter about what you shrink, and you’re not shrinking everything and your only shrinking particular designs. So can you talk a little bit about the pressure that that presents for you in your business? And if you think you’re able to just take that incremental cost and pass that on to the customer. Who is going to have to eat that incremental cost from your side?

Rajiv Ramaswami

We clearly, first of all need to have the customers eat some of that cost. We can’t just be in a situation of operating business that becomes less and less profitable. So we’re not going to do that. Now what that means for us, how do we do that? We do that by being selective about what products go to the next node, and making sure that when we do take a product to the next node, given that it costs more and more to go there, that there is enough of an outer lay on that product. So what that says is we will typically take the more complex and higher end products from processors, switches, KVPs, these are all candidates that can benefit from a lot more performance at low power and still maintain or grow ASPs. So every time we go to one of these shrinks, and one of these new products in this roadmap, what we do expect is to actually bump up the ASPs, from the previous generation to the next generation.

Now the next generation will give you a lot more capabilities and features, as an example if you look at Data Centre, if you have gone from one generation to the other generation, one switch will replace maybe six older switches but we do command and -- that doesn’t mean we can charge six times as much, but we will be able to command an ASP bump up as we do this. And so we have to be careful. So I expect the subset of our product to go down to the next node and those are products that can benefit from it. And then a larger number of the products we will optimize, and for example now in 28 we will do a multiple generations of 28 nanometer products just to make sure we optimize and we squeeze what we can out of them before we just simply take everything over to the next node. It just means we have to be a lot more judicious about doing this versus just in the past where we would just say that normal trade of cadence was to go product in this node go to the next product in the next node. We won’t do that by default.

Timothy Arcuri - Cowen and Company

So can you may be provide some numbers around, if you look at 28 and if you just lumped 20, 16, 14, together as a node, what percentage of your revenue, if you will, maybe you can look at it from a design perspective or from a revenue perspective, what percent of your business, however you want to define that will migrate down to 20, 16, 14 versus what migrated down to 28. So maybe you can derive some numbers around the line between 28 and 20, 16, 14?

Rajiv Ramaswami

Yes first of all, I would say the majority of the volumes shipping today is 40 okay and I would expect overtime the majority of the volume would go to 28. So 28 is going to be a broad-based node, most volume will shift there for us overtime. And then to your specific question on what portion of revenue is going to come from 16, I would also say it depends on what time horizon you’re looking at. Because again and what I do expect is, initially it’s going to be small, and like I said it’s going to be a few set of specific higher end products that would go there and it would be a relatively small portion of our revenue that will come from that. And then overtime a couple of things will happen, hopefully, one is that, if these products will ramp, we are only going to get these very high ROI products into this market, and so that will increase the revenue of 16 versus the others. And second, as we start having multiple fabs and multiple sources of supply for 16, hopefully the cost starts coming down. And at that point you would migrate more products over there. It just means that perhaps there might be more of a delay in migrating to that node versus what we have done in the past. So just kind of -- it’s a time based answer to your question, really.

Timothy Arcuri - Cowen and Company

Okay. So is there some way -- so if you look at the 40 to 28 transition, how long from sort of start to finish, from when you were fully on 40, to when you think you will be fully on 28, how long that transition, probably I am guessing between two and three years for that transition, right?

Rajiv Ramaswami

I would say yes, yes so it might be longer, or much longer to get from 28 to 16 than it is from 40 to 28.

Timothy Arcuri - Cowen and Company

But you ultimately will migrate the entire product set down to 16?

Rajiv Ramaswami

It’s not clear yet. I’m not at a point where we can say that I will take everything and migrate to 16. What we do know right now is there are some products we are definitely migrating to 16 and there are others that we’re redesigning in 28. Now if the cost structure and the equation changes on 16, then we will migrate more products over to 16. So it’s a dynamic division based on kind of the situation.

Unidentified Analyst

[Indiscernible]

Rajiv Ramaswami

I don’t want to comment on the capital equipment but on the EDA side what I would say is that we wouldn’t be doing the design optimizations based on necessarily better tools from the EDA guys, it will be based on our redesigning and re-optimizing blocks ourselves. So I would say it’s probably neutral to the EDA guys in terms of us doing that. For example one generation even in 40 nanometers we’ve done this, where we did a significant shrink in the 30s going from one generation to another generation and within 40 itself and that was completely a designer product on our side that has very little do in EDA tools to what they had to offer. And so I would -- that’s the kind of design optimization that we would do if we were to stay in the same node.

Unidentified Analyst

[Indiscernible]

Rajiv Ramaswami

At least from our vendors’ point of view.

Unidentified Analyst

[Indiscernible]

Timothy Arcuri - Cowen and Company

Rajiv, just on the point about 20, 16, 14 the potential foundry partnership that you could have, you rely pretty heavily on one particular foundry partner do you think that that the opportunities at 20, 16, 14 start to expand as others are investing pretty aggressively in that node is that sort of part of the longer term opportunity that might allow you to ultimately shrink more down to their if the competition starts to get more...?

Rajiv Ramaswami

Yes, I think the short answer is yes, absolutely and we would love to see more foundries out there on the leading edge being competitive and we are open to working with everyone of them and historically we’ve had this history of multi-sourcing our products across multiple foundries and it’s gotten more difficult recently and that’s not a good thing, for us we would love to see more foundries out there being competitive on whether it’s 16, 14, 20 depending on what they call it and we’re open to working with everybody.

Timothy Arcuri - Cowen and Company

We have one minute left time for one more question from the field?

Unidentified Analyst

[Indiscernible]

Rajiv Ramaswami

Yes we’re promoting this concept called Open NFV and what it is, that’s really an ISA-independent platform for running network function virtualization for virtualizing network functions. Now there is two elements to virtualizing these applications, one is to take these applications that are running into the network and just run them on regular servers. The thing is that a lot of these NFV applications rely heavily on data plane accelerators because these are actually packet processing data plane-related functions, for example take encryption or decryption as one example. You could do all of these functions in a pure CPU but it would be very inefficient, so some of these functions ideally would be implemented on data plane accelerators. So our vision of NFV is you first have an ISA-independent software product so you can run it on an x data base you can run it on arm you can run it on net. And then you want to couple that with open API for data plane accelerators whether it be encryption BPAC and inspection being the other one of them. For lay 42A7 and what you want to be able to do is to create these standardized APIs that way if the hardware SS exists, you’re able to use it, if the hardware SS doesn’t exist it defaults and runs back on the CPU. And this way you get application portability and that’s the reason -- what we’re trying to drive so that you, I don’t think you’re going to find one class of NFV servers, you are going to find servers with different capabilities but you want to have standard API so that you can actually have software portability.

Timothy Arcuri - Cowen and Company

Thank you Rajiv, thank you for joining us.

Rajiv Ramaswami

Thank you Tim, pleasure to be here.

Timothy Arcuri - Cowen and Company

Thanks.

Rajiv Ramaswami

Thank you.

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Source: Broadcom (BRCM) Presents at Cowen Technology, Media & Telecom Conference (Transcript)
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