On chip giant Broadcom's (NASDAQ: AVGO) most recent earnings call, company CEO Hock Tan went over the company's long-term growth plan.
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Broadcom's long-term revenue growth target is far from unrealistic -- management hopes to grow sales at a mid single-digit clip.
Here's how the company plans to do it.
Outperforming large, mature markets
Tan made clear that Broadcom operates in "relatively mature" end markets. After all, Broadcom makes much of its money from selling chips into premium smartphones, network infrastructure, storage devices, and so on.
Broadcom's assumption, Tan said, is that these markets are "likely to grow over the long-term close to GDP rates, or in the low-single digits."
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So, if the markets are only expected to grow at low single-digit percentage rates, how does Broadcom plan to outperform that?
Tan was perfectly clear in saying that the company doesn't expect market share increases to help it outperform the markets it participates in, simply because Broadcom's share positions within the markets that it operates are "strong."
The executive did say, though, that the company is banking on "technology innovations to drive content gains" to allow it to outperform the markets that it participates in.
What does this mean, exactly?
When a component supplier talks about "content gains," it means it ultimately aims to generate more revenue from the markets that it participates in, irrespective of the changes in unit demand for the products its components go into.
Perhaps the best example of this is what's happening with respect to Broadcom's chip sales into Apple's (NASDAQ: AAPL) new iPhone models.
Broadcom says that, generation over generation, the amount of dollar content that it supplies into the new phones is up by about 40% year over year. This is widely believed to be due to Broadcom providing additional RF chip content into the new devices, as well as new chips to handle wireless charging and potentially 3D Touch.
Now, content growth doesn't necessarily have to come in the form of additional chips (either to support new functionality or displacement of a pre-existing supplier); it can also come in the form of supply chips with dramatically expanded feature sets, much higher performance, or some combination of the two.
Though content gains in the iPhone is the big story for Broadcom this year, Tan's optimism around content share growth isn't limited to the company's wireless chip business.
"I would say we are very, very broadly positive about content growth, this is the underpinning of our business model, which is using technology -- leading-edge technology -- in very proven markets to keep driving innovation and performance for our key customers in each of those applications," Tan said.
Tan then elaborated that the company enjoys this phenomenon in its networking chip business, its enterprise storage business, and even in its industrial chip business.
Only time will tell if Broadcom can keep it up, but considering that the company's ability to build the right technologies and ultimately win the business has been proven out time and again over the last several years, I think shareholders should be confident that Broadcom will continue to deliver.
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