Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of the financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q (“Form 10-Q”) and the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the fiscal year ended October 30, 2022 (“fiscal year 2022”) included in our Annual Report on Form 10-K for fiscal year 2022 (“2022 Annual Report on Form 10-K”). References to “Broadcom,” “we,” “our,” and “us” are to Broadcom Inc. and its consolidated subsidiaries, unless otherwise specified or the context otherwise requires. This Form 10-Q may contain predictions, estimates and other forward-looking statements that involve a number of risks and uncertainties, which are made under the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements may include the potential impact of the COVID-19 pandemic; our pending acquisition of VMware, Inc.; projections of financial information; statements about historical results that may suggest trends for our business; statements of the plans, strategies and objectives of management for future operations; and statements of expectation or belief regarding future events (including any acquisitions we may make), technology developments, our products, product sales, expenses, liquidity, cash flow and growth rates, customer concentration and relationships, or enforceability of our intellectual property (“IP”) rights. Such statements are based on current expectations, estimates, forecasts and projections of our industry performance and macroeconomic conditions, based on management’s judgment, beliefs, current trends and market conditions, and involve risks and uncertainties that may cause actual results to differ materially from those contained in the forward-looking statements. We derive most of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. Accordingly, we caution you not to place undue reliance on these statements. Important factors that could cause actual results to differ materially from our expectations are disclosed under “Risk Factors” in Part II, Item 1A of this Form 10-Q, and in other documents we file from time to time with the Securities and Exchange Commission (the “SEC”). All of the forward-looking statements in this Form 10-Q are qualified in their entirety by reference to the factors listed above and those discussed under the heading “Risk Factors” below. We undertake no intent or obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as otherwise required by law.

Overview

We are a global technology leader that designs, develops and supplies a broad range of semiconductor and infrastructure software solutions. We develop semiconductor devices with a focus on complex digital and mixed signal complementary metal oxide semiconductor based devices and analog III-V based products. We have a history of innovation in the semiconductor industry and offer thousands of products that are used in end products such as enterprise and data center networking, home connectivity, set-top boxes, broadband access, telecommunication equipment, smartphones and base stations, data center servers and storage systems, factory automation, power generation and alternative energy systems, and electronic displays. Our infrastructure software solutions enable customers to plan, develop, automate, manage and secure applications across mainframe, distributed, mobile and cloud platforms. Our portfolio of industry-leading infrastructure and security software is designed to modernize, optimize, and secure the most complex hybrid environments, enabling scalability, agility, automation, insights, resiliency and security. We also offer mission critical fibre channel storage area networking (“FC SAN”) products and related software in the form of modules, switches and subsystems incorporating multiple semiconductor products.

We have two reportable segments: semiconductor solutions and infrastructure software. Our semiconductor solutions segment includes all of our product lines and IP licensing. Our infrastructure software segment includes our mainframe, distributed and cyber security solutions, and our FC SAN business.

Quarterly Highlights

Highlights during the fiscal quarter ended January 29, 2023 include the following:

• We generated $4,036 million of cash from operations.

• We paid $1,926 million in cash dividends.

• We repurchased $1,188 million of common stock.

Pending Acquisition of VMware, Inc.

On May 26, 2022, we entered into an Agreement and Plan of Merger (the “VMware Merger Agreement”) to acquire all of the outstanding shares of VMware, Inc. (“VMware”) in a cash-and-stock transaction (the “VMware Merger”) that values VMware at approximately $61 billion, based on the closing price of Broadcom common stock on May 25, 2022. We will also assume VMware’s closing date outstanding debt, net of expected cash.

Under the terms of the VMware Merger Agreement, each share of VMware common stock issued and outstanding immediately prior to the effective time of the VMware Merger will be indirectly converted into the right to receive, at the election of the holder of such share of VMware common stock, either $142.50 in cash, without interest, or 0.2520 shares of Broadcom common stock. The stockholder election will be subject to proration, such that the total number of shares of VMware common stock entitled to receive cash and the total number of shares of VMware common stock entitled to receive Broadcom common stock, will, in each case, be equal to 50% of the aggregate number of shares of VMware common stock issued and outstanding immediately prior to the effective time of the VMware Merger.

We will assume all outstanding VMware restricted stock unit (“RSU”) awards and performance stock unit awards held by continuing employees. The assumed awards will be converted into RSU awards for shares of Broadcom common stock. All outstanding in-the-money VMware stock options and RSU awards held by non-employee directors will be accelerated and converted into the right to receive cash and shares of Broadcom common stock, in equal parts.

Effective upon the effective time of the VMware Merger, one member of the VMware Board of Directors, to be mutually agreed by us and VMware, will be added to our Board of Directors.

In connection with the execution of the VMware Merger Agreement, we entered into a commitment letter on May 26, 2022, with certain financial institutions that committed to provide, subject to the terms and conditions of the commitment letter, a senior unsecured bridge facility in an aggregate principal amount of $32 billion.

The VMware Merger, which is expected to be completed in our fiscal year ending October 29, 2023 (“fiscal year 2023”), is subject to satisfaction or waiver of customary closing conditions, including the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvement Act of 1976 and clearance under the antitrust laws of the European Union and certain other jurisdictions. On October 3, 2022, we registered approximately 59 million shares of our common stock. On November 4, 2022, VMware stockholders adopted the VMware Merger Agreement. We and VMware each have termination rights under the VMware Merger Agreement and, under specified circumstances, upon termination of the agreement, we and VMware would be required to pay the other a termination fee of $1.5 billion.

Critical Accounting Estimates

The preparation of financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. Our actual financial results may differ materially and adversely from our estimates. Our critical accounting estimates are those that affect our historical financial statements materially and involve difficult, subjective or complex judgments by management. Those estimates include revenue recognition, valuation of goodwill and long-lived assets, and income taxes.

There were no significant changes in our critical accounting estimates during the fiscal quarter ended January 29, 2023 compared to those previously disclosed in “Critical Accounting Estimates” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the 2022 Annual Report on Form 10-K.

Results of Operations

Fiscal Quarter Ended January 29, 2023 Compared to Fiscal Quarter Ended January 30, 2022

The following table sets forth our results of operations for the periods presented:

						Fiscal Quarter Ended
						January 29, 2023						January 30, 2022						January 29, 2023						January 30, 2022
						(In millions)												(As a percentage of net revenue)
Statements of Operations Data:
Net revenue:
Products						$	7,082					$	6,053					79		%				79		%
Subscriptions and services						1,833						1,653						21						21
Total net revenue						8,915						7,706						100						100
Cost of revenue:
Cost of products sold						2,225						1,769						25						23
Cost of subscriptions and services						149						156						2						2
Amortization of acquisition-related intangible assets						535						730						6						9
Restructuring charges						2						2						—						—
Total cost of revenue						2,911						2,657						33						34
Gross margin						6,004						5,049						67						66
Research and development						1,195						1,206						13						16
Selling, general and administrative						348						321						4						4
Amortization of acquisition-related intangible assets						348						397						4						5
Restructuring, impairment and disposal charges						10						17						—						—
Total operating expenses						1,901						1,941						21						25
Operating income						$	4,103					$	3,108					46		%				41		%

Net Revenue

A relatively small number of customers account for a significant portion of our net revenue. Direct sales to WT Microelectronics Co., Ltd., a distributor, accounted for 22% and 23% of our net revenue for the fiscal quarters ended January 29, 2023 and January 30, 2022, respectively.

We believe aggregate sales to our top five end customers, through all channels, accounted for approximately 35% of our net revenue for each of the fiscal quarters ended January 29, 2023 and January 30, 2022. We believe aggregate sales to Apple Inc., through all channels, accounted for approximately 20% and 25% of our net revenue for the fiscal quarters ended January 29, 2023 and January 30, 2022, respectively. We expect to continue to experience significant customer concentration in future periods. The loss of, or significant decrease in demand from, any of our top five end customers could have a material adverse effect on our business, results of operations and financial condition.

From time to time, some of our key semiconductor customers place large orders or delay orders, causing our quarterly net revenue to fluctuate significantly. This is particularly true of our wireless products as fluctuations may be magnified by the timing of launches, and seasonal variations in sales, of mobile devices. In addition, the macroeconomic environment remains uncertain and may cause our net revenue to fluctuate significantly and impact our results of operations.

The following tables set forth net revenue by segment for the periods presented:

						Fiscal Quarter Ended
Net Revenue by Segment						January 29, 2023						January 30, 2022						$ Change						% Change
						(In millions, except percentages)
Semiconductor solutions						$	7,107					$	5,873					$	1,234					21		%
Infrastructure software						1,808						1,833						(25)						(1)		%
Total net revenue						$	8,915					$	7,706					$	1,209					16		%

						Fiscal Quarter Ended
Net Revenue by Segment						January 29, 2023						January 30, 2022
						(As a percentage of net revenue)
Semiconductor solutions						80		%				76		%
Infrastructure software						20						24
Total net revenue						100		%				100		%

Net revenue from our semiconductor solutions segment increased due to strong product demand, primarily for server storage, networking and broadband products. Net revenue from our infrastructure software segment decreased primarily due to lower demand for our FC SAN products, partially offset by higher demand for our mainframe solutions products.

Gross Margin

Gross margin was $6,004 million, or 67% of net revenue, for the fiscal quarter ended January 29, 2023 compared to $5,049 million, or 66% of net revenue, for the fiscal quarter ended January 30, 2022. The increase was primarily due to lower amortization of acquisition-related intangible assets, mainly from our 2016 acquisition of Broadcom Corporation, partially offset by less favorable margin within our semiconductor solutions segment driven by product mix.

Research and Development Expense

Research and development expense decreased $11 million, or 1%, for the fiscal quarter ended January 29, 2023 compared to the prior year fiscal period, primarily due to lower variable employee compensation expense, partially offset by an increase in headcount.

Selling, General and Administrative Expense

Selling, general and administrative expense increased $27 million, or 8%, for the fiscal quarter ended January 29, 2023 compared to the prior year fiscal period, primarily due to higher costs incurred in connection with the pending VMware Merger, partially offset by lower variable employee compensation expense.

Amortization of Acquisition-Related Intangible Assets

Amortization of acquisition-related intangible assets recognized in operating expenses decreased $49 million, or 12%, for the fiscal quarter ended January 29, 2023 compared to the prior year fiscal period primarily due to lower amortization of customer-related intangible assets from our acquisition of LSI Corporation.

Restructuring, Impairment and Disposal Charges

Restructuring, impairment and disposal charges recognized in operating expenses decreased $7 million, or 41%, for the fiscal quarter ended January 29, 2023 compared to the prior year fiscal period primarily due to lower lease-related charges following the completion of key restructuring activities from acquisitions.

Stock-Based Compensation Expense

Total stock-based compensation expense was $391 million and $387 million for the fiscal quarters ended January 29, 2023 and January 30, 2022, respectively.

The following table sets forth the total unrecognized compensation cost related to unvested stock-based awards outstanding and expected to vest as of January 29, 2023. The remaining weighted-average service period was 2.8 years.

Fiscal Year:						Unrecognized Compensation Cost, Net of Expected Forfeitures
						(In millions)
2023 (remainder)						$	935
2024						948
2025						604
2026						225
2027						51
Total						$	2,763

During the first quarter of fiscal year ended November 3, 2019 (“fiscal year 2019”), our Compensation Committee approved a broad-based program of multi-year equity grants of time- and market-based RSUs (the “Multi-Year Equity Awards”) in lieu of our annual employee equity awards historically granted on March 15 of each year. Each Multi-Year Equity Award vests on the same basis as four annual grants made March 15 of each year, beginning in fiscal year 2019, with successive four-year vesting periods. We recognize stock-based compensation expense related to the Multi-Year Equity Awards from the grant date through their respective vesting date, ranging from 4 years to 7 years.

Segment Operating Results

						Fiscal Quarter Ended
Operating Income by Segment						January 29, 2023						January 30, 2022						$ Change						% Change
						(In millions, except percentages)
Semiconductor solutions						$	4,123					$	3,349					$	774					23		%
Infrastructure software						1,307						1,307						—						—		%
Unallocated expenses						(1,327)						(1,548)						221						(14)		%
Total operating income						$	4,103					$	3,108					$	995					32		%

Operating income from our semiconductor solutions segment increased primarily due to higher net revenue from server storage, networking and broadband products. Operating income from our infrastructure software segment was flat.

Unallocated expenses include amortization of acquisition-related intangible assets; stock-based compensation expense; restructuring, impairment and disposal charges; acquisition-related costs; and other costs that are not used in evaluating the results of, or in allocating resources to, our segments. Unallocated expenses decreased 14% for the fiscal quarter ended January 29, 2023 compared to the prior year fiscal period, primarily due to lower amortization of acquisition-related intangible assets.

Non-Operating Income and Expenses

Interest expense. Interest expense was $406 million and $407 million for the fiscal quarters ended January 29, 2023 and January 30, 2022, respectively. We expect to incur additional interest expense in future periods as a result of indebtedness associated with the pending VMware Merger.

Other income (expense), net. Other income (expense), net, includes interest income, gains or losses on investments, foreign currency remeasurement and other miscellaneous items. Other income, net, was $143 million for the fiscal quarter ended January 29, 2023, compared to other expense, net, of $14 million for the fiscal quarter ended January 30, 2022. The change was primarily due to higher interest income as a result of higher interest rates and changes in investment gains or losses.

Provision for income taxes. The provision for income taxes was $66 million for the fiscal quarter ended January 29, 2023, compared to $215 million for the fiscal quarter ended January 30, 2022. The decrease was primarily due to the recognition of uncertain tax benefits as a result of lapses of statutes of limitations, partially offset by higher income before income taxes.

Liquidity and Capital Resources

The following section discusses our principal liquidity and capital resources as well as our principal liquidity requirements and uses of cash. Our cash and cash equivalents are maintained in highly liquid investments with remaining maturities of 90 days or less at the time of purchase. We believe our cash equivalents are liquid and accessible.

Our primary sources of liquidity as of January 29, 2023 consisted of: (i) $12,647 million in cash and cash equivalents, (ii) cash we expect to generate from operations and (iii) available capacity under our $7.5 billion unsecured revolving credit facility. In addition, we may also generate cash from the sale of assets and debt or equity financing from time to time.

Our short-term and long-term liquidity requirements primarily arise from: (i) business acquisitions and investments we may make from time to time, including the pending VMware Merger, (ii) working capital requirements, (iii) research and development and capital expenditure needs, (iv) cash dividend payments (if and when declared by our Board of Directors), (v) interest and principal payments related to our $40,958 million of outstanding indebtedness, (vi) share repurchases, and (vii) payment of income taxes. Our ability to fund these requirements will depend, in part, on our future cash flows, which are determined by our future operating performance and, therefore, subject to prevailing global macroeconomic conditions and financial, business and other factors, some of which are beyond our control. We expect capital expenditures to be higher in fiscal year 2023 as compared to fiscal year 2022. Our debt and liquidity needs will increase as a result of the pending VMware Merger, and we intend to fund the cash portion of the consideration with $32 billion in new, fully committed debt financing.

We believe that our cash and cash equivalents on hand, cash flows from operations, our revolving credit facility, as well as the committed debt funding related to the pending VMware Merger, will provide sufficient liquidity to operate our business and fund our current and assumed obligations for at least the next 12 months. For additional information regarding our cash requirement from contractual obligations and indebtedness, see Note 11. “Commitments and Contingencies” and Note 7. “Borrowings” in Part I, Item 1 of this Form 10-Q.

From time to time, we engage in discussions with third parties regarding potential acquisitions of, or investments in, businesses, technologies and product lines. Any such transaction, or evaluation of potential transactions, could require significant use of our cash and cash equivalents, or require us to increase our borrowings to fund such transactions. If we do not have sufficient cash to fund our operations or finance growth opportunities, including acquisitions, or unanticipated capital expenditures, our business and financial condition could suffer. In such circumstances, we may seek to obtain new debt or equity financing. However, we cannot assure you that such additional financing will be available on terms acceptable to us or at all. Our ability to service our senior unsecured notes and any other indebtedness we may incur will depend on our ability to generate cash in the future. We may also elect to sell additional debt or equity securities for reasons other than those specified above.

In addition, we may, at any time and from time to time, seek to retire or purchase our outstanding debt through cash tenders and/or exchanges for equity or debt, in open-market purchases, privately negotiated transactions or otherwise. Such tenders, exchanges or purchases, if any, will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

Working Capital

Working capital decreased to $11,353 million at January 29, 2023 from $11,452 million at October 30, 2022. The decrease was primarily attributable to the following:

• Current portion of long-term debt increased to $1,115 million at January 29, 2023 from $440 million at October 30, 2022 due to certain debt instruments becoming due within the next twelve months, partially offset by a repayment.

• Other current liabilities increased to $4,909 million at January 29, 2023 from $4,412 million at October 30, 2022, primarily due to increases in income taxes payable, contract liabilities and derivative liabilities.

• Other current assets decreased to $1,056 million at January 29, 2023 from $1,205 million at October 30, 2022, primarily due to a decrease in prepaid income taxes.

These decreases in working capital were offset in part by the following:

• Employee compensation and benefits decreased to $536 million at January 29, 2023 from $1,202 million at October 30, 2022, primarily due to the timing of employee bonus plan payments.

• Accounts receivable increased to $3,234 million at January 29, 2023 from $2,958 million at October 30, 2022, primarily due to revenue linearity, offset by higher receivables sold through factoring arrangements.

• Cash and cash equivalents increased to $12,647 million at January 29, 2023 from $12,416 million at October 30, 2022, primarily due to $4,036 million in net cash provided by operating activities, substantially offset by $1,926

million of dividend payments, $1,188 million of common stock repurchases, $333 million of employee withholding tax payments related to net settled equity awards, and $260 million of a debt payment.

Capital Returns

						Fiscal Quarter Ended
Cash Dividends Declared and Paid						January 29, 2023						January 30, 2022
						(In millions, except per share data)
Dividends per share to common stockholders						$	4.60					$	4.10
Dividends to common stockholders						$	1,926					$	1,689
Dividends per share to preferred stockholders						$	—					$	20.00
Dividends to preferred stockholders						$	—					$	75

On September 30, 2019, we issued approximately 4 million shares of 8.00% Mandatory Convertible Preferred Stock, Series A, $0.001 par value per share. These shares were converted into shares of our common stock during fiscal year 2022.

In December 2021, our Board of Directors authorized a stock repurchase program to repurchase up to $10 billion of our common stock from time to time through December 31, 2022, which was subsequently extended to December 31, 2023 (the “December 2021 Authorization”). In May 2022, our Board of Directors authorized another stock repurchase program to repurchase up to an additional $10 billion of our common stock from time to time through December 31, 2023 (the “May 2022 Authorization”).

During the fiscal quarters ended January 29, 2023 and January 30, 2022, we repurchased and retired approximately 2 million and 4 million shares of our common stock for $1,188 million and $2,724 million, respectively, under these stock repurchase programs.

Repurchases under our stock repurchase programs may be effected through a variety of methods, including open market or privately negotiated purchases. The timing and amount of shares repurchased will depend on the stock price, business and market conditions, corporate and regulatory requirements, alternative investment opportunities, acquisition opportunities, and other factors. We are not obligated to repurchase any specific amount of shares of common stock, and the stock repurchase programs may be suspended or terminated at any time.

During the fiscal quarters ended January 29, 2023 and January 30, 2022, we paid approximately $333 million and $375 million, respectively, in employee withholding taxes due upon the vesting of net settled equity awards. We withheld approximately 1 million shares of common stock from employees in connection with such net share settlements during each of the fiscal quarters ended January 29, 2023 and January 30, 2022.

Cash Flows

						Fiscal Quarter Ended
						January 29, 2023						January 30, 2022
						(In millions)
Net cash provided by operating activities						$	4,036					$	3,486
Net cash used in investing activities						(103)						(309)
Net cash used in financing activities						(3,702)						(5,121)
Net change in cash and cash equivalents						$	231					$	(1,944)

Operating Activities

Cash provided by operating activities consisted of net income adjusted for certain non-cash and other items and changes in assets and liabilities. The $550 million increase in cash provided by operations during the fiscal quarter ended January 29, 2023 compared to the prior year fiscal period was primarily due to $1,302 million higher net income and a $196 million increase resulting from changes in operating assets and liabilities, offset in part by $948 million lower non-cash adjustments including deferred taxes and other non-cash taxes, and amortization of intangible assets.

Investing Activities

Cash flows from investing activities primarily consisted of capital expenditures and purchases of investments. The $206 million decrease in cash used in investing activities during the fiscal quarter ended January 29, 2023 compared to the prior year fiscal period was primarily due to $200 million in investment purchases in the prior year fiscal period.

Financing Activities

Cash flows from financing activities primarily consisted of our dividend payments, stock repurchases, employee withholding tax payments related to net settled equity awards, and payments related to long-term borrowings. The $1,419 million decrease in cash used in financing activities during the fiscal quarter ended January 29, 2023 compared to the prior year fiscal period was primarily due to a $1,536 million decrease in stock repurchases, offset in part by a $162 million increase in dividend payments.

Accounting Changes and Recent Accounting Standards

For a description of accounting changes and recent accounting standards, including the expected dates of adoption and estimated effects, if any, in our condensed consolidated financial statements, see Note 1. “Overview, Basis of Presentation and Significant Accounting Policies” in Part I, Item 1 of this Form 10-Q.