Avago Technologies Ltd Earnings Call Insights: Product Transition, Wireless

On Tuesday, Avago Technologies Ltd (NASDAQ:AVGO) reported its second quarter earnings and discussed the following topics in its earnings conference call. Here’s what executives shared.

Product Transition

Ross Seymore – Deutsche Bank: The Wireless side, Hock, you talked about roughly $22 million, I guess at the midpoint of impacts from those two drivers with Qualcomm’s issues and then a product changeover. When you look out, are those – is that the sort of magnitude you expect to snapback wholly in the October quarter, or how should we think about those revenues coming back?

Hock E. Tan – President and CEO: No, that’s – there’s not connection really we’ve – to snapback in October quarter between this product transition. Remember, product transition is from an old product – older product, existing generation product which is tailing off, and the total new ramp in Q4. So, there’s no connection in that regard. With respect to the support devices for the Qualcomm 28-nanometers 8000 series baseband, yeah, there is some probably connection to the extent that we missed it this quarter; it’ll likely pop-up next quarter.

Ross Seymore – Deutsche Bank: Then I guess as my one follow-up, Doug, on the OpEx side of things, you mentioned that variable costs were down a little bit; is an offset against some other increases in your April quarter. How variable is your cost structure and how should we think about that especially again in the October quarter where you’re talking pretty favorably about your revenue outlook?

Douglas R. Bettinger – SVP and CFO: Yeah, the way to think about it Ross is, really the variability is in kind of our bonus program. It varies depending on our outlook for the fiscal year. We kind of get paid on fiscal year attainment of certain financial metrics. And so, assuming I am estimating that accurately right now, it shouldn’t swing all over the place as we go forward into Q4.

Wireless

Romit Shah – Nomura: Hock just coming back to wireless, we still have the same dynamics in wireless, in terms of who is winning at the end-customer level, you highlighted product transition, product transition at one OEM I am wondering when you look at design wins are you seeing any impact or would you expect to see any impact from share loss?

Hock E. Tan – President and CEO: I’m not sure I understand, share loss, what do you mean share loss?

Romit Shah – Nomura: If you look at your leading customers in the wireless space there has been some commentary from some of your competitors, that their presence is improving at some of the larger handset ramps and I am wondering as you look out at design wins, they’ll go into production over the next three to six months. Do you think there could be any impact to your market share versus what you saw in prior generation.

Hock E. Tan – President and CEO: Well to start with, we never focus on market share as a business, as a company. And number two if I add up at what every competitor says, we’ll probably have more than 100% market share, everybody has probably in total more than 100% share in this market. But to answer your question Romit we really don’t want to comment on market share at all. But sufficed to stick to my comments which is we are now in the midst of positioning ourselves and preparing ourselves as we go through a major product transition in the major OEM this quarter and Q3 quarter because we fully plan for fairly substantial product ramp of our business in wireless next quarter.

Romit Shah – Nomura: I guess going back to Ross’ question, if you’ve got $20 million to $25 million that’s gone away this quarter because of that transition and some constraints, why wouldn’t you get at least that much back in October considering seasonalities also in your favor?

Hock E. Tan – President and CEO: Well, I think the way I answer Ross was we probably get more than that. And the reason you look at it a two separate events, one is for the constraint on the baseband, one is miss out this quarter will reappear slightly next quarter at least if not in whole, at least in part on constraint on basebands to support that. In respect of the product transition, the other issue, that’s a separate issue. That one relates to two events, one event is existing product that is heading down, that is declining because of product lifecycle and a new product that we’ll be ramping only next quarter. In between, that’s the other aspect of the product transition that we’re talking about and that will be to translate to numbers. The number impact I mentioned of $10 million to $15 million for that product transition this quarter has necessarily no connection to what would be ramping up next quarter at all.

Romit Shah – Nomura: Then just product transition issue decide, as you look at your business more broadly, yeah, I’m sure you guys have heard about some of the issues in Europe and I am wondering if you’ve seen any impact or (indiscernible) to your weekly order patterns in the last 30 days?

Hock E. Tan – President and CEO: In Europe? Nothing…

Romit Shah – Nomura: I didn’t say Europe, Hock, not Europe specifically, just looking at your business, let’s say, outside of Wireless?

Hock E. Tan – President and CEO: Oh, well, outside of Wireless, we’re talking Industrial and Industrial has been – as I mentioned, since March of this quarter, has been from a flat position. Demand has been steadily climbing. That’s, in fact, in a lot of my remarks, that has been the major point I have been making in this commentary here, which is it is Industrial – a sharp industrial recovery out of Asia, that is driving – for this quarter especially, and part of last quarter, a big part of our revenue growth.