Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Here’s the entire text of the Q&A from Broadcom's (ticker: BRCM) Q3 2005 conference call. The prepared remarks are here. We recognize that this transcript may contain inaccuracies - if you find any, please post a comment below and we’ll incorporate your corrections. And please note: this conference call transcript is a Seeking Alpha product, so feel free to link to it but reproduction is not permitted without the explicit permission of Seeking Alpha.

The prepared remarks are here.

Question-and-Answer Session

Operator

Thank you, we will now begin the Question and Answer session. if you have a question, please press “*” followed by the “1” on your touchtone phone if you wish to removed from the queue please press the “&” sign or the “#” key. If you are using a speaker phone you may need to pick up the handset first before pressing the numbers. Once again for a question, please press “*” followed by the “1” on your touchtone phone, one moment please. The first question comes from Seogju Lee from Goldman Sachs, please go ahead.

Seogju Lee

Hi, very strong quarter, I am wondering bill, if you could give a little details behind the guidance for next quarter just picks the what is it for the various product segments, what areas it might be growing little bit stronger and what areas would be out performing and what areas might be more sort of inline or tracking a little bit lower. Thanks.

Bill Blanning

In safe with our normal policy, Seogju we don’t give a lot of granularity on that, we did say that we expect it to be broad based. I did highlight a number of areas we are particularly strong in the quarter that just ended. And in particularly we made the comment its on or more consumer driven business tend to get some pretty high water marks near the end of the year and particularly some of those business were include Bluetooth, Mobile Multimedia and Wireless LAN. But beyond that there is really not a lot of additional granularity, another one it is a good thing about, within first time I have to making the point on our diversification and the fact that we aren’t always able to predict it exactly which business is going to be how strong infact that we have enough of them going on, in different areas that we have confident that the entire business will be up 10% to 12%.

Seogju Lee

And just clarification on the outlook for Q1 Bill. You said that it would be down versus Q4 or would it, are you looking the growth rate.

Bill Blanning

What I said that it would be prudent to expect that it might be down a little bit, if you look at the semiconductor industry as a whole typically it is down a little bit on Q1 versus Q4. We are by no means exclusively a consumer products company so we wouldn’t have that kind of real steep fall off. We don’t expect, however there is some of the business that most likely will have a slower first quarter then going forward, and that will offset by others of commercial businesses that would be expected to remain strong through the first quarter.

Operator

The next question comes from Brian Alger from Pacific Growth Equities. Please go ahead.

Brian Alger

Hi guys congrats on a great quarter. Obviously a lot of things are going well, one thing that I didn’t hear form you and may be so many other things doing better but was on the ITTV front, clearly you are involved in a number of ways on the ADSL2 and DSL rollouts but we really haven’t seen you guys talk about ITTV to date, is that because you guys earn position there or is it just may be the scalper we are looking at right now.

Scott McGregor

Well I don’t’ guess we are very bullish on the ITTV market overall and in long term we think it is going to be very important market and we are involved in a lot of the players who were deploying that, it’s just not much of the revenue story to talk about yet because we are still missing a lot of content on the ITTV space so there is nothing holding any of that from a technology point of view but we haven’t seen the content deals develop that will enable users to want to buy the boxes. And so we don’t see a lot of revenue in that space in the near term although long term we are very bullish on it and do participate.

Brian Alger

So there is nothing from a technological standpoint that would be privilege from more concern with Microsoft, if the market is developed quicker than what we are seeing today.

Scott McGregor

Nothing at all.

Brian Alger

Great. Again guys great quarter.

Scott McGregor

Thanks.

Operator

The next question comes from Allan Mishan from the CIBC World Markets Please go ahead.

Allan Mishan

Hey guys great numbers again, two questions first on the wireless Lan phase, is the strength you are seeing from notebook or for modems or I guess nick cards, where is that coming from and then second question on the set top box phase, are there been a couple of weaker data points in the supply chain out of EMF and then I think that’s Thomson Street announced, did you have any concerns about may be the satellite or cable set top boxes that you could help with it.

Scott McGregor

First on your Wireless Lan question, we are seeing pretty broad pick up for the processors so it’s not certain point to any one space, it is the general pick up which is very encouraging. On the set top box phase, we have noticed some of those data points, but we don’t’ strictly see any issues there, we are seeing stuff sell grew, there were some rumors in inventory but we are just not seeing that, we have done channel checks and we have talked with our customers and in general we believe that we got good sale through and no reason not to except the continued growth as we outlined.

Bill Blanning

Just to amplify and that also one of the things that is happening in set top box is now there we have heard some slowdowns in the standard def boxes and so due to this turn in the standard def boxes those tend to be recycled. And the new boxes that ship are the high definition and the ones that include TDR and that’s the major strength that we have so our trends in set top boxes somewhere quite the same the market in general.

Allan Mishan

I see that very helpful. And that eventual one more, now that your comments about the Q4 slowdown turned out to be too conservative, can you just help us identify which areas you were concerned about that you might have been shipping in too much that it turned not to be so.

Bill Blanning

As we had indicated the consumer oriented businesses is relatively new for us so some of the things like Bluetooth, Mobile Multimedia processors and Wireless Lan, this all came in stronger than what we had expected them to do.

Allan Mishan

Okay. Thanks great quarter.

Operator

The next question comes from Arnold Stronger from Lehman Brothers . Please go ahead.

Arnold

I have question about Bluetooth certainly that seems to be a rocket chip rocking use that term what do you think the penetrate rate can get to in cell phones versus where it is today and I have a couple of follow-ups please.

Peter Andrew

This is Peter, you did take a quick look at some of the inside data that just came out with the brand new report if you look at fiscal year 2005, they are expecting that penetration within cell phone alone will be 35% in ’05 going to 42% in ’06 and up about 50% in ’07.

Arnold

Thank you Peter. On follow up about both Mobile Multimedia and handset, I think you talked about a handset based and growing in Q4, could you talk a little bit, is there is customer change that has occurred. Or can you top line design in there and Mobile multimedia, are we talking about anybody beyond northern Californian company.

Peter Andrew

Well on your first question, we are unable to announce our 3G customers at this point and in general and that base we are not allowed to talk about until they ship but we will certainly fill your way, as we are able to do so. But as I said we feel like we are on track with that, and all the guidance we have given as is still true and we made progress on the IOT, we are at the final stages of the IOT in 3G which is quite an achievement. So we are feeling very comfortable with that. On your comment on the mobile multimedia we have certainly got presence not only in the handset space and Samsung has announced using our mobile multimedia for some of their phones. We have also received design wins in some of the new reshipping products from other companies that ship in the MP3 space. And you’ll probably some teared down reports that indicate we do a customer in northern California.

Arnold

Thanks guys.

Operator

The next question comes from Ambrish Srivastava, of Harris Nesbitt. Please go ahead.

Ambrish Srivastava

Hi, thanks Bill, what is the share account we should be assuming for in the next quarter please.

Bill Blanning

Of course that’s going to depend a lot on what happens on the share price but we are internally remodeling it to may be increase by somewhere in the 10 to 12 million share range.

Ambrish Srivastava

Okay thanks, and couple of follow-ups, one on If I understand correctly correct if I do not, WCDMA or 3G shipments were supposed to start this year, when you say you are on track does it mean you will be shipping 3G baseband by fourth quarter.

Bill Blanning

We’ve said in the past that we would have some initial shipments at the end of this year, which is fairly small but we are on track for that, yes indeed but we expect it to ramp more signification next year.

Ambrish Srivastava

Okay thank you that is baseband correct,

Bill Blanning

Yes.

Ambrish Srivastava

And then final Bluetooth you have given us quarter over quarter numbers for the last quarter, how much did that segment go again this quarter. Thank you.

Bill Blanning

We are not going to break that out every quarter, amazingly it grew even more than it did last quarter, it ‘s an explosively growing market, it did extremely well.

Peter Andrew

This is Peter, also just another data point we haven’t seen all our peers in the Bluetooth market announced results yet, but based upon the guidance that a number of them has given, we expect to either maintain and or increase the market share.

Ambrish Srivastava

Is this primarily headsets Peter.

Peter Andrew

Yes. Once again it’s being primarily driven by handsets but we also had sequential growth in the PC as well as the headsets markets as well.

Ambrish Srivastava

And that includes zeros well I guess.

Peter Andrew

That is correct, yes.

Ambrish Srivastava

Okay thank you guys.

Operator

The next question comes from Jim Liang from Sg Cowen & Co. Please go ahead.

Jim Liang

Thank you just a question on, 802.11n, and as the market moves into new standard do you see any foreseeing any changes in a compettive landscape and what is your strategy, any more market share in that space.

Bill Blanning

Liang I think the two questions you asked are related because 802.11n is a much more sophisticated and difficult to do technology than some of it’s predecessors, the multiple-in and multiple-out technology is quite difficult so I think lot of the peole who were able to participate in the B&G rounds will find that it’s just too difficult for them to go forward, so I expect the number of players will drop out of the market at that technology node which is good for us as it narrows the total number of players, we also expect the present traditional Silicon that will give us an ASP increase on our products and so that will help us fair, so we see both a chance for market share increase as well as an ASP increase in 802 11n going forward. Also remember one of the key differentiates is that Broadcom has an additional 801.equipment that we can pull out. Is that we also have all the platforms which are going to integrating the Wireless Lan into them such as DSL modems, cable modems, set top boxes, cellular handsets etc.,

Jim Liang

So in terms of the adoption I assumed the retail segment will be the first to adopt the new technology do you agree with that or any other segments that seeing the adoption first.

Peter Andrew

Yes I will agree with that. I think generally the retail is very rapid to market and many of the retail customers are less concerned with compatibility and doing a very broad range of testing. So it will hit there first and then you will see more widespread adoption with the PC LOM. The PC LOM generally wants the extensive testing and confident that it works with all together systems they have out in the market, just could bit been want to have Bill quotes.

Jim Liang

And in terms of the product introduction I haven’t seen a formal product announcement and is that forthcoming for you guys in this area and when do you expect to ship in volumes.

Peter Andrew

As we said in the earlier notes we expect to see volume more next year, we haven’t made an announcement yet in terms of the specific product shipment and we will do that just shortly before we ship.

Jim Liang

Thank you.

Operator

The next question comes from Adam Benjamin from Jeffery’s and Company. Please go ahead.

Adam Benjamin

Thanks guys, great quarter. With respect to last quarter when you had given guidance regarding Q3 and then a little bit conservative on Q4, can you talk a little bit, is that a little bit of what you are doing today with regard to Q1 of ’06 because you are talking a little about the consumer but the way I look at your business is, there are a ton of consumer oriented applications that you got there , obviously Bluetooth has grown significantly but outside of that in cell phones, what would be the seasonality that would be so dramatic in Q1 that we would see.

Scott McGregor

First of all when we give any kind of guidance it’s very unusual for team to look also a quarter ahead, we are trying to do that too because we believe that this consumer business and the volume of the consumer business is relatively new for us and if you note that mobile and wireless which is the severely consumer driven of our business groups have by far the strongest growth this last quarter is up 47%. It’s is now 27% of our total business. So we do have the right substantial amount of business in that area. I would always rather be proven too conservative and forecast. We tried to give these estimates in good paces as closely as we can.

Adam Benjamin: Okay great thanks. Great quarter.

Operator

Our next question comes from Srini Pajjuri from Merrill Lynch. Please go ahead.

Srini Pajjuri

Thank you, hi Bill. Question for you on the share count, you said 13 million of the increase came from options, just wondering where the rest of the increase came from?

Bill Blanning

What I said was 13 million came from the treasury stock methods. That means those are un exercised options. Most of the balance actually came from options that had been exercised during the quarter.

Srini Pajjuri

Okay. Any plans to change your increase your share buyback going forward or are you happy with the $250 million that you laid out already?

Bill Blanning

The $250 million was a one year program, we will be reexamining that at the end of that one year, we did repurchase over million shares during the quarter.

Srini Pajjuri

And how much do you have left in term of the balance…

Bill Blanning

We have the original allowances for $250 million we have now spent approximately $97 million.

Srini Pajjuri

Okay great. And then just looking into Q1, it appears there was a question on this but do you have visibility to tell us that in a kind of a(37:54)just basing it on the fact that you have consumer exposure and it could be seasonally weak.

Bill Blanning

It’s seasonally weak and then weak is an adjective that I have a hard time using given the numbers the strength of our business in general, I think it is more of a seasonal pattern as opposed to a weakness because we are not projecting that any of the markets we are in consumer, or enterprise are weak as such, it’s just that the consumer driven spikes, that happen around the end, around the holiday selling season, are pretty formidable and as we said that its fairly new for us. We are still trying to understand exactly how that’s all going to work out. I would rather have investors be pleasantly surprised on the upside than on the downside of course. So I think it’s is, and if we didn’t believe that there was some risk the business might be down, some in Q1 we wouldn’t have said anything.

Srini Pajjuri

Okay. And just quick question on the Apex, the increase in R&D clearly you have been growing pretty rapidly in the last three quarters but the R&D increase we saw last quarter was very significant, are you adding or entering new markets here, or is it just the existing program. Could you give us a little bit color as to where you are investing these orders?

Bill Blanning

We are always entering new markets. In addition to the headcount issues and of course might be in an acquisition we have the extra expenses as a fact in the quarter, we have been doing a lot more prototyping in this most recent quarter and some of our indirect expenses in support of us some of the new programs have increased so that there is not outside consulting expenses and design expenses, that sort of things.

Scott McGregor

One of the things we said earlier in the year, in some earlier conference call was that we were investing R&D because we saw very high likelihood wins for us and great opportunities or in some cases where we had won the designers as a matter of staffing to make sure that we could deliver on it and I think some of multimedia designs you are seeing right now are examples of investments we made earlier in the year that we eluded to and now you are seeing a very quick payback on those designs coming within the same year, we made the R&D investments. So those are very attractive for us and when we see those as a management team, we believe those are very good investments and we do pursue them.

Srini Pajjuri

Okay. One last question on the new markets part as you look into 2006, you have storage, 3G and digital TV, could you give us some idea and why do think, these new markets, what kind of revenues or when do you think they will become meaningful as far.

Scott McGregor

One for the things about our business is we have quite a few businesses so that’s why we didn’t talk about every single one of them but I think to give you a little color on some of those storage, we are very encouraged by and we have won a number of design wins that we think will come into play on the server side especially with some of the new Intel cycles coming next year. So we do expect to see a ramp there. Digital television, we are still excited by that, we do have number of design wins with top tier vendors across both Asia and other parts of the world,. And so we are very encouraged by that and digital TV those are going to be more of a ramp up the latter half of next year so I think that’s a second half of 2006 revenue driver not so much in the first half. There is some now , there is some this year, that’s a little bit more in the first half of next. But second half as well, I think the big kick is going to be on digital TV.

Srini Pajjuri

And 3G?

Scott McGregor

3G we said that’s going to ramp over the course of next year. It will depend a little bit on the model acceptance for some of our customers; it’s a little harder to predict a priority how successful all the models are going to be. But we have secured not only initial models with these customers but also follow on models so we believe that that will ramp over the course of next year, but at this point it is a little hard to estimate exactly how that’s.

Srini Pajjuri

Fair enough. Thanks guys good quarter.

Operator

The next question comes from Jeremy Bunting from Thomas Weisel Partners. Please go ahead.

Thomas Weisel

Okay. Two questions on the operations side of things, gross margins for the last few quarters have been running hope high-level space, in part I think on lower wafer cost. In terms of the upside on the gross margins how much do you think of that is due to wafer cost versus mix?

Bill Blanning

You know that’s really hard to tell Jeremy and we tried to analyze that as best as we can, each quarter but there is so many dynamics going on, we have first is the pricing sided equation and then there is the cost side and then there is the fact that we are constantly coming out with new products and we are constantly negotiating better pricing on the products so how much of the changes because the new product came out as the next generation as cost improve versus just the wafer cost itself went down. So there is not a good clean answer for you on that, it is dependent both on mix and on what kind pricing environment is and where we are in the product cycle. As we’ve said before when we first started shipping a new product that’s often not the best margins on a product, because it has been cost optimize here by the time it gets to the next generation and the volume ramps that tends to be the sweet spot of the market.

Thomas Weisel

Very good okay thank you, one last question here, you are obviously higher strongly on the tail of strong revenue growth, but you continue to dive to operating margins of 22%, do you foresee sometime that guidance on the high end of the operating margin as you go up.

Peter Andrew

With the guidance at 20% to 22% announced since 1998, one of the great things about this business in the markets that we are in, is there is always more good development opportunities than we have funding to spend on them, so we tend to reinvest that to the extent that we start returning it to the high end of our model, we would probably be more inclined to reinvest that to try and spur even greater growth in Q3.

Bill Blanning

That’s the long way of saying that we are usually its going to be, we see lot of upside down.

Thomas Weisel

One more really fast. How are things on the AMD cellular.

Scott McGregor

We have a great relationship with AMD and we do products to help their servers be as fast as they are and I think they are getting wide acceptances in the market place, I saw a report that says, they are gaining some market share and some of that is due to the chip sets that we deliver and they are super fast.

Thomas Weisel

Okay gentlemen thank you very much.

Operator

The next question comes from Michael Masdea, of Credit Suisse First Boston. Please go ahead.

Michael Masdea

As we think about your leverage longer term can you help us sort of if I think about your IP that you develop, your R&D and SG&A your spending, how much of that is going for very specific products and how much of that is going for basically all of the products or multiple products?

Scott McGregor

It is a little hard for us to give you an exact percentage on that, the sense we have, we have a central engineering group, it’s task is to deliver the technology that we use across our products so that has to do with a lot of basic cells and analogs block things like that, so that tends to be reused . We are also finding more and more we are able to use technology developed in one group to help another and a great example of that is Voice Over IP and Aero-2 and 11 technology where that was developed in one group and is now being used in another and share so when we get into triple play solutions in the cable market, we share a technology with a mobile and wireless group you will see now mobile multimedia, moving to much greater capabilities and we expect that has a long way to go in terms of new capabilities there and that’s converging with our broadband market and the lot of the technology we develop for them. And so we have a lot of joint projects now between our groups, so I would say that over time our reuse of technology is increasing so I say we are getting more effectiveness out of our R&D cell.

Michael Masdea

So sustainably over time, your revenue growth should be whole the way up strip your operating growth may be with a bigger delta, is that possible.

Scott McGregor

That’s the plan.

Michael Masdea

Now I think we are all fine with seasonality but I don’t think we want to avoid is hyper seasonality, a lot of these products are going into release some other ones driving Q4 growth. Anyway in the consumer side effects we get a feel, to make sure you are not shipping well above what actual consumption is going to be heading into the first quarter.

Scott McGregor

I think we are pretty cautious on that we work very carefully with our customers and it is not in our interest to stuff in the one quarter and then pay the penalty in the next quarter so we aim for working closely with them to minimize any excess build up and we believe we’ve been successful doing that, going back to the diversity issue I think the breadth of design wings we have in the consumer space helps a lot and you see for example we have new product introductions like multimedia and other things, that are going to ramp in the face of others that might decline a little bit. So we are trying to aim for a steady business since we have agree absolutely we are not interested in hyper seasonality and we don’t think we will fall into that trap.

Michael Masdea

I guess along that line inventory up 20-% sequentially obviously have a big ramp ahead of you. But is that looking forward below that more as the mixture, what is driving that big of a number.

Scott McGregor

It was up two days.

Michael Masdea

Right but your forward guidance is for--

Scott McGregor

Our model is to be at about eight inventory trends, we have 7.9 of this last quarter so we are not concerned about that and some of that, was built up in anticipation, clearly I notice we already have it on our books.

Michael Masdea

And is there any concern at all about capacity and is that effecting at all the way you want to mention, inventories for the couple of quarters.

Scott McGregor

First of all on the foundry capacity it has been in pretty good shape but still then a little more of the squeeze at the backend, the assembly and test although that’s capacity that you see to bring online with a shorter lead time. That is probably a bigger bottle neck currently than foundry But having said that are any of the numbers that we plan we certainly have the capacities available to us to be able to deliver that.

Michael Masdea

Do you feel like you need any more buffer heading into that, just even in terms of guidance,and getting some package product.

Bill Blanning

I think we are in pretty good shape on that.

Michael Masdea

Great.

Scott McGregor

We buffered so that if we see higher numbers than we’ve expected we could hit those, so we naturally plan for upside and the capacity to deliver to that but also we see the backend manufacturing problem that’s right now, it’s relatively short-lived.

Michael Masdea

Thanks a lot.

Operator

The next question comes from Charlie Glavin from Needham & Company. Please go ahead.

Scott McGregor

Thank you. Michael had asked most of the questions in regards inventory, Bill just above said, that inventory was up about 21%, with most of that initiatives or with that mostly grim.

Scott McGregor

There was probably (4939) and there wasn’t finished goods.

Charlie Glavin

So in terms of end products it is pretty big safety cushion again that things you imagine (49:47) though, you have been satisfied with your guidance, is that more for potential rollouts in the first half of the year, than they get pulled in from your customers that is.

Scott McGregor

Let us just put it this way, our total record earnings throughout history on having obsolete inventories, is probably as good as anybody , probably better than just anybody in the industry so typically if we have the inventory on hand, but we don’t sell in the current quarter it sells in the next quarter but we tried to stay tuned as best we can to meet the current quarter demand and be prepared to get into the next quarter.

Charlie Glavin

And Scott, going back to your some of your ’06 drivers particularly within storage indicated several intel cycles that would help to fuel that, that has taken most of your efforts have been mostly within the serialized and not to much serial EPA. But you tell into little more detail, is that going through the server market, can we look for server chips within the general market or are you targeting any particular Intel platforms as well?

Scott McGregor

We primarily target the larger OEM’s, server OEM’s and both with FAT OEM, the iSCSI so I think you will see a broad base availability of that, we also target some of the white box makers if that’s what you are looking to.

Charlie Glavin

Yes. part of that and certainly within Intel CSCD group, white box and iSCSI and so we expect to see another round of championships that has been target more for the Intel platform in addition to your AMD.

Scott McGregor

Yeah. I don’t think so.

Charlie Glavin

So this could be mostly through the IO and the platform with the OEM’s, that’s supposed to.

Charlie Glavin

Okay. Great thanks Scott great quarter.

Scott McGregor

Thanks.

Operator

As a reminder for any questions please press “*” then “1” on your touchtone phone. The next question comes from David Wu from Global Crown Capital. Please go ahead.

David Wu

Hi this is Hung Lee for David Wu, I noticed that there are quite a bit of fraud in the interest and other income, could you please give some guidance on that.

Peter Andrew

Yes we have a lot more cash than we did and we are getting lots of order rate some we were. It is quite really simple there is nothing unusual going on there, our cash balance now is $1.7 billion. That’s a very substantially what it was this time a year ago. And instead of getting interest rates to start with a one, we are getting interests start with a three.

David Wu

Alright thanks that’s all.

Operator

The next question comes from Mark Devonstone from Morgan Stanley. Please go ahead.

Mark Devonstone

Nice job for all guys, just a couple of quick questions if I could, first, starting of at your end as you look at the voice enablement on the modem side, ramping up during Q4, you had enough by itself to allow that broadband division to accelerate after the third quarter growth rate that you saw.

Peter Andrew

Well I have to think about that because we certainly do expect some broad based growth in the fourth quarter so we did expect that group to grow, it is hard to think about whether that alone would do it, hard to say, we have a hard time, breaking that up specifically.

Mark Devonstone

Okay. And then it is so assumed that with the growth we saw in blue tooth but that is now a I am assuming it’s probably your biggest division bigger than wireless lan.

Peter Andrew

We don’t comment specifically on each one but it’s certainly become a big group.

Mark Devonstone

And just last one. Congrats on the success of 3G, and I know that you got some questions that how quickly it ramps but would you expect that the 3G baseband business would surpass that of the GSM, GPRS business next year or is that taken till 2007?

Peter Andrew

It could catch next year, I think it would depend a little fast, depend on how quickly some of those models ramp up. It is capable of passing the others, but it depends because if the GPRS models, blow the doors off on demand then no, and if the 3G stuff sales really well then yes. So we are looking forward to that race.

Mark Devonstone

Okay thanks a lot guys and best of luck.

Operator

The next question comes from Cody Acree, from Legg Mason. Please go ahead.

Cody Acree

Thanks, Bill I know earlier you asked about mix versus input prices and you are going to get to too specific, but it sounded though foundry capacity wasn’t the big issue and maybe backend was becoming a little easier, what are your expectations for input prices going forward?

Bill Blanning

To be clear what I had said was, the foundry capacity seems to be getting a little bit more available than it had been but the back end is tighter not easier.

Cody Acree

Then we could expect to see those input prices continue to put a little bit of pressure, do we run into problems that have been extending in the next year, or do you expect that to be a little easier this year?

Bill Blanning

The backend in particular can change so quickly, that’s really hard to see with a lot of.

Scott McGregor

Let me clarify that a little bit, the front-end generally is extremely capital intensive and can take anywhere between 6 months and 18 months to bring under new capacity in a fab were as the backend, the wire bonders and for some of the test equipment generally comes online in a channel one and half month, and so that’s why we believe that it’s a relatively short term issue in the backend and that will resolve between now and the end of this quarter. We believe we have the capacity we need in order to hit the numbers we have described so, we don’t expect that that’s going to be off the revenue blockage for us.

Cody Acree

Then if things does improve that at least in the backend by the beginning of next year, if the mix starts to shift back for those that are little less seasonably sensitive, more less and less consumer oriented is that been help your overall margin trends for the first quarter, may be while you see revenue decline. You could see margins same way.

Bill Blanning

I can only tell you the two word answer in that but you don’t like it. It depends. It depends on what those consumer products are versus what the enterprise products are just because it’s consumer driven doesn’t necessarily mean it’s poor margins. It depends on the level of integration standard that’s is level of innovation of within the product, and the same thing on the enterprise products, some of the older products have margins that aren’t so good, and some of the more advanced ones have very strong margin. So you can’t necessarily draw a conclusion from that.

Cody Acree

Alright. Thanks guys.

Operator

The next question comes from Shah Wu from American Technology Research. Please go ahead.

Shah Wu

Yes. . Just wanted a little more color with in terms to your wireless business, we talk a lot about strength like four areas Bluetooth, WiFi, Multimedia and Voice Over IP, just wanted you getting more color on your wireless baseband business. Thanks.

Scott McGregor

Yeah. Not really under them what we’ve said, we do see our largest customer Sony Ericcson trending up in terms of revenues because of some of their new models out there. So positive sign there, I think the big mover in that market is going to be when we start rolling out 3G and that will be a little bit this quarter and then most of next year.

Shah Wu

Okay. Thanks.

Operator

The next question comes from Alex Gauna from UBS. Please go ahead.

Alex Gauna

Yes thank you. I noted that you answered a lot of questions on the satellite front you did mention that LG has begun the ship with a new unit for direct TV, what is your rate of penetration there at the high end right now or how far into that ramp are we, is just beginning the turning on in earnest this quarter or do we have to wait more until next year?

Scott McGregor

Alex that’s just beginning to ramp, so we see that as something that’s growth driver for us going forward as we get further into satellite and we will continue to pursue all the aspects of the direct TV business through the variety of different box providers there. But to date LG is the only one announced.

Alex Gauna

How many manufacturers are there and anticipated the (58:20)?

Scott McGregor

(5824) on one hand.

Alex Gauna

Okay. If you could may be characterize what’s going on with on a blended basis maybe, high end average selling prices, your opportunity cable satellite and then also the normal non-DVR non-HD and perhaps if you could on IPTV. What’s the real ASP type, material type of opportunity for you.

Peter Andrew

Well there is good news for Broadcom, this is Peter, is that the ASP’s remain relatively constant between the different end markets, so you intend to take a ST box whether it is satellite cable or IPTV it tends to be priced around the $15 range and then as you go up and as features such has HD TVR, dual screen TVR, Broadcom is able to getup at another upto about $45 per set top box. Good thing now is we are just now starting to see the upgrade cycle in the satellite space sensex forum. Just on the base level, that would add an incremental $10 to the box that Broadcom is able to derive.

Alex Gauna

Now how does this compare with what’s going on in terms of what type of boxes are being dreamed up or designed for IPTV.

Scott McGregor

I would say you should assume the IPTV stuff roughly had the same silicon content and it is the other boxes. I don’t’ think then need, the amount of silicon that deals with the (59:47) bioelectric is relatively small versus all of the video processing and other things which make up the bulk of the chip.

Alex Gauna

And then in terms of the digital television opportunity you mentioned might start ramping in earnest more in the second half of 2006, what kind of content are we looking at there I know there is a wide range of models out there, but is it also similar to the set top box market at this point, so if you can tell.

Scott McGregor

In terms of the ASP or the chip Alex.?

Alex Gauna

In terms of the opportunity you are finding there, because I know you market in a number of technology, at this point are you basically just getting, the modulator winds or you coupling in multituner winds, have you actually started targeting PVR winds as well as those designs that are out there. What is your thought on your kind of mix in the second half of ’06 because I know that they are being designed now.

Scott McGregor

Well we certainly get some of the PVR business as a result of the set top box explosion we have. The digital TV we are referring to the mainstream consumer digital TV products out there. And these are for single chip TVs so we have integrated all of the TV functionality on a singe chip, and those products are sampling and available now that 36.50 and others and so that is single chip TV solution for mid range of high end digital TV.

Alex Gauna

And now next what, the $45 price target or something like. $25.

Scott McGregor

It ranges a little bit on all the different pieces but you should assume maybe a little higher that that.

Alex Gauna

Okay very good thank you very much, congratulation on the strong quarter.

Scott McGregor

Thank you.

Operator

The next question comes from Raul Seymour from Deutsche Bank. Please go ahead.

Raul Seymour

Thanks guys, like everybody else congratulations and a lot of questions so just a couple left that I can see, in the 3G side of things, as you look at your 2006 design winds today, it was generally lean more towards, just the base end, just the multimedia processor or more of a bundled approach to date.

A - Scott McGregor: We are seeing design winds in a variety of areas, I think a lot of our customers are independently making design decisions on Bluetooth versus multimedia versus Aero-2, 11 versus day stand, so we don’t see so much bundling today, but we expect that to increase going forward as we begin to integrate more of a platform approach in filling the other pieces so we will definitely see more platform going forward.

Raul Seymour

So when you refer to design winds in 3G pretty you’re pretty much just talking about baseband is it right now.

Scott McGregor

Well yes, but it doesn’t mean we don’t’ have the other pieces as well. So in some of those models for example we do have Bluetooth, but we have Bluetooth in quite a few phones these days. As most of the first year vendors we have Bluetooth designed in. So we want Bluetooth in lot of those high-end phones, multimedia in an increasing number and baseband so there is a high correlation if we win one we win the other. But I just don’t want to leave you with the impression that we sold it as a package. They are independently decided by the customers today.

Raul Seymour

Okay and then a separate product line and the transition to VDSL and VDSL 2…can you just talk a little bit about how you are positions there and when you expect to have that market ramped.

Scott McGregor

Currently it is ramping mostly in Asia and we are beginning to see that market ramped faster and faster and we are now starting to see some interest in Europe as well. And we think the World Cup soccer is going to drive a lot of the growth in that phase, so we do expect to see Europe kick in as well.

Raul Seymour

Okay. Just final question just to deal housekeeping tax rate stays at 10% for the foreseeable future.

Scott McGregor

That’s correct.

Raul Seymour

Great thanks Scott.

Operator

The next question comes from William Lewis from J.P. Morgan. Please go ahead.

William Lewis

Thank you. I would like to ask a bit more about gross margins from a longer term perspective, you talked about what they are going to do next quarter, on mix and some of the input prices, but could you may be update us on where you think longer term gross margins are going to be, are they kind of be where they’ve been for the company exactly, say around the range you got choose for December or will the mix affect things longer term just like to give you kind of a long term model view.

Scott McGregor

It is one of the those things that is difficult to predict, every year we start out looking what our margins are going to be for the next year and now it looks like they are going to be falling off the cliff by the end of the year, they never do. The long term guidance we’ve given has been that we expect to be in the 50% to 52% range and we haven’t anything basically to change that, now this year we’ve been above that for most of the year. And so what is that going to be, the new range or not , we really can’t predict it this time.

William Lewis

Is there any more detail you could provide on what’s affecting the mix, is it primarily confined to consumer products, I mean most specifically Bluetooth or is that acharacteristic of concentrated customer base or is there any kind of channnelizations you can make about mix.

Scott McGregor

As I said it is generally is more dependent on where we are in a particular product cycle on a particular product than it is what the end user market is.

William Lewis

Okay. And then a second question if I could, it sounds like cable modems were stronger for you in terms of growth in the quarter as compared to cable set top box. Can you talk about what the, what your pricing differential is say compared to those two opportunities within broadband.

Scott McGregor

A data only cable modem has a lower price than a lower end set top box. A cable modem that’s voice enabled has a higher price in the low end set top box. And a lower price in the full feature set top box

William Lewis

I am sorry I missed the second part has a higher price in the low end set top box.

Scott McGregor

Yes.

William Lewis

The lower than a high set-top box. Okay. Thank you.

Operator

At this time there are no additional questions. Mr. McGregor please go ahead with any concluding comments.

Scott McGregor

I would like to thank everyone for joining us today, I hope we’ve been able to answer your questions and give you the information you needed, we believe we had a great quarter and we see a good quarter going forward, we have a lot of comfort in the business and looking forward to seeing you next quarter thanks.

Operator

Thank you for participating in Broadcom’s third quarter fiscal year 2005 earnings conference call. This concludes the conference for today. You may all disconnect at this time.

Related:

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY’S CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY’S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Full Transcript of Broadcom's 3Q05 Conference Call - Q&A (BRCM)

Check out Seeking Alpha’s new Earnings Center »

This Transcript
All Transcripts