Peter Andrew – Senior Director, IR Scott McGregor – President and CEO Eric Brandt – EVP and CFO.

Vivek Arya – Bank of America/Merrill Lynch Joe Moore – Morgan Stanley Mark Lipacis – Jefferies Harlan Sur – JPMorgan Ross Seymore – Deutsche Bank Stacy Rasgon – Sanford Bernstein Srini Pajjuri – CLSA Research Timothy Arcuri – Cowen and Company Christopher Caso – Susquehanna Doug Freedman – RBC Capital Markets Matt Ramsay – Canaccord Genuity Craig Ellis – B.

Riley CJ Muse – ISI Group Kevin Cassidy – Stifel Nicolaus Blaine Curtis – Barclays Steven Chin – UBS Christopher Rolland – FBR Capital Markets Quinn Bolton – Needham & Company David Wong – Wells Fargo Hans Mosesmann – Raymond James Mark Delaney – Goldman Sachs Ruben Roy – Piper Jaffray Betsy Van Hees – Wedbush Securities.

Welcome to the Broadcom Q3 2014 Earnings Call. My name is Leslie, and I’ll be your operator for today. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Peter Andrew. Mr. Andrew, you may begin..

Thank you and good afternoon, everyone. Today’s call will include prepared remarks by Scott McGregor, Broadcom’s President and Chief Executive Officer; and Eric Brandt, our Executive Vice President and Chief Financial Officer.

This call will include forward-looking statements which are subject to risks and uncertainties that could cause Broadcom’s results to differ materially and adversely from management’s current expectations.

We encourage you to review the cautionary statements and risk factors contained in the earnings release, which was furnished with the SEC today and is available on our website and in our most recent Annual Report on Form 10-K and subsequent reports on Form 10-Q.

We undertake no obligation to revise or update publicly any forward-looking statements to reflect future events or circumstances. Additionally, throughout this call we will be discussing certain non-GAAP financial measures.

Today’s earnings release and the related current report on Form 8-K describe the differences between our non-GAAP and GAAP reporting and present a reconciliation between the two for the periods reported in the release.

Please also see the Investors section of our website at investor.broadcom.com for a slide deck that includes additional information disclosed in accordance with SEC Regulation G. Now it is my pleasure to introduce Broadcom’s President and Chief Executive Officer, Scott McGregor..

Good afternoon and thanks for joining us. Broadcom had solid results in the September quarter. Revenue was above the high end of the guided range and ahead of consensus estimates. Non-GAAP EPS also came in ahead of first call consensus for the quarter.

Upside in the quarter was driven by strength in our set-top box, broadband access and connectivity products. In broadband we continue to see solid trends in access products as operators deploy the latest technologies including VDSL upgrades to power faster connections in the home.

We also saw strength in set-box driven by growth in the emerging markets. Connectivity rebounded nicely, driven by seasonal demand and new phone watches as well as increasing penetration of 802.11ac and 2X2 solutions. In infrastructure our business was roughly flat due to a pause in data center and service provider spending.

I’ll go into these items in more detail later in the call but will first turn the call over to Eric for details on third quarter results and fourth quarter guidance..

Thanks Scott. As Peter mentioned please refer to the data breakout in the investor section of our website for additional information that will supplement my financial commentary. Consistent with our reorganization and current management structure we have recast our segments in our 10-Q and web financial for current and prior periods.

Broadcom now has two reportable segments, a broadband and connectivity group and an infrastructure and networking group. For transparency we’ve provided a discrete cellular baseband [DU] [ph] as well. Moving to the financial overview. To summarize total revenue came in at $2.26 billion, up 10.7% sequentially and up 5.3% year-over-year.

Q3 non-GAAP product gross margin was down 70 basis points from Q2 to 54.3% driven by stronger than expected cellular baseband revenue. Q3 GAAP product gross margin was 52.3%. Non-GAAP R&D plus SG&A expenses were down $60 million sequentially while GAAP R&D plus SG&A expenses were down $67 million.

Q3 non-GAAP EPS was $0.91 per share or $0.07 above the first call consensus of $0.84 per share. Q3 GAAP EPS were $0.16 which includes $0.52 of impairment and restructuring charges. Cash flow from operations for Q3 was $461 million. Our cash and marketable securities balance at the end of the quarter was $5.4 billion. Moving to revenue and gross margin.

In July we said we expected Q3 revenue of between $2.1 billion and $2.25 billion. We delivered revenue just above the high end of that range at $2.26 billion. Our broadband connectivity revenue came in ahead of expectations at $1.51 billion, up roughly 16% sequentially, upside in the quarter was across the board.

Revenue from our infrastructure and networking segment met our expectations of roughly flat at $651 million. Cellular baseband revenue came in at $97 million, well ahead of our expectation.

Our Q3 non-GAAP product gross margin was down 70 basis points from Q2 to 54.3% at the low end of the guided range due to cellular revenue coming in well ahead of guidance. Product gross margins would have been roughly flat sequentially consistent with guidance if not for the cellular upside. Our Q3 GAAP product gross margin was up from Q2 to 52.3%.

Moving to operating expenses. Total non-GAAP R&D and SG&A expenses for Q3 were at the low end of our guidance and declined $60 million from Q2 level as cellular expenses were down substantially partially offset by increased tapeout costs. On a GAAP basis R&D and SG&A expenses were down $67 million from Q2 levels.

Moving to the balance sheet, cash and marketable securities ended Q3 at $5.4 billion of which 50% is in the U.S. Cash flow from operations was $461 million. During the quarter we paid $71 million in dividends and repurchased 6 million shares of stock at a cost of $227 million.

We also issued senior notes of $600 million and called our upcoming November 2015 maturity of $400 million. Our Q3 receivables days sales outstanding were 38 days and net inventory turns were 6.9. Moving to restructuring charges.

As discussed in Q2 conference call, we began to execute the wind-down of our cellular baseband business and in Q3 recorded restructuring cost of $114 million.

We expect to record an additional $60 million of restructuring charges over the next 12 months related to the closing or consolidation of 18 locations and the termination of certain existing contracts.

Moving to impairment of purchase intangibles, during the quarter we recorded impairment charges of $200 million or $0.33 per share related to our NetLogic acquisition. The impairment was principally driven by downward revisions to our long-term forecasted revenue from acquired product line.

For further decision of the preceding charges please see our 10-Q that we anticipate filing today. Moving to expectations, we currently expect net revenue in Q4 to be $2.0 billion to $2.15 billion, of which cellular SoCs should be roughly $50 million.

From a segment perspective we expect Broadband connectivity and Infrastructure networking to be down sequentially. We expect Q4 non-GAAP gross margins to be 55% plus or minus 75 basis points and GAAP gross margin to be 53% plus or minus 75 basis points.

We expect non-GAAP R&D and SG&A expenses in Q4 to be down $40 to $60 million and GAAP to be down $50 to $70 million. Based on this reduction we anticipate having largely completed the cellular cost reductions by year end faster than originally forecasted.

And now I’d like to turn the call back over to Scott to talk more about the state of the business..

Thanks Eric. Starting with the Broadband and connectivity business our revenue came in ahead of expectation at $1.5 billion, up roughly 16% sequentially. Strength in the quarter was across the board including set-top box, broadband access and wireless connectivity. We continue to see solid growth in set-top box.

Much of the strength that we saw this quarter was due to share gains in emerging markets deploying new HD designs, particularly in Latin America. We saw strength in VDSL due to share gains, increased operator spending and a richer mix of technologies such as vectoring and channel bonding.

Broadband access over copper is seeing meaningful upgrades and we expect the next DSL standard, G.fast to begin ramping in 2015. In connectivity, we saw seasonal strength combined with increasing adoptions of new wireless technologies such as 802.11ac and 2x2 solutions which drive higher ASPs.

During the quarter we launched the second generation of our 2x2 MIMO 802.11ac combo chip; this chip improves our industry leading performance for high end smartphones and tablet resulting in faster speeds, lower power consumption, less interference and lower board space than our competition. It is currently shipping in volume production.

We also launched our GPS Sensor Hub Combo Chip, an industry first. This product significantly reduces power consumption in smartphones and tablets while enabling always on health fitness and lifelogging applications. While nascent today we are excited about the opportunity in the Internet of Things market.

Our strategy is to enable developers to create innovative products using our recently announced WICED Sense development kit. WICED Sense is all-in-one prototyping kit that includes a Broadcom Bluetooth chip, sensors and a software stack that allows syncing to smartphones or tablets.

This kit is a very cost effective platform that reduces development time of new Internet of Things products which will contribute to the future growth in our connectivity business. Finally small cells remains an emerging opportunity. We are ramping our newly launched LTE and TDS CDMA Solution while maintaining our market leading position in 3G.

Looking into Q4 we expect our Broadband and connectivity business to be down sequentially. Moving to infrastructure, our infrastructure and networking group was roughly flat declining just under 1% sequentially to $651 million in line with our expectations.

Both data center and service provider revenues declined sequentially, partially offset by growth in the enterprise and home market. The decline in the datacenter market was not unexpected following the strong growth we have seen over the past year and half. This was the first decline following sixth consecutive quarters of sequential growth.

Since the beginning of 2013, datacenter and service provider revenues have grown a combined 50%. Longer-term growth drivers remain intact and include new build out and expansion of datacenter, increasing data traffic and faster speeds and the continued ASIC conversions to merchant solutions.

Recently we launched the first in a new family of switch products called Tomoahawk, which deliver 32 ports of 100 gigabit Ethernet and is specifically designed for 25 and 100 gig applications in the datacenter.

Tomoahawk is driven by the consumer need for higher data rates and is current sampling with key cloud service provider and communication equipment OEMs.

Despite the anticipated declines in the service provider market we saw growth in the enterprise and home market due to increasing traction from our processor SoCs and wireless LAN routers and enterprise access points driven by increasing adoption of 802.11AC.

As we look into Q4 we expect our infrastructure and networking business to be down sequentially. In summary our Broadcom and connectively and our infrastructure and networking segments performed well during the third quarter. 2014 is said to be the third consecutive year of double-digit growth for our infrastructure business.

Broadcom is seeing steady growth driven by leadership in set-top box and broadband modems. Connectively saw the expected strength in the quarter due to continued leadership in high end smartphones tablets and access points as well as the ongoing to 802.11AC and 2x2 solutions.

This concludes our prepared comments, and we are now ready for your questions.

Leslie, may we have the first question please?.

The first question is from Vivek Arya with Bank of America. Please go ahead..

Thank you for taking my question.

Scott, I am wondering what impact have you seen on your connectivity sales and customer interaction since you made the decision to wind down your cellular business and then more importantly how does that inform you about how connectively sales will progress next year?.

Our connectivity business is performing strongly.

We see continued strength at the high end of our business and the connectively business itself was up about 20% quarter over quarter which is better than expected and this is despite the decline in the lower end of the business as we had talk about - we are just seeing exceptional strength in the high end which drives a richer mix for us.

So all of that suggests our business is doing quite well in connectivity..

Got it.

And then maybe as a follow-up for Eric, question near term long-term on operating expenses, so obviously near term very good control over OpEx, I am wondering how should we think about the fringe set up as we get into Q1 but then longer-term I appreciate you’ll probably discuss operating margin targets at Analyst Day but I am curious what the main levers are because your segments are operating already at very high levels of profitability so just conceptually what are the levers to improve operating margins from here on? Thank you.

Hi, Vivek, so I would say good question on the timing.

So having basically removed virtually all of the operating expenses associated with cellular by the end of the year excluding sort of the remaining leases and some of the contracts that we will have to write off as we roll into next year I expect that Q1 will step up the way it normally does seasonally with [fringe and merit] [ph] piece you know probably 30 to 40.

After that I think there is a little wrap in Q2 but our intension is to continue to hold things relatively tight.

Over the long-term I think the key here in the business is to continue to run the business where our operating expenses grow tightly coupled with revenue and to the extent that we can grow operating expenses more slowly than revenue we’ll get additional leverage on the operating income line but I would say right now I think we have all of the businesses performing quite well as it relates to both operating performance and operating margins..

Our next question is from Joe Moore with Morgan Stanley. Please go ahead.

Great, thank you. Can you talk about the networking weakness that you saw at service provider that you talked about in the third quarter, sounds like it’s still down in the fourth quarter what is your visibility into kind of working away through and getting back to growth in that sub segment..

Growth in that segment really depends on capital spend from the large carriers and we don’t have better visibility than either our customers or the service providers themselves so we have to wait and see. That being said we do see that business as lumpy.

Broadcom also benefits from some secular trends in there that we have a lot of new product launches and new capabilities rolling out and we have been able to increase our penetration into things like base stations where we are able to get not only processor but back haul but an increasing part of the switch and digital front end parts of that business.

So we have increasing products in those devices as well as expecting some pick-up over the course of next year..

Okay, great. Thank you very much..

Next question is from Mark Lipacis with Jefferies..

Thanks for taking my question.

I guess there’s a debate on the macro environment and on inventories, can you share with us any signals that you may be seeing that suggest there’s issues on either the demand or the inventory side?.

Well there is always pockets and there is always expedites from our customer but I would say in summary we aren’t seeing anything unusual in the market..

Okay, fair enough, and then on the connectively and broadband combination, why – what’s the motivation for combining those businesses together under one umbrella? Thank you..

Connectivity and Broadband make a lot of sense to put together because we believe that the home is going to become increasingly connected and Broadcom has incredible strength in the last mile technologies and gateways and set top boxes and as we see the home basically get wired up such that devices are connected, it gives us an end to end solution in the home.

So you will see higher levels of integration and more interaction between these devices. So look for us to increasingly integrate technologies and get some advantage in terms of having complete solutions for the home..

The next question from Harlan Sur with JPMorgan..

Hey guys, thanks for taking my question and good job on the quarterly execution. On the exit of the base band business, I think your target was to take out roughly about $138 million of OpEx per quarter.

Let’s say you took out about $80 million or so in Q3, you are taking out another 50 million in Q4, I think you said that you’re essentially complete but it still seems like you have roughly about another $10 million left to come out, is that a benefit we can expect in Q1 or am I just not interpreting things properly here?.

Harlan, you are about right. So let me go through the math, so it’s about $10 million that came out of Q2, about really probably closer to $90 million in Q3 and then the midpoint of our guidance is 50. Some of that is actually organic growth and some of that’s cellular business which we think is probably $30 million to $35 million.

So you are talking about $130 million to $135 million in cost that will have been removed by the end of the year.

Now going forward there is probably another $5 million to $10 million give or take depending on sort of a timing and removal of some of the lease expenses we have and some of the remaining sort of contracts, EDA et cetera that we will clean up next year.

So hopefully that sort of clarifies it but you are right that OpEx will be based on the midpoint of guidance below the $600 million number that everybody was talking about by the end of the year..

Great, thanks for that. And then your Q4 guidance on infrastructure being down again sequentially.

Scott can you just give us a bit more color by end markets segments, service provider, data center, enterprise, any differences directionally between the different sub-segments in the fourth quarter?.

Well, I think the number is down, isn’t very much so we don’t see large differences between the segments. I would expect service provider to continue to be down a bit but I don’t see a huge gap between the different segments in the Q4..

Great, thank you..

Next question is Ross Seymore with Deutsche Bank..

Hi guys, thanks for letting me ask a question.

Scott, similar sort of question on your Broadband and Connectivity area other than the base band sub-segment of that, can you walk us through a little bit of what’s driving that down in your fourth quarter guidance please?.

I would say that’s largely seasonal; we don’t see particular businesses moving on the basis of differences in demand there. So I would say there is not a meaningful difference between the different pieces..

Ross, just a comment generally on seasonality.

I would say broadly speaking the guide at the midpoint is roughly seasonal for the quarter, sort of low to mid-single-digits, probably the infrastructure business a little bit better than seasonal and broadband business maybe a touch worse than seasonal but that really is depending on some of the new product ramps that are in the market today.

So I would say it’s broadly in line with seasonal more or less..

Great, thanks. And as my one follow-up, stock based comp just a bit of a longer term question, Eric how should we think about that trending over time.

You have long stated you wanted the gap between pro forma and GAAP as far as it being created by stock-based comp to shrink over time, how does the exiting of the base band and any other moves you are putting into place affect that delta?.

So if you look a year ago stock based comp was probably 5.8% of revenue, last quarter it was 5.5% of revenue and this quarter it’s 4.7% of revenue. And it will continue to come down as sort of we wash out the people who have exited the company.

We are working through that and we will talk more specifically about our plans but I think on a ratio basis, if you think about we have a large number of employees that are no longer with the company that weren’t generating significant revenue but we are getting targeted stock based comp.

So we believe that there will be further upside or benefit from the 4.7 going forward and just stay tuned for analyst day, we will talk more about it then..

The next question is from Stacy Rasgon with Sanford Bernstein..

Hi guys thanks for taking my questions. First on just quickly on gross margins, you are guiding to 55% even still with about $50 million in day spend. I am just trying figure out ex base band once that business is completely gone is it likely thing that we should have more upside from this number.

I think this quarter you had close to $40 million in base band upside which drove about 70 basis points of gross margin downside, so we’re moving to $50 million that’s still there kind of give us a similar amount of I guess tailwind to margins from where we are sitting today?.

Yes sure Stacy, so you are correct, so the upside in base band was about 70 basis points total impact of base band to the company’s gross margin off the reported 54.3% is about 170 basis points, headwind associated with the base band and I would say despite that the strength when you net that out in terms of a number it was even on the back of a very, very strong connectivity quarter where connectivity was up over 20% quarter-on-quarter.

So I would say the gross margins holding in there quite well even given sort of well I can say the modestly unfavorable mix towards connectivity relative to our other businesses..

Next question is from Srini Pajjuri with CLSA Research..

Thank you. Scott you talked about ASIC to ASSP transition as one of the drivers for the networking business.

To what extent that particular trend helped you in the last few quarter and as we look out to the next several quarters I am just trying to understand how big that opportunity is that you think you capture going forward? And then also given that some of your bigger customers are moving to ASSPs what’s the risk there some of these customers would go back to ASIC in the future?.

I think we have seen some benefit from that at various customers over the last year or so. I think a lot of the opportunities still in from of us if you look at the industry there is still a fair amount of ASIC being used and so we view that as an opportunity to the extend we can do a better job than they could do internally with their ASICs.

So I don’t expect to be completely monolithic, one directional, it will be a bit lumpy but overall I believe the trend will continue and we’ll see a general trend towards increasing merchant solutions replacing ASIC overtime..

We take the next question from Timothy Arcuri with Cowen and Company..

Hi, I had more of a longer term question Scott, does Qualcomm’s purchase of CSR and what they got for the business, they got about 2.7 times EBITDA sales does that sort of either one change the competitive landscape in mobile connectivity or more likely does it maybe make you think a little differently about what you could get for that business if you sold it, and maybe you could just talk about that a little bit? Thanks..

I think in terms of the transaction it doesn’t really change the competitive landscape for us. I mean we are already competing with them as a separate company doesn’t really changed move the ownership on that. We already most of that technology as it is. So doesn’t really change the landscape for us.

In terms of connectivity business it isn’t for sale per se but we think that’s a pretty good business going forward. Of course if somebody us a big enough check we would always look at it but generally that business isn’t for sale and as you can see from a numbers it’s doing extremely well with strong growth and increased profitability..

Next question is from Christopher Caso with Susquehanna financial group. Please go ahead..

Hi, thank you.

Just with the new reporting segment with broadband and connectivity if you can give us some help in what we should think about seasonality of that segment now that it’s combined I suppose that we should be following the same seasonal patterns we saw on the connectivity business perhaps just a bit more muted with the addition of broadband into that segment..

Yes it’s interesting, Chris it is more, it’s very similar, the challenge is you use ‘04 to ‘14 ‘08 to ‘14 generally speaking I think the way to think about the business is down sort of mid to single digits in the first quarter up mid-single digits in the second quarter, up mid-single to high single digits in the third quarter and down sort of low to mid-single digits in the fourth quarter.

Now the standard deviation of each of those is about the same as the actual average. So it’s a fairly wide distribution but that’s roughly what it is..

Next question is from Doug Freedman with RBC Capital Markets..

Hi, guys thanks for taking my question. Looking at the results [I am not] sure that you had a decent amount of buyback in your commentary talks about returning cash to shareholders.

Can you maybe give us a little bit of details of maybe what the strategy is there and if you purchased any of what level of stock you repurchased quarter- to-date?.

Doug I can’t comment on what we would have purchased quarter-to-date. We will talk more about that obviously as the quarter ends. But we repurchased a little over 12 million shares year-to-date. We said that we would plan to repurchase approximately $800 million of stock over the next four quarters. We did $277 million this quarter. Our U.S.

cash is up partially due to our debt financing and call as well as the settlement of some IRS audit, so that we now have $2.7 billion in cash from U.S. which is increasing our flexibility on buyback.

So I don’t want to steal my own thunder for Analyst Day but needless to say I think we are in a better strategic position relative to buybacks going forward then we were just a quarter ago..

Next question is from Matt Ramsay with Canaccord Genuity..

Yes, thank you for taking my question.

Scott when you guys announced that you are exiting the baseband business I think you laid out some different buckets of mid and low tier mobile device connectivity revenue that might be at risk in the long-term with that exit, I think $500 million to $600 million were the buckets, maybe you can give us an update on what’s progressed so far, where things are along that progress and then secondly if you have any comments about how you Intel investing with Spreadtrum to your partners and connectively you might affect the growth or decline in that business going forward.

Thanks..

So in terms of the guide lines we gave we size the entire sort of low and mid business as an area that might have potential risk and you know that was sort of a theoretical worst case and we certainly haven’t much erosion on that business.

To be sure we have seen erosion at the lower end of the business and we have seen increased traction at the higher end of the business which is driving a favorable mix and that certainly helped us in the quarter. In terms of the Spreadtrum deal one of our competitors did, we don’t see that as really changing things very much.

I think that might have been more of something to work with the Chinese government rather than specific product things, but it remains to be seen how that plays out. In general the Spreadtrum team partners very well with us and I see that continuing in terms of working together on connectivity..

Next question is from Christopher Rolland with FBR Capital Markets..

Chris? Leslie, can we take another caller?.

Okay. Next question is Craig Ellis of B. Riley..

Thanks for taking the questions, some interesting product developments.

Scott can you put the Tomoahawk product announcement in context relative to the strong product cycles that you saw with Trident I and Trident II and then with the sensor hub announcement, when would you expect that to be generating material revenues?.

Generally it takes on the order of a year for when we sample until when we see launches of products and so that’s why we said, Tomoahawk we’d expect begin to see revenue in the end of next year. And I think it’s important to understand that Tomoahawk represents a new family of products that is in parallel or it’s a peer with our Trident products.

So it’s not a new version of Trident, it’s a new product family. And I think what you are seeing us do is really create specialized products for the high-end cloud datacenters versus the enterprise datacenters and really be able to meet the needs of all of those markets.

So you see the new 25 gig products with Tomoahawk and we have a very strong 10 gig family with Trident and both of those we expect to do well. Generally it takes a year or so before the product starts to launch and then it’s a fairly long cycle.

These are products that have five-six-seven year cycles overall, sort of like the automotive business in terms of once you get in you are in for a very long period of time.

So they tend to be fairly sticky, fairly good and again the key point is by launching additional families of products here we are going to be able to broaden out and as this market grows we will be able to see a broad pick-up across it..

Next question CJ Muse with ISI Group..

Hi, thank you for taking my question. I guess I had two points of clarification.

First, Scott on the connectivity side, did I hear you correctly suggest that business is up 20% in September and if so were you including cellular? And then secondly, Eric, if I go back to your announcement on the why down at cellular, I believe you guys talked about $700 million of OpEx savings and then reinvesting $50 million.

So that’s a total of $650 million or roughly 160 plus per quarter. You talked about 100-135 exiting the year out of the system, so my math says roughly 30-60 incremental into 2015, is that the right math or should I be thinking something else? Thank you..

On your first question you did hear me correctly, connectivity was up 20% quarter-over-quarter and that is not inclusive of the cellular baseband business, which we reported separately. That also was up very strongly but not included in that 20% quarter-over-quarter number for connectivity..

And CJ just to respond so to break-up the various owners of the cost reduction, there was $600 million of operating expenses reduction plus $100 million of stock base comp reduction and I was speaking and there was $50 million of operating expenses added to that.

So if you look at that, that’s where I got the $550 million and roughly about $137 million. On the stock base comp component of $100 million that was a top down estimate and you will see in our Q now that we sort of the specific people I’ll tell you the specific difference.

We did a top down estimate and we took it as a percentage of the total company, when you actually look at what actually we terminated a large chunk of those people came from [Renaissance] and they only had one soft grant as opposed to a four layered grant and so that STC number’s probably closer to $50 million than to a $100 million.

Having said that, consistent with my prior comments earlier the long-term granting will be consistent with what we’ve talk about in the past and you get the full effect of that to that in the future grant and as I said I’ll talk more about that at analyst day..

Next question from [inaudible]..

Thanks. Hey Scott.

People are asking what your plans might be over the medium term and I think it stems from the fact that baseband was a business that you really got behind and supported, it was a key part of the mobile strategy but now Broadcom centering these other two businesses there is more of a focus on free cash flow capital return and so investors are asking if you are still motivated and looking forward to running this company next year or should we be bracing for change come the Analyst Day..

Well, I am pretty excited about this company. I mean we have got record revenue, we have got record profitability. I mean there is a lot to be excited about here. Our businesses are performing extremely well. I think we got some great growth opportunities and everything from small cells to internet of things just the whole roll out of HEVC.

So no, my motivation is not diminished in any way..

Next question from Kevin Cassidy with Stifel..

Thank you.

Eric you had mentioned increase in tape-out costs, are you going to lower geometries or maybe could you give us the split what geometries your tape out cost are going towards?.

65% of our tape out cost are below 40..

And you are saying below 28?.

Yes, but I am not going to break that out. So there is spending below 28 as well..

Next question is from Blaine Curtis with Barclays.

Thanks for taking my question.

Eric you restated the financials, I think some moving pieces VoIP went down, infrastructure but I think even the profitability on some of the other ones is there any easy way to sum-up all the moving pieces or any color there will be helpful?.

Yes, so the best way to do this Blaine is to go back and look at prior periods and you can see the revenue delta in broadband pre new segment and post new segment and in there you will see what was added from the standpoint of connectivity which is the vast majority of connectivity, all – and because now you have the cellular revenues as well and all but the VoIP business which when subtract the all ING revenue from the new ING revenue in the same period you will get that number which is running around $20 million.

So you should be able to get pretty good clarity on the revenue for the connectivity business and with the commentary in the Q which talks about how much things have moved up and down and connectivity is made up of principally the Wi-Fi business and combo chip business and what’s considered other wireless product, there is a little bit of other stuff in there but it’s mostly those two pieces..

Next question is from Steven Chin with UBS..

Hi, thanks for taking my questions. Two quick ones on the networking business, if I can.

Firstly in terms of the impairment charges on the NetLogic assets, any color on which product areas those impairments were taking on? And secondly with respect to the Tomoahawk 25-gig, 50-gig product is that seen as incremental to the existing sort of 10-gig, 40-gig switching TAM or it’s just sort of the conversion of some of that 10-gig, 40-gig demand over to 25-gig, 50-gig? Thanks..

So I will start on the NetLogic charge. The NetLogic charge is about $125 million tied to EP or processors and about 75 give or take tied to TCAMs or KBPs..

I think just an overall summary on the NetLogic impairment is, hey look we’re pretty disappointed with the results and now we’ve taken multiple impairments on this and I think for us there is a lesson learned about looking at high revenue growth as a basis for an acquisition. And so I think we’ll factor that into our future M&A thinking.

So just an overall comment on that, on your Tomoahawk question, I see Tomoahawk as incremental and not cannibalistic on our Trident business.

So our view is that it broadens us out into a wider range and applicability for the new kinds of data centers that are going to be built, we’re seeing these very, very large scale data centers now being designed and these new Tomoahawk products are really scaled to support that..

Next question is from Christopher Rolland with FBR Capital Markets..

Hey guys, thanks for letting me ask the question and nice quarter.

If you guys could talk about set top box, so weak guidance and comments from some smaller guys in the space and then also some weak comments from set top box OEM areas and I am just wondering is it all share gains versus your smallest competitors is that how you explain that? And then how do you sort of explain your results versus weakness at fairly large OEM? Thanks..

I think our business at Broadcom in set top box area is exceptionally broad. We cover a very large number of customers and a large set of geographies and so when we look at our business we are less susceptible to single model or single designs at individual MSOs.

And so we don’t see the volatility you see in some of these smaller competitors on top of that we are gaining share and so we believe that we have taken share over the last couple of quarters and hope to continue to do so and especially right now in the emerging geographies where we have got incredible strong product growth..

Great, next question is from [Ambrish Srivastava] with BMO..

Hi, thank you Scott. I just wanted to follow up on NetLogic. What was the lesson learned because at that time it seemed like a very compelling idea and if I tally it the impairments they have actually don’t remember off the top of my head.

So was it the due diligence was not there or the opportunity that you were going after has evaporated and then kind of relates to that would you now need to go and sell that all? Thank you..

I think on the NetLogic thing the acquisition case for us was a combination of things. It was a strategic set of technologies we wanted to have in the company including processor technology and increasing share across a broad range of our infrastructure products and frankly we did get that.

It was also based though on some growth assumptions both for the industry and for the particular product family and I think we saw a couple of things happen one is the industry growth evaporated shortly after we did the transaction. So that was the first write down there.

And then after that we just didn’t see the growth materialize that we have thought in some of the areas. And in particular in the processors we didn’t anticipate the rapid shift I think to arm processors for a lot of the new procurements.

And so we had a largely mid space processor family and we’ve since moved a lot of that to arm but I don’t think we anticipated the speed of that.

In terms of a diligence well probably hard to diligence some of that I mean if we were perfectly able to appear in the future we would have gotten it but I think the lesson for us here is that any kind of revenue growth in a large acquisition we probably need to put a higher risk factor on it and weigh that in the valuation we look at and our inclination to do the deal.

So that’s what I take away personally from that and I think we will just be a little more skeptical of growth forecast on large transactions. Small transaction we often see very high growth but we often get those.

So I don’t think it’s so much a smaller transaction but it was a $3.7 billion transaction and very large transaction and we didn’t get the growth we were looking for.

So I think if we ever another large transaction we are looking at you will probably see us financially risk adjust the opportunity substantially more than we did with the NetLogic transaction..

The next question from Quinn Bolton with Needham & Company..

Hi, thanks for taking my questions.

Just wanted to follow up on the set-top box any comments you may be able to share just on the effective M&A in the space specially in North America, is that anything or that any of the drag you are seeing in the fourth quarter do you see sort of business as usual in the North America geography? And then I have got a follow-up..

I would say in the set top box business the various M&A between the MSOs is probably somewhat positive for us. We have pretty high share across the different companies.

So we are not so susceptible to share loss with the merging but rather it often as part of their case for doing the combination is to accelerate technology and push out new boxes faster and that’s actually very good for us because it allows us to take things like HEVC and other new technologies we are doing and get them more quickly to market which is very much in our interest as we can turn over the older boxes and get the newer technology out there so it facilitates that.

So I would say the M&A is generally neutral to somewhat positive because of that technology acceleration..

Next question David Wong with Wells Fargo..

Thanks very much.

Can you give us any estimate of what you recon your market share in connectivity in phones is at the moment and where you expect that might go in the long-term?.

We don’t quote market share numbers but I would say overall we are the number one market share leader in the space and certainly in the high end we have very high share. I would say most of the high end smartphones are Broadcom based for connectivity. And I don’t see that changing going forward..

Next question Hans Mosesmann with Raymond James..

Thanks, going back to the NetLogic impairment on the processor side of the equation, is that impacting the timing of your multi-core arm processor for 2016 and can you confirm that’s going to be 16 nanometer FinFET..

Well we haven’t announced product details on that. We have simply talked about architecture but the various actions we have talked about don’t have bearing in terms of the timing of that architecture..

Thank you Question from Mark Delaney with Goldman Sachs..

Thanks very much for taking the question. It look like infrastructure operating margins declined this quarter I think by my math about 33% from 37% last quarter.

Can you just help me understand what the drivers there were in terms of mix or corporate overhead or how that broke out?.

Sure Mark, yes about 400 basis points in Q2 we had favorable one time non-standard cost benefits in gross margins and in Q3 we actually had unfavorable, unrelated non-standard margin effect. Those two one-time effects sort of positive in Q2 and negative in Q3 are 300 of the 400 basis points.

The other 100 basis points is principally slightly higher R&D spending or OpEx spending on a slightly lower revenue rate. So it’s really just sort of if you net those two things out it’s really more like a one point which would be consistent with the trend of the business..

The next question is from Ruben Roy with Piper Jaffray..

Thank, Scott can you give us a roughly idea of what the mix is between service provider and data center at this point.

You talked about very robust growth over the last couple of years, I am wondering if you can give us your thoughts on how you see these two separate businesses growing over the next several years, do you think datacenter outgrows service provider or how do you look at this mix? Thank you..

We think of it is as three difference pieces. There is service provider there is data center as you mentioned. We also think of the enterprise business which tends to be the equipment closets and stuff like that across companies and what not where we have a pretty good share.

And we’re roughly one third in each of those I would say service provider was probably higher than that maybe as higher as 40% until recently but softness in service provider and the acceleration of the datacenter probably put it back closer to the one-third each. I would observe though our service provider businesses has done better then peers.

Many of our peers reported double-digit declines and I think our service provider business was down roughly 2.5% quarter-over-quarter so definitely performing better than peers, I think a combination due to breadth of our product and breadth of our customer there so we didn’t see as much as some competitors did with a narrower customer base.

Overall I see that business continuing to grow overall. It’s been a double-digit grower for us for the last three years and I think over the next few years we will continue to see a double-digit CAGR on that business..

Next question from Betsy Van Hees with Wedbush Securities..

Hi, good afternoon and congratulations on the quarter and the guidance. A couple of questions.

The first one is on the inventory levels it looks like the inventory went down nicely to 65 days, we are 61, I was wondering if you could help us understand what products went down, how we look at inventory for the December quarter and then how is inventory given there’s so much concern about what’s happening in the macro out in your distribution channel is the first question I know there is multiple parts.

And then my second question has to deal with the acquisition of NetLogic how is your appetite today for acquisitions and what areas are you looking or do you think you need to add to your portfolio? Thanks..

So Betsy on the inventory, naturally when we guided Q3 coming out of Q2 because inventory is a backward looking number, we saw the strength of Q3 coming, so we have slighter higher days in Q2 than we had in Q3 and the turns improved.

I think as we roll into Q4 we are very much trying to manage our inventory trends in the sort of 6.5 to 7.5 turns range and I think we are in the middle of range and I expect we will manage in the middle of that range maybe even slightly better going into Q4..

In terms of M&A I do expect we will continue to do M&A and we historically we have had the best results small and medium acquisitions that bring things you know at the BC level of funding bring things in at the early stage of revenue where we can add a lot of value in terms of expanding that to multiple customers and putting a quality infrastructure in place for a smaller company.

So that’s our sweetest spot I think in M&A and we will try and focus on that. We will look at other things from time to time but probably as I mentioned earlier you’ll probably see our hurdle rate go up a little higher for those and you know we will look to try and optimize for shareholders value..

Thank you..

Thank you. At this time I would like to turn the call back to Scott for final remarks..

I’d like to thank everyone for joining us today. In summary our broadband and infrastructure segments really delivered solid results in the September quarter. Broadcom has a renewed focus on profitable growth and the results that they really represent and embody strategy.

We will communicate further about our product strategy, our business model and our plans for enhanced shareholders return at our Analyst Day on December 9th in Newport Beach and if you like more information on this event please give Peter or Sameer a call. With that thank you very much and have a good day..

Thank you, ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect..