“We believe it’s unreasonable for investors to expect Broadcom to post Nvidia-type results and outlook,” Kinngai Chan, senior research analyst at Summit Insights, said.
Broadcom Inc., a major supplier of chips to Apple Inc. and other tech giants, experienced a decline in late trading after announcing a disappointing sales forecast that was primarily affected by weaker performance in its non-artificial intelligence (AI) business segments. The company expects sales to reach approximately $14 billion in the fiscal fourth quarter, which runs through October, slightly below analysts’ expectations of $14.1 billion. This indicates slower growth in Broadcom’s non-AI operations despite a surge in AI spending that has benefited other divisions. Comment Broadcom’s diverse offerings include mainframe products, security and data center software, mobile phone chips, and data storage gear. However, these areas have not matched the rapid growth seen in AI-related segments. Following the announcement, Broadcom shares fell about 6% in extended trading, even though the stock had risen 37% for the year, closing at $152.82 in regular New York trading. The company projects $12 billion in revenue from AI-related products for the full year, exceeding the average analyst projection of $11.8 billion. Agree with you here Ice 🧊 The AI story is very much in tact, it had just grown so much so fast across the entire sector that any sort of guidance less than what was expected was bound to have a negative reaction As long as these massive companies continue spending on AI… — Spur | Investor (@finance_dat) September 5, 2024 Bookings, an indicator of future sales, are up by 20%, and Tan believes these markets could eventually return to their previous high levels. Broadcom reported a profit of $1.24 per share for the third quarter, excluding certain items, slightly above the average estimate of $1.22. The company’s revenue rose to $13.07 billion, surpassing a projection of $13.03 billion. Broadcom’s overall size has increased significantly over the past year, partly due to its acquisition of VMware Inc., purchased for approximately $69 billion. These are the chips that Intel would want to manufacture going forward to fill it’s foundries. — Krishna Prasad Bhat (@kp1292) September 6, 2024 Tan remains confident that AI will continue to be a strong growth area next year. Comment He has transformed Broadcom into one of the largest players in the chip industry through a series of acquisitions, focusing on buying companies that are dominant in specific fields and refocusing them on those areas. This strategy has also allowed Broadcom to expand into software. Hock Tan is the Terminator of the semiconductor business. 👏🏼👏🏼👏🏼 — Mojo (@Mojo_flyin) September 6, 2024 While Nvidia specializes in AI accelerators that develop tools such as ChatGPT, Broadcom has also benefited by supplying related components and software. Comment Datacenter providers build their AI systems by using Broadcom’s custom-chip design and networking semiconductors. The company also sells components for cars, smartphones, and internet access gear. Broadcom’s software division also includes products for mainframe computers, cybersecurity, and data center optimization. Tan believes that the AI chip market will gradually shift toward custom, in-house designs, which could benefit Broadcom as it helps customers develop their own chips. However, he declined to provide a precise timeline for when this might occur, acknowledging that it could take several years. Comment Apple is a major customer for Broadcom, which supplies key components for the iPhone. During earnings calls, Tan typically provides updates on Broadcom’s often-contentious relationship with Apple, which he refers to obliquely as his “North American customer.” Tan also noted that he expects next-generation devices to help increase Broadcom’s wireless revenue by 20% sequentially in the fourth quarter, though this would still be flat compared to the previous year. Comment When asked about the potential for new acquisitions in the semiconductor area, Tan stated that no new acquisitions should be expected in the near future. He emphasized that his current focus is on integrating VMware, a process that could take up to two years. Meanwhile, Broadcom’s AI business remains a bright spot, with the company expecting to reach $12 billion in AI-related revenue for the year, up from an earlier forecast of $11 billion. This increase reflects the company’s strong position in AI semiconductor solutions and networking. Comment However, Broadcom’s non-AI segments, such as mainframe products and data storage gear, continue to face headwinds, which has caused concern among investors. The company’s stock fell by 6% in after-hours trading, reflecting these concerns. Despite the challenges, Broadcom remains optimistic about the future. Tan expressed confidence in a potential recovery for its non-AI markets and continued strong demand for AI products. For more news and trends, visit AI News on our website.
Key Takeaways:
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This suggests that the anticipated shortfall in total quarterly sales comes from non-AI areas. CEO Hock Tan stated that most of Broadcom’s non-AI chip businesses have reached their lowest point, with revenue in some markets beginning to grow sequentially, although they remain well below levels seen a year ago.
“In aggregate, we have reached the bottom in our non-AI markets, and we’re expecting recovery in the fourth quarter,” Tan said on a conference call with analysts. “AI demand remains strong.”
Broadcom’s semiconductor division reported revenue of $7.27 billion for the three months ending August 4, while software sales totaled $5.8 billion.
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The boom in AI spending has turned Nvidia Corp., a competitor of Broadcom, into the most valuable company in the chip industry.
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“Right now, I’m having my hands really full,” Tan said, highlighting the complexity and challenges of managing Broadcom’s expanding portfolio.
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