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Broadcom Inc. is a global technology leader specializing in the design, development, and supply of semiconductor and infrastructure software solutions. The company operates primarily in two segments: semiconductor solutions and infrastructure software, offering products that cater to enterprise and data center networking, home connectivity, smartphones, and data center servers . Broadcom's infrastructure software solutions enable customers to manage and secure applications across various platforms, including mainframe, distributed, mobile, and cloud . A significant portion of Broadcom's revenue is derived from semiconductor sales, with major contributions from distributors and OEMs .
- Semiconductor Solutions - Designs and supplies complex digital and mixed signal complementary metal oxide semiconductor devices, analog III-V based products, and mission-critical fibre channel storage area networking products. These devices are integral to enterprise and data center networking, home connectivity, smartphones, and data center servers.
- Infrastructure Software - Offers solutions for planning, developing, automating, managing, and securing applications across mainframe, distributed, mobile, and cloud platforms. This includes application development and delivery, application networking and security, and cybersecurity solutions, with a significant contribution from VMware.
What went well
- Broadcom projects a massive AI serviceable addressable market (SAM) of $60-$90 billion by fiscal 2027 with just three hyperscale customers, highlighting significant growth potential in AI semiconductors.
- The company has strong technology leadership in custom AI accelerators (XPUs) and AI connectivity, positioning it to capture a leading market share.
- Broadcom expects its AI semiconductor revenue to rapidly outgrow its non-AI semiconductor business, becoming a significant growth driver in the coming years.
What went wrong
- Reliance on a Few Large Customers for AI Revenue May Lead to Revenue Volatility: Broadcom's AI revenue growth is heavily dependent on just three hyperscale customers. Hock Tan acknowledged that "there could be quarter-to-quarter variability, given there are only 3 customers and the fact that deployment comes in big chunks."
- Growth in AI Revenue Could Dilute Semiconductor Gross Margins: As AI becomes a larger portion of semiconductor revenue, gross margins may decline. Hock Tan stated, "Gross margin in semiconductors will dilute, you're correct in saying that."
- High Debt Levels Due to VMware Acquisition Could Pose Financial Risk: Broadcom has significant debt following the acquisition of VMware. Hock Tan mentioned, "We do intend to use part of that 50% free cash flow that's not used for dividends to go de-lever ourselves, given the size of the debt load we are taking on."
Q&A Summary
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AI Opportunity in 2027
Q: What is the $60-90 billion AI SAM in 2027?
A: Hock Tan explained that the $60 to $90 billion figure represents Broadcom's serviceable addressable market (SAM) for AI products in fiscal 2027, specifically for XPUs and AI connectivity with three hyperscale customers. This is a one-year opportunity, not cumulative revenue. -
Current SAM and Growth
Q: What is the current SAM, and how will share and margins evolve?
A: The current SAM for AI in 2024 is estimated at $15 to $20 billion, growing to $60 to $90 billion by 2027. While semiconductor gross margins may dilute as AI grows, the substantial revenue increase will improve operating margins overall. -
Gross Margin Impact
Q: How will AI growth affect gross margins?
A: As AI becomes a larger part of semiconductors, gross margins may dilute. However, the significant revenue from AI is expected to leverage operating margins, improving them beyond current levels. -
Capital Allocation Plans
Q: How will you use the other 50% of cash generated?
A: The company plans to use the remaining 50% of free cash flow to pay down debt, focusing on reducing interest expense by targeting term loans. This is due to the debt taken on from acquiring VMware. -
M&A Strategy
Q: Does organic growth change your M&A focus?
A: Broadcom's interest in acquisitions remains unchanged. They continue to seek strong franchise assets in semiconductors or infrastructure software that meet their demanding criteria, to add to their portfolio. -
Competition with NVIDIA
Q: How do NVIDIA's rack-scale products affect you?
A: Hock Tan noted that as clusters scale to hundreds of thousands or millions of XPUs or GPUs, architecture becomes complex. Their hyperscale customers have figured out how to scale up, with roadmaps to grow from 100,000 to 1 million XPU clusters over the next 3 to 4 years. -
AI Connectivity Ratio
Q: What is the network-to-XPU ratio?
A: Currently, networking represents 5% to 10% of AI silicon content. As clusters expand to 500,000 to 1 million XPUs or GPUs, this ratio increases to 15% to 20%. -
ASIC vs Networking Trends
Q: How are ASIC and networking trends evolving?
A: Both ASICs and networking components are growing, though not at the same rate. Broadcom has shipped more network AI connectivity components in the back half of this year, and expects this trend to continue into next fiscal year before more XPUs ramp in the back half of '25. -
Software Revenue Impact
Q: Will software pushouts affect revenue and margins?
A: Hock Tan stated it's merely a slip between quarters, with no material impact on the rest of fiscal '25. Concerns about lower Q2 software revenue and gross margin trajectory were dismissed, noting guidance is only provided for Q1. -
AI Growth vs CapEx Trends
Q: Should AI growth mirror hyperscaler CapEx trends?
A: Hyperscalers provide overall CapEx numbers without breaking out AI spending. AI CapEx outstrips non-AI, so the AI business does not necessarily mirror the overall CapEx growth trends. -
Other CSPs Ramping
Q: When will other cloud providers ramp?
A: Broadcom is working to bring other cloud service providers into production over the next three years. Deep engagement is ongoing, but software readiness and testing are needed before ramping can occur. -
TAM vs SAM Clarification
Q: What's the AI TAM in 2027 compared to your SAM?
A: Hock Tan doesn't know the total addressable market (TAM) beyond their customers. They build their SAM from the ground up based on customers' roadmaps and consumption patterns, aiming to gain their fair share in a substantial market.
Guidance Changes
Quarterly guidance for Q1 2025:
- Consolidated Revenue: $14.6 B (raised from $14 B )
- Adjusted EBITDA: 66% of revenue (raised from 64% )
- Semiconductor Revenue: $8.1 B, up 10% year-on-year (raised from $8 B, up 9% year-on-year )
- Infrastructure Software Revenue: $6.5 B, up 41% year-on-year (raised from $6 B )
- Consolidated Gross Margins: up 100 basis points sequentially (raised from down 100 basis points sequentially )
- GAAP Net Income and Cash Flows: impacted by higher taxes, restructuring, and integration-related costs (no change from prior guidance )
- Non-GAAP Diluted Share Count: ~4.9 B shares (no prior guidance)
Annual guidance for FY 2025:
- Non-GAAP Tax Rate: 14.5% (no prior guidance)
- With cloud hyperscalers increasingly developing their own custom AI accelerators (XPUs), potentially reducing reliance on merchant silicon, how does Broadcom plan to adapt its semiconductor strategy to address this shift?
- The relocation of IP back to the U.S. has resulted in a $4.5 billion tax liability; can you elaborate on the strategic rationale behind this move and its anticipated impact on cash flow and future tax rates?
- Given the surge in demand for AI-related XPUs and networking products, have you encountered any supply chain constraints that could limit your ability to meet this upside demand, and how are you addressing them?
- As the industry shifts towards flash storage solutions, how does Broadcom's investment in hard disk drive technology through the acquisition of Seagate's HDD SoC assets align with market trends, and what risks do you foresee?
- Non-AI semiconductor revenues and certain software segments appear significantly below prior peak levels; what specific strategies are you implementing to drive recovery and growth in these areas, and how confident are you in returning to previous performance levels?
Q3 2024 Earnings Call
- Issued Period: Q3 2024
- Guided Period: Q4 2024
- Guidance:
- Consolidated Revenue: Approximately $14 billion, up 51% year-on-year .
- Adjusted EBITDA: Expected to be approximately 64% of revenue .
- Semiconductor Revenue: Approximately $8 billion, up 9% year-on-year .
- Infrastructure Software Revenue: About $6 billion .
- Gross Margins: Down approximately 100 basis points sequentially .
- GAAP Net Income and Cash Flows: Impacted by higher taxes, restructuring, and integration-related costs .
- AI Revenue: Expected to grow sequentially 10% to over $3.5 billion .
- Non-AI Networking Revenue: Year-on-year decline moderating to 30% .
- Server Storage Revenue: Expected to grow mid- to high single-digit percent sequentially .
- Wireless Revenue: Expected to grow over 20% sequentially .
- Broadband Revenue: Down over 40% year-on-year .
- Industrial Resales: Down approximately 20% year-on-year .
- Fiscal Year 2024 Revenue: Raised outlook to $51.5 billion .
- Adjusted EBITDA for Fiscal Year 2024: Raised to 61.5% .
Q2 2024 Earnings Call
- Issued Period: Q2 2024
- Guided Period: FY 2024
- Guidance:
- Fiscal Year 2024 Consolidated Revenue: Raised to $51 billion .
- Adjusted EBITDA: Set at 61% .
- Share Count: Approximately 4.92 billion shares post-split .
- AI Revenue: Expected to be over $11 billion .
Q1 2024 Earnings Call
- Issued Period: Q1 2024
- Guided Period: FY 2024
- Guidance:
- Consolidated Revenue: $50 billion, representing a 40% year-on-year growth .
- Adjusted EBITDA: 60% .
- Semiconductor Solutions Revenue: Up mid- to high single-digit percentage year-on-year .
- AI Revenue: 35% of semiconductor revenue at over $10 billion .
- Networking Revenue: Expected to grow over 35% year-on-year .
- Wireless Revenue: Flat year-on-year .
- Server Storage Connectivity Revenue: Decline in the mid-20 percentage range year-on-year .
- Broadband Revenue: Down 30% year-on-year .
- Industrial Resales: Down high single digits year-on-year .
- Software Revenue: $20 billion .
Q4 2023 Earnings Call
- Issued Period: Q4 2023
- Guided Period: FY 2024
- Guidance:
- Consolidated Revenue: $50 billion .
- Semiconductor Revenue: Grow mid- to high single-digit percent year-on-year .
- Infrastructure Software Revenue: $20 billion .
- VMware Revenue: $12 billion .
- Adjusted EBITDA: Approximately 60% of projected revenue .
- Quarterly Common Stock Cash Dividend: $5.25 per share .
- Non-GAAP Diluted Share Count: Approximately 494 million shares .
Competitors mentioned in the company's latest 10K filing.
- Advanced Micro Devices, Inc.
- Amlogic Inc.
- Analog Devices, Inc.
- Cisco Systems, Inc.
- GlobalFoundries Inc.
- Hamamatsu Photonics K.K.
- Heidenhain Corporation
- iC-Haus GmbH
- Intel Corporation
- Lumentum Holdings Inc.
- MACOM Technology Solutions Holdings, Inc.
- Marvell Technology, Inc.
- MaxLinear, Inc.
- MediaTek Inc.
- Microchip Technology Incorporated
- Mitsubishi Electric Corporation
- Murata Manufacturing Co., Ltd.
- NVIDIA Corporation
- NXP Semiconductors N.V.
- ON Semiconductor Corporation
- OSRAM Licht AG
- Qorvo, Inc.
- Qualcomm Inc.
- Realtek Semiconductor Corp.
- Renesas Electronics Corporation
- Skyworks Solutions, Inc.
- STMicroelectronics N.V.
- Sumitomo Corporation
- Synaptics Incorporated
- Texas Instruments, Inc.
- TDK-EPC Corporation
- Toshiba Corporation
- Wolfspeed, Inc. (f/k/a Cree, Inc.)
- II-VI Incorporated
- Atlassian Corporation, Plc
- BeyondTrust Corporation
- BMC Software Inc.
- CrowdStrike Holdings, Inc.
- CyberArk Software, Ltd.
- Dino-Software Corporation
- International Business Machines Corporation
- Microsoft Corporation
- New Relic, Inc.
- OpenText Corporation
- Oracle Corporation
- Proofpoint, Inc.
- Rocket Software, Inc.
- SailPoint Technologies Holdings, Inc.
- Salesforce.com, Inc.
- ServiceNow, Inc.
- SolarWinds Corporation
- Splunk, Inc.
- Zscaler, Inc.
Recent developments and announcements about AVGO.
Financial Reporting
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Revenue and Profit Performance: Broadcom reported a 44% year-over-year increase in consolidated revenue, reaching a record $51.6 billion for fiscal year 2024. Excluding VMware, the revenue grew over 9% organically. The operating profit, excluding transition costs, grew 42% year-over-year. In the fourth quarter, consolidated net revenue was $14.1 billion, up 51% year-on-year, with an operating profit of $8.8 billion, up 53% year-on-year .
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Management’s Forward Guidance: For the first quarter of fiscal year 2025, Broadcom expects semiconductor revenue to grow approximately 10% year-on-year to $8.1 billion, with AI revenue expected to grow 65% year-on-year to $3.8 billion. The company is guiding consolidated Q1 revenue to be approximately $14.6 billion, up 22% year-on-year .
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Market Conditions and Strategic Initiatives: The acquisition of VMware was a significant driver of growth, with the integration largely complete and VMware's operating margin reaching 70% by the end of 2024. AI was another major growth area, with AI revenue growing 220% from $3.8 billion in fiscal '23 to $12.2 billion in fiscal '24, representing 41% of semiconductor revenue .
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Analyst Questions and Management Responses: Analysts inquired about the AI revenue growth and its impact on semiconductor gross margins. Hock Tan, Broadcom's CEO, explained that while gross margins in semiconductors might dilute due to AI growth, the operating margin is expected to improve due to revenue leverage . Another question addressed the potential for M&A activity, to which Tan responded that Broadcom remains open to acquiring assets that meet their criteria .
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Significant Comments on Market Conditions: Broadcom highlighted the transformative impact of AI on its business, with AI networking revenue representing 76% of networking revenue in Q4. The company is on track to ship next-generation XPUs in 3 nanometers to hyperscale customers in the second half of fiscal '25 .
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Strategic Initiatives: Broadcom is focusing on reducing debt and interest expenses following the VMware acquisition. The company plans to use part of its free cash flow to pay down debt .
Earnings Call
Broadcom has released its earnings call transcript for the fourth quarter and fiscal year 2024. Here are the key points from the call:
This summary provides an overview of Broadcom's financial performance, strategic direction, and responses to analyst inquiries during the earnings call.
Earnings Report
Broadcom Inc. has released its financial results for the fourth quarter and fiscal year 2024. Revenue for the fourth quarter was $14,054 million, marking a 51% increase from the prior year period. The GAAP net income for the quarter was $4,324 million, while the Non-GAAP net income was $6,965 million. The Adjusted EBITDA for the quarter was $9,089 million, which is 65% of the revenue. The company also reported a GAAP diluted EPS of $0.90 and a Non-GAAP diluted EPS of $1.42. Broadcom generated $5,604 million in cash from operations, resulting in a free cash flow of $5,482 million, or 39% of revenue .
For the fiscal year 2024, Broadcom's revenue grew 44% year-over-year to a record $51.6 billion. This growth was driven by infrastructure software revenue, which increased to $21.5 billion, and semiconductor revenue, which reached a record $30.1 billion. Notably, AI revenue grew 220% year-on-year to $12.2 billion .
Looking ahead, Broadcom has provided guidance for the first quarter of fiscal year 2025, expecting revenue of approximately $14.6 billion, which represents a 22% increase from the prior year period. The company also anticipates an Adjusted EBITDA of approximately 66% of projected revenue .
Additionally, Broadcom announced an 11% increase in its quarterly common stock dividend to $0.59 per share for fiscal year 2025, with a target annual dividend of $2.36 per share, marking the fourteenth consecutive annual increase since 2011 .