Broadcom Inc (AVGO) Q4 2020 Earnings Call Transcript

Broadcom Inc (NASDAQ: AVGO) Q4 2020 earnings call dated Dec. 10, 2020.

Corporate Participants:

Beatrice F. Russotto — Investor Relations

Hock E. Tan — President and Chief Executive Officer

Kirsten Spears — Vice President, Corporate Controller and Principal Accounting Officer

Tom Krause — Chief Financial Officer

Analysts:

Craig Hettenbach — Morgan Stanley — Analyst

Vivek Arya — Bank of America — Analyst

Harlan Sur — JP Morgan — Analyst

Stacy Rasgon — Bernstein Research — Analyst

John Pitzer — Credit Suisse — Analyst

Ross Seymore — Deutsche Bank — Analyst

Timothy Arcuri — UBS — Analyst

Toshiya Hari — Goldman Sachs — Analyst

Presentation:

Operator

Welcome to Broadcom Inc.’s Fourth Quarter and Fiscal Year 2020 Financial Results Conference Call.

At this time for opening remarks and introductions, I would like to turn the call over to Beatrice Russotto, Director of Investor Relations for Broadcom Inc. Please go ahead ma’am.

Beatrice F. Russotto — Investor Relations

Thank you, operator, and good afternoon everyone. Joining me on today’s call are Hock Tan, President and CEO; as well as the senior leadership team as announced this afternoon, including Tom Krause, President, Infrastructure Software Group; Charlie Kawwas, Chief Operating Officer; and Kirsten Spears, Chief Financial Officer.

Broadcom also distributed a press release and financial tables after the market closed, describing our financial performance for the fourth quarter and fiscal year 2020. If you did not receive a copy, you may obtain the information from the Investors section of Broadcom’s website at broadcom.com. This conference call is being webcast live and a recording will be available via telephone playback for one week. It will also be archived in the Investors section of our website at broadcom.com.

During the prepared comments, Hock, Kirsten and Tom will be providing details of our fourth quarter and fiscal year 2020 results, guidance for our first quarter as well as commentary regarding the business environment. We’ll take questions after the end of our prepared comments.

Please refer to our press release today and our filings with the SEC for information on the specific risk factors that could cause our actual results to differ materially from the forward-looking statements made on this call.

In addition to US GAAP reporting, Broadcom reports certain financial measures on a non-GAAP basis. A reconciliation between GAAP and non-GAAP measures is included in the tables attached to today’s press release. Comments made during today’s call will primarily refer to our non-GAAP financial results.

And with that, I’ll turn the call over to Hock.

Hock E. Tan — President and Chief Executive Officer

Thank you, Bea. Before I discuss our results, I do want to highlight the senior leadership appointments we just made around the same time this afternoon, which is all about ensuring continued growth and success of Broadcom. But first and foremost, as you see here, I’m not going anywhere. I’m as committed and engaged as ever. But while you often see me and Tom, behind us, we have a very strong bench that has gotten us to where we are today. So today, we are elevating some of this deep bench into critical positions that was strengthened our organization going forward.

Tom, Charlie and Kirsten are among the people who sustain the platform and make the phenomenal numbers I am about to announce happily. And to showcase our deep bench of talent at Broadcom starting in fiscal year ’21, we plan to organize series of Analyst Days on the various businesses where you can hear from our respective general managers about their businesses and to kick this off, the first will occur this January where Ram Velaga and Alexis Bjorlin will review our networking franchise.

With this let me now turn to our very strong fourth quarter results. We came of fiscal 2020 with record quarterly revenue and profitability, despite the ongoing pandemic and macroeconomic uncertainties. We delivered net revenue of $6.5 billion, above the midpoint of our guidance and up 11% sequentially and 12% — up 12% year-on-year. Semiconductor solutions revenue was $4.8 billion, increasing 6% year-on-year and most notably representing a return to year-on-year revenue growth. Infrastructure Software revenue was $1.6 billion, up 36% year-on-year, which of course includes the contribution from Symantec.

Let me now turn first to Semiconductors. Networking which represented approximately 35% of our Semiconductor solution revenue in the quarter was up 17% year-on-year, driven by the continued strength in cloud data center spending as well as continued spending by telcos in upgrading EDGE and core networks. Moving on to Q1, we expect this trend of double-digit percentage year-on-year revenue growth to continue even as we expect enterprise campus spending to continue to soften.

Turning to broadband which represented approximately 14% of semiconductor solutions in the quarter that was up 22% year-on-year. Growth was driven by the work from home environment and the need among service providers as well as consumers to upgrade broadband connectivity too as well as within the home. We experienced strong adoption of WiFi 6 in next generation access gateways in telcos and consumers. In fact, in this environment WiFi where we are very well positioned as a leader has turned into a substantial and growing business for the company. Beyond the WiFi we also experienced strong investment by service providers in GPON, that’s fiber to the home and digital subscriber line, copper, as cable modems among the cable operators. All this more than offset a decline in video. We expect low to mid teens percentage year-on-year growth — revenue growth in broadband for Q1 as demand continues to remain strong.

Moving on, wireless revenue which represented approximately 31% of semiconductor revenue in this quarter was up 43% sequentially in Q4 with the launch of new generation flagship phone by our large North American OEM customer. Still this was down 9% year-on-year given the one quarter delay in the ramp of production of that program. Accordingly, we expect Q1 fiscal ’21 to now be the big quarter of this seasonal ramp and revenue will come back extremely favorably with the same quarter a year ago and be — and we expect that to be up over 50% year-on-year.

Turning to Server Storage connectivity that represented approximately 14% of Q4 revenue — semiconductor revenue, and was down 9% year-on-year as expected, reflecting softness in enterprise demand. Turning to Q1, we expect revenue to continue to decline and given a strong Q1 compare in fiscal ’20, we expect this to be down double-digits even as much as perhaps 20%.

Last, turning to industrial, which represented approximately 3% of Q4 semiconductor solution revenue. We’re seeing demand recovery, especially out of China and consolidated resales and here we sell through distributors of course, were up 4% year-on-year. And we forecast such resales in Q1 to start — to accelerate to mid teens year-on-year growth as the recovery in industrial and auto continues.

So in summary, our semiconductor solutions segment was up 6% year-on-year in Q4, driven primarily by the ramp in wireless as well as continued strength in networking and broadband. Forecasting Q1, we expect this ramp in wireless to peak, and broadband and networking demand to remain strong. This will drive revenue in the semiconductor segment to increase in Q1 by high-teens percentage year-on-year.

Turning to software, let me reiterate our business model here. We focus as we have said many times only on the largest enterprise customers and seek to increase the adoption of the software products to a hybrid model about 90% of which are recurring subscription revenue. With step up investment in R&D, focus on just this core customers and we are able to do that by spending much less on our go-to-market outside of our large core enterprise customers. Unlike obviously the other software companies who are chasing every last dollar of revenue no matter how much it costs.

So let me tell you with two years of CA under our belt, let me tell you how we have done. Revenue wise after two years integrating CA on to our platform. Q4 ’20 revenue was up 5% year-on-year. For Symantec, if you exclude services and hardware, Q4 product revenue of $380 million was up 10% from Q1 fiscal ’20, which was obviously our first quarter after acquisition. But if we just look at revenue from our core accounts in CA, this was in fact up double digits, closer to 12% year-on-year, driven by bookings, which have continued to grow double-digits on an annual line. This as obviously — this book in — this growth in core accountants has obviously more than offset the planned decline in services and attrition of accounts outside our core enterprise customers. That’s how we expect to sustain our core software business long-term, albeit at low to mid single-digit percentage revenue growth. But we intend to drive to a financial outcome that is consistent with the Broadcom model. You’ll hear more on that from Kirsten when she talks of our financial model.

So looking ahead to next quarter on a year-on-year basis, we expect CA and Symantec software revenue to continue to grow in the mid-single digits. However in Q1 fiscal ’21, we expect Brocade to decline high single-digits consistent with softness in enterprise markets resulting in our infrastructure software segment revenue to be flat to perhaps up low single-digit percentage year-over-year.

In summary, we expect Q1 consolidated net revenue of $6.6 billion, up approximately 13% year-over-year all derived organically. Today we are in a unique situation. We started fiscal 2021 with a record backlog that has now grown to over $14 billion today, but the timing of this conversion of backlog to revenue will be driven by supply chain, which continues to be time.

Finally, I want to take the opportunity here to thank our team for all their work in fiscal 2020. This has undoubtedly been a challenging year and through it all, all of our employees have demonstrated unwavering focus and resilience, because of their hard work, our mission critical technologies have never been more relevant than they are today.

And with that, let me turn you over to Kirsten.

Kirsten Spears — Vice President, Corporate Controller and Principal Accounting Officer

Thank you, Hock. By way of background, while I’ve been a part of Broadcom for more than six years, my history in accounting and reporting roles and legacy companies of Avago and LSI dates back over 20 years. I’m proud of the strong financial organization that Broadcom has built. And I look forward to working together. I know Hock just gave you the details on revenue which I’ll recap before moving down the P&L, to discuss our fourth quarter performance, which clearly demonstrates our strong foundation for future growth.

Consolidated net revenue for the fourth quarter was $6.5 billion, a 12% increase from a year ago. Semiconductor solutions revenue was $4.8 billion and represented 75% of our total revenue this quarter. This was up 6% year-on-year. Revenue for the Infrastructure Software segment was $1.6 billion and represented 25% of revenue. This was up 36% year-on-year given the inclusion of Symantec.

Continuing down the P&L, gross margins were 74% of revenue in the quarter, up approximately 370 basis points year-on-year. The expansion in gross margin year-on-year was driven by favorable product mix in Semiconductors and a higher percentage of software revenue. Operating expenses were $1.1 billion, up 10% year-on-year, due primarily to the addition of Symantec. Operating income from continuing operations was $3.6 billion and represented 56% of revenue. Operating margins were up approximately 400 basis points year-on-year.

Adjusted EBITDA was $3.8 billion and represented 59% of revenue. This figure excludes $139 million of depreciation. Gross margins for our Semiconductor solutions segment were approximately 68% in Q4 up 320 basis points year-over-year driven by an improved product mix. This mix included more networking products and less wireless. As you know wireless carries around 10 points less margin on product profitability than the rest of our Semiconductor portfolio. Operating expenses were $777 million in Q4 or 16% of semiconductor solutions revenue, compared to $727 million in the prior year period as we continue to invest in our business.

R&D cost as a percentage of revenue for Q4 was approximately 14% and SG&A as a percentage of revenue was 2%. Operating margins for our Semiconductor solutions segment was 52% in Q4 up 290 basis points year-on-year. All told, in Semiconductor solutions revenue was up 6% and operating profit grew 12%.

Gross margins for our Infrastructure Software segment were 90% in Q4, up 130 basis points year-over-year. Cost of revenue primarily includes cost of product support, hosting for SaaS products, professional services and hardware. Operating expenses were $338 million in Q4 or 21% of infrastructure software revenue compared to $290 million or 24% of revenue in the prior year period as we generate scale through the acquisition of Symantec. R&D cost as a percentage of revenue for Q4 was approximately 12% and SG&A as a percentage of Infrastructure Software revenue was 9%. Operating margin was 69% in Q4, up 480 basis points year-over-year. Our operating margins reflect our model, which is about focusing on the largest enterprise customers and increasing our share of their wallet in terms of our software portfolio. Given this model, we are able to focus our R&D investments on a strategic group of customers and by doing so, reduce costs primarily on go-to-market. This is how we get to operating margin of about 69%, which we believe we can sustain.

Looking at cash flow. We had quarterly free cash flow of $3.2 billion representing 50% of revenue. This is up 36% year-on-year as we managed our working capital more tightly during this pandemic. Moving on to capital allocation for Q4. We paid our common stockholders $1.3 billion of cash dividends. We also paid $185 million in withholding taxes due on vesting of employee equity, resulting in the elimination of approximately 500,000 AVGO shares. We ended the quarter with 407 million outstanding common shares and 451 million diluted shares. Note that we expect the diluted share count to be 450 million in Q1.

On the financing and balance sheet front, we reduced total debt by $3 billion in the quarter. All told, we ended the quarter with $7.6 billion of cash and currently have $12.6 billion of liquidity including our $5 billion revolver. We ended the quarter with $41.1 billion of total debt, of which approximately $800 million is short-term.

I’ll now turn the call over to Tom.

Tom Krause — Chief Financial Officer

Thank you, Kirsten. Let me now recap our financial performance for fiscal year 2020. Our revenue hit a new record of $23.9 billion, growing 6% year-on-year. Semiconductor solutions revenue was $17.3 billion down 1% year-over-year. Infrastructure Software revenue was $6.6 billion, which included $1.5 billion from Brocade which was down 17% year-on-year, $3.5 billion from CA, which was up 4% year-on-year in addition of Symantec, which is $1.6 billion. Gross margin for the year was a record high of 73.5%, up from 71% a year ago. The addition of Symantec, as well as a beneficial mix in semiconductor product sales drove the gross margin expansion. Additionally, operating expenses were $4.6 billion, which included the addition of Symantec. Operating income from continuing operations was $12.9 billion, up 8% year-over-year and represented 54% of net revenue.

Adjusted EBITDA was $13.6 billion, up 8% year-over-year and represented 57% of net revenue. This figure excludes $570 million in depreciation. We accrued $644 million of restructuring and integration expenses and made $583 million of cash restructuring, integration payments in fiscal 2020. We spent $463 million on capital expenditures and free cash flow represented 49% of revenue or $11.6 billion. Free cash flow, grew 25% year-over-year.

Now on to capital allocation. For the year, we returned $6 billion to our common stockholders consisting of $5.2 billion in the form of cash dividends and $800 million for the elimination of 2.6 million AVGO shares. We also paid $299 million in dividends to our preferred stockholders. I would also note through the refinancing and liability management activities we’ve undertaken this year, our weighted average debt maturity is now approximately six years with a weighted average interest rate of approximately 3.5%.

Looking ahead to fiscal 2021, we remain committed to returning approximately 50% of our prior year normalized free cash flow to stockholders in the form of cash dividends. With that on the dividend based on approximately $12 billion of free cash flow in fiscal year 2020, we are increasing our target quarterly common stock cash dividend starting this quarter to $3.60 per share. This constitutes an increase of 11% and assumes basic outstanding share count of 413 million shares at the end of fiscal 2021. We plan to maintain this dividend payout throughout this year, subject to quarterly board approval. Consistent with our capital allocation policy, we would also — we will reassess the dividend this time next year based on our fiscal ’21 free cash flow result.

With that I will turn the call back over to Bea.

Beatrice F. Russotto — Investor Relations

Thank you, Tom. At this time, we’ll open the call for questions. We have Hock, Tom, Kirsten entirely available to answer any questions. So, operator, please go ahead and kick us off.

Questions and Answers:

Operator

[Operator Instructions] Our first question will come from Craig Hettenbach with Morgan Stanley. Please go ahead.

Craig Hettenbach — Morgan Stanley — Analyst

Yes, thank you. Question for Hock. I think on the call a year ago you talked about an increase in R&D investment and there was areas in cloud photonics, I think wireless infrastructure. So just wanted to get an update on how that’s progressing and the visibility into kind of revenue from that R&D investment?

Hock E. Tan — President and Chief Executive Officer

Okay. That is a very good question. And the investment we — the cadence of the investment we are doing continues in areas that we see a very strategic in various businesses, and you’ve seen some of that coming out as we continue to do so. For instance, last week we announced the introduction and ramp and introduction availability of the — our 800 gig platform for switching, routing and to connect in the basic size, retimers and all that, that goes hand in hand with it. So all of our launching 800 gig platform and then comes in the form of our new product Tomahawk 4.

And it’s pretty interesting that we are launching it now, because our previous generation, which is at 400 gig platform Tomahawk 3, which we introduced over a year ago, close to year and a half ago is just starting to ramp in terms into a larger market. And we are ready in launching in 800 gig. So the speed and the regularity and the speed at which we are pushing this products is definitely something we intend to keep where we’re coming — we will need a newer generation probably that is probably 2 times throughput capacity and a regularity of 18 months to two years on a consistent basis, because that’s what our HyperCloud customers want. And it makes sense, because we need to scale our datacenters as CPUs starts to hit the limitations Moore’s Law. That’s one example.

As part of that — as we indicated a year ago, we are stepping our investment in areas of silicon photonics basically to enable interconnects at very high throughput at very high bandwidth and that’s been going very, very well. It’s a multi-year investment and as we indicated, from the last time we talked about it, we are now only on the second year, but we expect to have something that will make sense — that will be out to the marketplace within a generation or two of our platforms in switching and routing. And that’s on that aspect of it.

In terms of further investments we have stepped our investment as I indicated in my report on WiFi, on connectivity of the 802.11ax now, and we launched that platform two years ago and very successful and we are already working on — we have invested a lot on the next generation WiFi 7 successor to this WiFi 6. In between we’re putting out 6 gigahertz WiFi, that’s WiFi 6E which has the spectrum bandwidth recently was approved by the FCC not a long ago and we already have our first product certified by the FCC recently. We are the first. So, we intend to be in the lead, for instance in this wireless connectivity, which by the way today, as I indicated represents a very substantial and growing part of our business.

And it’s a testimonial to the level of investment and success we’ve gotten in this area. And so these are some of the things that we have and most of this investment are multi-year, but you do start to see some of the benefits — some of the products, some of the launches, some of the revenue starting to come in with this level of investments we are making here.

Operator

Thank you. Our next question will come from Vivek Arya with Bank of America Securities. Please go ahead.

Vivek Arya — Bank of America — Analyst

Thanks for taking my question. And good luck to Tom and Kirsten and Charlie in your new roles. Hock, the question is for you on supply constraints, that several of your peers in semiconductors have mentioned, whether it’s in substrates or wafers or foundry capacity. I’m curious where does Broadcom stand on this, is supply a factor in your reported results or your Q1 outlook or something that you think can constrain the growth in fiscal ’21. Just what steps are you taking to make sure it doesn’t constrain growth? And also on the other side, make sure customers are not double ordering because of all these supply issues? Thank you.

Hock E. Tan — President and Chief Executive Officer

Interesting question. We reported on — by the way we reported on the supply constrain at least three months ago when we did our earnings call. In fact, probably even earlier than that. We have — probably even two quarters ago. We have seen that supply constrain and we were one of the first to report on it, and that supply constrain continues from when we first touched on it six months ago, and it’s in some area it just seems to revolve in different specific areas where it is. We talk about wafers then, since then as you correctly pointed out, we hear in the news, substrate is a consideration and believe me beyond that wire bonding is even a possible constrain depending on where the — more and more automotive legacy products come in. So, we operate in an environment, and I mentioned in my remarks that is fairly unique. Here we are in the middle of a pandemic, here we are where there are winners and losers even in the product lines, even in the industry we’re in, where there are some businesses where demand is just booming, and we touch on that in networking, in broadband and some areas particularly in enterprise, where they are not so strong. But what we also see is supply — capacity from supply chain that is tight, that’s what we are doing.

And we have seen that for months and we have taken a lot of actions to address — to have addressed it and we continue to do that. We are also one of the largest consumer of those third-party manufacturers in semiconductors out there, be their wafers, be their substrates, be their back-end assembly and test capacity we are all in there and we’ve been seeing it for six months. So the best answer is we’re managing that. We have — having said that, we have the backlog in place and we have also very early on in our fiscal ’20 stretch out supply chain not only based on what we’re seeing, but based on what we anticipate happening. And that has also enable us to be able to — in a more orderly manner — what I consider a more appropriate manner put products in the hands of end users who need it at appropriate times. We have done that very well. And having said all that, even as we do it, our backlog continues to grow.

To give you a sense, I mentioned we have $14 billion — over $14 billion of backlog today. When we started the quarter of backlog and we’re shipping in between since then, beginning of the quarter, our backlog was $12 billion. So it’s accelerating. But having said that, please don’t get carried away in the other aspect. As you know, wireless business that we have is seasonal. So we are seeing obviously wireless backlog is a significant part of our total backlog, but given the seasonality of it, we obviously have seen deceleration in the order — in the bookings that are coming in from our wireless business.

But we are seeing on the other side acceleration and continued strength in all those coming in from the other parts of our business. Networking as always remained strong, Broadband continues to be very strong and now we start to see the smaller part of our business industrial coming in very, very strong. So one side is offsetting the other and we continue to see the strong backlog, which in a way makes our planning in our supply chain easier, but in some ways poses other challenges of making sure we are delivering products to the right consumer — customers at the right time.

Operator

Thank you. Our next question will come from Harlan Sur with JP Morgan. Please go ahead.

Harlan Sur — JP Morgan — Analyst

Good afternoon. Great job on the quarterly execution and congratulations to all on the executive appointments. Hock, we’re still at the very start of the 400 gig networking upgrade cycle with your hyperscale customers. It seems like telcos service providers are also starting to adopt the whitebox switching and routing model, which is good for your Tomahawk and Jericho chipsets. And then you guys are also benefiting from the optical connectivity that goes along with your switching solutions. Beyond this quarter, do you see sustainable growth here of the networking upgrade and spending cycle through next year? And then given the wafer and substrate constraints, are your lead times in networking and expanding beyond six months now?

Hock E. Tan — President and Chief Executive Officer

Very good question, Harlan, and thank you for your kind words. To answer the first part, yes, we — our new product generation in 400 G platform as I mentioned earlier is starting to ramp up in a big way this coming — this fiscal ’21. It started in ’20. We have a couple large hyperscale customers and it’s been — and its ramping up with many anymore fiscal ’21 and I’m sure it goes on to ’22. And we do not see slowdown in the demand.

And you’re correct, operator — service provider and operators are also adopting this merchant silicon in their routing platforms on their networks as I mentioned, particularly in core as well as EDGE. And we are seeing extreme — very, very good demand and success as evidenced by the backlog and orders we’re getting from service providers, and not just HyperCloud, particularly service providers on our merchant silicon Jericho family. So that’s good.

And do I see that continuing? Probably as far as you can see ’21, we have — our lead times is now beyond six months to answer your question. So — and just to add a further thought, we have a policy in this company that we — and — to very, very strictly follow both because of financial governance. Any orders placed on us do not — we do not allow to be canceled. All our customers know that. All our partners know that. So we actually think real demand out there at least six months. And that brings us pretty close to — on the second — that brings us in fact to the second half of fiscal ’21 at that point. And I guess, as many of you will know, just in time for the beginning of the seasonal ramp of the next generation wireless products. So ’21 visibility appears to be remarkably better than we usually have at this point in the beginning of our fiscal year.

Operator

Thank you. Our next question will come from Stacy Rasgon with Bernstein Research. Please go ahead.

Stacy Rasgon — Bernstein Research — Analyst

Hi guys. Thanks for taking my questions. I had a question on the wireless trajectory. Last quarter, just given the change in seasonality you had given us some — a little bit of color — actually on this quarter you said it would probably still grow sequentially. How should we think about the seasonality into I guess the make order off of February just especially given there seems to be have been a push out. It looks like Wireless in Q4 was actually came in a little lower than you had expected and it sounds like some of that’s pushing into Q1. So can you, I guess given those dynamics and given that the seasonal peak in Q1. Can you give us some idea similar to what you did last quarter on what to expect for the wireless trajectory into fiscal Q2?

Hock E. Tan — President and Chief Executive Officer

Well, that’s a tough question and to begin with, we generally don’t talk much about Q2, though I did not give you guys some indication based on backlog we’ve seen [Phonetic] today all likely to flow. But, I mean it’s, you’re right, I mean we have this $14 billion of backlog, which continues to grow and substantially, most of it, a lot of it will be filled within Q1 and Q2 to begin with on a bigger picture.

But the way you asked in respect of wireless, you’re correct also in pointing out when we do year-on-year comparisons now, it’s interesting because the Q4 fiscal ’20 the quarter we just finished and we are reporting on becomes the first quarterly ramp of our Wireless business. And it compares to Q4 fiscal ’19 which in typical cycles in the past, if you see the peak quarter of revenue seasonally fall our Wireless business. So you’re comparing an initial ramp against a peak quarter, and that’s down as I indicated 9% year-on-year.

The big ramp now for this current generation of phones in our Wireless business will be our Q1, the quarter we’re in now, and that compares to the Q1 of fiscal ’20 now, which is post peak ramp of the last generation, which is why I also indicated, we’re likely to see around 50% year-on-year step up in our Wireless revenue. Now if you go on to Q2, and I think people probably think get back to a more normalcy. And that’s always expect Wireless to demonstrate a seasonal — seasonality as probably the bottom quarter of an annual cycle.

Operator

Thank you. Our next question will come from John Pitzer with Credit Suisse. Please go ahead.

John Pitzer — Credit Suisse — Analyst

Yes, hi, good afternoon Hock. Glad to see that you’re sticking around. I guess I want to ask some of the questions around the management change and specifically Tom’s new position. I’m just kind of curious what that might mean for the Software Infrastructure business longer term and whether or not there is any sort of plans to potentially actually spin that business out. And I asked the question, because clearly, when you look at the core IP you have in your silicon business around IO, around acceleration and how important those IP blocks are, when you look at the sum of the part valuation, overall Broadcom it just looks dirt-cheap you’ve doubled the operating margins in the software businesses since you acquired those companies, and you’ve got great franchises in silicon and yet you’re trading at a big discount. Is there a belief that the best way to get value longer term for these businesses might be a spin? And is that part of the rationale behind Tom’s new position?

Hock E. Tan — President and Chief Executive Officer

I love the fact you speculate so vividly here. But no, there is no plan. I think it’s just that the Software business is especially go-to-market is a very interesting play for this company. Because Broadcom as a whole and you look at us, we are around $25 billion, roughly, give or take a few billion in revenues each — one year. We are a technology company for players out there. Technology suppliers to an ecosystem and by that, I mean an ecosystem that addresses end users, be it HyperCloud, be it service providers, be it basic large — well, we tend to focus large enterprises out there, like the banks, insurance company, travel agency whatever the end user, we look at these as our eventual end use customer.

That’s our ecosystem and the key part of our ecosystem we have partners with the OEMs, some distributors, but largely our key partners are on the OEM. And these are our partners. These are in a way important partners that of — we often sell our products with and through. We look at it that way. So when you look at it that way, at the end use software, infrastructure software, is no different than the silicon solutions hardware and software tied to it, as we sell out there. Its just that we tend to sell silicon software through partners with partners who wrap it in the system and goes to end users versus infrastructure software where we tend to go direct, though not all the time, sometimes we go with — service providers like IBM GTS or VXC that tells the truth, but ultimately those are end users who uses our software, and we look at ecosystem that way, it makes total logical sense that we have a unified platform that does everything across.

So at the end of the day, we are still fulfilling to the same end users, whether they are semiconductor hardware solutions, software developers kit, SDK or other operating system, or straight infrastructure software. Some with [Indecipherable] I could add. And so to me — to us long-term it’s very logical they stay together.

Operator

Thank you. Our next question will come from Ross Seymore with Deutsche Bank. Please go ahead.

Ross Seymore — Deutsche Bank — Analyst

Hi, thanks for letting me ask the question and congrats to all the senior appointments. I guess this one could be for Hock, Tom or Kirsten. I want to talk about the capital allocation side. Versus a year ago you delevered the balance sheet, pushed out the maturities, locked in some good rates. So there doesn’t seem to be an issue there. You’re comfortable enough to raise your dividend significantly. So I wanted to hear what your thoughts are, especially given the pandemics and what’s going on with the backlog being as large as it is. As far as, how are you thinking about the other half of your capital? Any sort of update given the environment? Or is it is simple as you’re just going to focus on either giving it back with shareholder returns via buybacks or do a deal?

Tom Krause — Chief Financial Officer

Yes, hey, Ross, it’s Tom. I’ll take that one. I think it’s very much back to business as usual. I think obviously 2020, we got into the crisis mode earlier in the year. I think we focused a lot on pushing out maturities. We padded the balance sheet from a liquidity standpoint, which we continue to do. And the markets were very favorable and we were able to do all that. I think obviously business also came back and performed quite well and as Hock talked about, we’ve got a decent amount of visibility in the first half and we’ll see what happens in the second half.

But it seems like this year is set up for a decent amount of success. And so I think with that in mind, we’re comfortable with our investment grade credit rating. We have delevered. We paid down $3 billion of debt in Q4. We’re up in the dividend as you mentioned, sticking to the policy of giving back about 50% of free cash flow, so that’s going to leave us with some excess cash. And we always look at it is, what are the right relative returns and what’s best for shareholders and that usually means buying back stock or doing M&A. And I think we’ll certainly look at doing both. We’re biased toward acquisitions historically. And I think we’ll continue to be so as long as we can find the right targets and generate the right returns, because this is our business model. So I’d really say business as usual.

Operator

Thank you. Our next question will come from Timothy Arcuri with UBS. Please go ahead.

Timothy Arcuri — UBS — Analyst

Hi. I guess I wanted to follow-on John’s question. So in addition to the management changes, you’re pretty much giving us a full segment P&L which you’ve never done before. So I guess the question is why now? Is there some investor feedback maybe that the segmentation will drive a better multiple, I mean for sure the stock is very inexpensive and it seems like some of the parts would be a better way to value it. But is there some feedback that’s giving you the — driving you to sort of break out segment P&L? Thanks.

Hock E. Tan — President and Chief Executive Officer

Tim, you answered your own question perfectly. Yes, we’re doing it because we feel that we should give more disclosures, more specifics of various businesses. As you noticed, in addition to giving full P&L, almost full P&L to the extent there is, because there is also some amount allocation, but we tried to be very representative of our two large — of our two segments, Semiconductors and Infrastructure Software. You will notice that we’ve been in it especially in semiconductors, we give you a lot more color and break down on what drives — what — which are the particular end markets, applications in semiconductors and the behavior and the dynamics in each of those verticals.

Something we understand we have been perhaps more lagging in the past and which we tried the remedy now by giving you guys much more details. And it’s also in this particular environment, it is very, very important I think we give it because, I cannot say that all cylinders are firing like crazy. Because as you all know — we all know there are not in this environment. We have some cylinder — and as we indicated very largely, there are some areas where it’s performing very, very well and is performing very well, very well I should quickly hasten to add, not because we are super good in it, which we are, but we’re also super good in the other areas that are not performing as well also. It’s just the economy, is the macro economy, the demand and unusual situation we are all in.

And so we felt it is appropriate to give you guys more specifics, what’s driving the overall revenue and what has changed, because as I also indicated in my last earnings call, when we began this year we had a certain percent of expectations which has dramatically changed now that we finished the year. I expect the semi — I had expected semiconductor as an industry to recover from downturns of 2019 obviously and that 2020 will be a slow steady recovery accelerating into the backend. What we didn’t expect is, in actual numbers it did recover, but not everything recovered. And its in a sense, it is a response to the requirement, the situation of a pandemic and work from home environment. And so we see those businesses that are doing it — doing superbly. And to really explain it, we felt we had to give you more disclosures and which we are. And if we start giving you disclosure, we must go all the way and show you where even how the segment — the two broad segments P&L look like. And one of the other things we want to also demonstrate to you guys loud and clear is that we have a business model in mind a investment thesis when we go and buy this specific software companies, some of which may not be in favor when we bought them, but what we’re looking at as we look at semiconductors is, is that these are very sustainable franchises which with the right approach, with the right model and the right focus which we like to think what we described to use the approach we’re taking that we can make them into real sustainable franchises. And generate the kind of cash and proper returns that we are demonstrating to you today and that these are sustainable.

Operator

Thank you. And our final question today will come from Toshiya Hari with Goldman Sachs. Please go ahead.

Toshiya Hari — Goldman Sachs — Analyst

Hi guys. Thank you so much for squeezing me in. I had a follow-up question for Tom. Now that you will be leading the software business going forward. What are the one or two top priorities for you in running that business? And clarification question I think Hock in your prepared remarks, you talked about the long-term growth rate in your software business being in the low to mid single-digits. Is that an organic number or does that include M&A? And then on M&A, Tom, if you can speak to the pipeline in software and your thoughts on valuation today that would be helpful? Thank you so much.

Tom Krause — Chief Financial Officer

Toshiya so many questions I can barely remember, the first one. Look I’m excited. I think we’ve got a great team bringing together the go-to-market and the business units under one umbrella. I think it will allow us to scale, continue to grow, which we’ve been doing. We’ve had some early success. We’ve got a lot to learn and so positions as well and I’m looking forward to it. Beyond that we’ll take all the other follow-up questions on the call back but, thanks very much.

Operator

Ladies and gentlemen, thank you for participating in today’s question-and-answer session. I would now like to turn the call back over to Ms. Beatrice Russotto for any closing remarks.

Beatrice F. Russotto — Investor Relations

Thank you, operator. So in closing, we did want to note that we’ll be kicking off the presentations by our General Managers at the JP Morgan Tech Forum on Tuesday, January 12. Hock will be joined by Ram Velaga and Alexis Bjorlin from our networking division to present at that event. So, thank you. That will conclude our earnings call today. And operator, you may end the call.

Operator

[Operator Closing Remarks]