Avago Technologies Ltd Earnings Call Insights: Wireless and Industrial Businesses

Avago Technologies Ltd (NASDAQ:AVGO) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.

Wireless Business

Ross Seymore – Deutsche Bank: Congrats on a solid quarter. Hock, just a question following up first of all on the Wireless business. You mentioned that you’re going to have an initial product launch that’s helping in your July quarter. How should we think about seasonality in your Wireless businesses? Last year, it seemed like all that goodness fell in one single quarter. Is it going to be a bit more spread out this quarter or any color you can give us will be helpful?

Hock E. Tan – President and CEO: I think the question – you have multiple points in this question, so let me try to address them one by one. Seasonality in the smartphone business, I believe, still exists, though very much muted these days than few years back, frankly. It’s more driven by product launches – major product launches of large smartphone OEMs, more than anything else. And what we were referring to in our guidance for this July quarter is the fact that we will be experiencing – or we are experiencing I should say, we’re in the midst of it – the initial, just the initial ramp of this large North American smartphone OEM in this quarter. But it is just the initial ramp. We expect the bulk of that ramp to actually occur in the following quarter.

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Ross Seymore – Deutsche Bank: Great. Then as my follow-up, switching gears over on to the Wired side of the business, you gave a lot of good color on the SerDes side. The parallel optics side; and specifically, the core router side, can you just give us some color about when you think that can rebound and how much of a headwind year-over-year that still represents?

Hock E. Tan – President and CEO: Well, if you look at it year-over-year, as I say, time starts to smooth things out. We do expect service provider spending to be back half loaded this year, especially this – even for fiscal year what we see is a stream of smaller orders these days, but especially in Q2 things kind of still look weak compared to Q1. We expect Q3, right now in our guidance, to be not much different. We could be pleasantly surprised, but we certainly expect as we move beyond June, July, for service providers in China and even North America to start putting in place call routing backhaul infrastructure, which will then drive a stronger demand for our parallel optics, and that’s great. That will be a very positive development, but we do not see that as much this quarter as perhaps subsequent quarters.

Industrial Business

James Schneider – Goldman Sachs: I was wondering if you could talk a little bit more about the Industrial business. What kind of booking trends did you see as you progressed through the quarter, and are there any specific geographies or sub-verticals that you think are doing better than others right now?

Hock E. Tan – President and CEO: Jim, Industrial, as you know, after two quarters of not very great movement in trends, we started to see last quarter actually a reversal in resale, and I’m referring to resale globally. As I mentioned, Industrial actually grew 3% at resale last quarter sequentially. What we’re seeing in order patterns is we very much expect the same to happen this quarter. A point of fact for geographies, North America was strongly recovering. North America sequentially was growing high single-digits last quarter and momentum continues today. Europe and Asia Pac was also growing, at least mid-single digits in Industrial. The only market that was down last quarter was Japan, and that’s because of the yen. Now that the yen has kind of stabilized at a fairly weak level, we’re actually seeing Industrial turn around this quarter, in fact, for Japan. So, Industrial looks like an improvement, but the way we see it, it’s a very gradual, but steady improvement.

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James Schneider – Goldman Sachs: Then as a follow-up, on the networking side, you talked about several of the product cycle drivers like 40-gig that will benefit you in the July quarter. Can you talk about how much of the benefit for the July quarter is product cycle versus end demand driven, and whether you think you can sustain momentum in that segment into the October quarter as well?

Hock E. Tan – President and CEO: The only one we see here is almost like the – maybe they’re really not two markets, but we almost see like two segments to this enterprise networking market. There is this new data center build-outs by people providing like cloud computing, social – basically social network, stuff like that, and then there is the more traditional corporate enterprise, what we call corporate enterprise sign. That sign, the ladder is still pretty flat. We find companies are still not spending that strongly, but holding, sustaining. But on the data center side, we see a lot of build-outs, we see increasing level of build-outs and that’s giving a lot of growth to the business we are in because these guys are adopting for large part of this new generation products in 40G, where we have a lot of market share. I think we’re benefitting from – so the best answer is combination of both.

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