Broadcom Inc. (AVGO) Q4 2024 Earnings Summary

Executive Summary

• Broadcom delivered Q4 FY2024 net revenue of $14.054B (+51% YoY), non-GAAP diluted EPS of $1.42, and adjusted EBITDA of $9.089B (65% margin), with free cash flow at $5.482B (39% of revenue) .
• Infrastructure Software revenue surged to $5.824B (+196% YoY) on VMware integration; Semiconductor Solutions reached $8.230B (+12% YoY). Consolidated gross margin was 76.9% and operating margin 63% on a non-GAAP basis .
• Management guided Q1 FY2025 revenue to ~$14.6B (+22% YoY) and adjusted EBITDA to ~66%; raised the quarterly dividend 11% to $0.59/share and indicated FY2025 non-GAAP tax rate ~14.5% .
• AI was the principal growth vector: Q4 AI revenue was $3.7B (+150% YoY); networking revenue grew 45% YoY with Jericho/Tomahawk shipments, while wireless was seasonally strong and broadband bottomed .
• Near-term catalysts: continued AI ramp (next-gen 3nm XPUs in 2H FY2025), VMware ABV acceleration, and deleveraging plans to reduce interest expense; investors will focus on AI mix/margins and software trajectory .

What Went Well and What Went Wrong

What Went Well

• Record quarter and strong profitability: adjusted EBITDA $9.089B (65% of revenue), operating margin 63%, gross margin 76.9% .
• AI momentum: Q4 AI revenue reached $3.7B (+150% YoY), with AI networking 76% of networking and strong Jericho/Tomahawk deployments; next-gen 3nm XPUs on track for volume in 2H FY2025 .
• VMware integration ahead of plan: Infrastructure Software revenue $5.824B (+196% YoY); ABV $2.7B in Q4 vs $2.5B in Q3; operating margin ~70% exiting FY2024; “integration… largely complete” .

What Went Wrong

• Non-AI semiconductors remain below prior peaks: non-AI down 23% YoY in Q4 (though recovering from the bottom); broadband down 51% YoY though expected to recover in FY2025 .
• Semiconductor gross margin mix pressure from AI XPUs diluting gross margin vs prior levels (management highlighted margin dilution in semis from AI mix) .
• Prior quarter GAAP net loss from non-cash tax provision related to IP transfer ($4.5B discrete item), highlighting tax complexity amid restructuring and integration .

Financial Results

Revenue, EPS, Margins vs Prior Periods and Estimates

Segment Revenue Breakdown

KPIs

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “Semiconductor revenue was a record $30.1 billion driven by AI revenue of $12.2 billion. AI revenue which grew 220 percent year-on-year was driven by our leading AI XPUs and Ethernet networking portfolio.” (Hock Tan, CEO) .
• “The integration of VMware is largely complete. Revenue is on a growth trajectory, and operating margin reached 70% exiting 2024.” (Hock Tan) .
• “We are increasing our quarterly common stock dividend by 11% to $0.59 per share… the fourteenth consecutive increase in annual dividends since we initiated dividends in fiscal 2011.” (Kirsten Spears, CFO) .
• “We expect semiconductor revenue to grow approximately 10% year-on-year to $8.1 billion… guiding consolidated Q1 revenue to be approximately $14.6 billion… adjusted EBITDA to approximately 66% of revenue.” (Hock Tan) .

Q&A Highlights

• AI SAM and mix: Management quantified FY2027 SAM at $60–$90B for 3 hyperscalers, with networking at ~15–20% of dollar content at large cluster scales; emphasized non-linear quarterly ramp and additional hyperscaler prospects in development .
• Margin dynamics: Semiconductor gross margin dilutes with AI XPUs mix, but operating margin improves due to revenue leverage against opex; consolidated gross margin to rise ~100 bps sequentially in Q1 on mix .
• Software timing: Clarified Q1 software uplift includes Q4 pushouts; no material impact implied for Q2 trajectory beyond normal cadence .
• Capital allocation: Priority to pay down floating-rate term loans to reduce interest expense; M&A remains part of the long-term playbook but deleveraging is focus near term .
• Competitive positioning: Broadcom not competing in merchant GPU market; aims to complement GPU ecosystems with Ethernet and custom XPUs; highlighted strengths in silicon, packaging, optical .

Estimates Context

• S&P Global consensus estimates for Q4 FY2024 were unavailable due to request limit, so comparisons vs consensus are not shown. Management’s prior Q4 guidance was $14.0B revenue and ~64% adjusted EBITDA; reported results exceeded both metrics .

Key Takeaways for Investors

• AI remains the core growth driver with a multi-year runway; next-gen 3nm custom XPUs in 2H FY2025 should support continued AI revenue momentum even with quarterly variability .
• Software margin expansion and VMware ABV growth underpin >70% operating margin exiting FY2024; Q1 infra software guidance +41% YoY supports consolidated gross margin uptick .
• Mix shift to AI XPUs pressures semiconductor gross margin but lifts operating margins; monitor segment mix and AI/non-AI guidance as Broadcom transitions to AI vs non-AI reporting .
• Strong cash generation (Q4 FCF $5.482B) and dividend increase signal balance sheet strength; deleveraging plans should lower cash interest expense, aiding FCF conversion .
• Near-term watch items: AI networking deployments (Jericho3-AI), wireless seasonality, broadband recovery trajectory, and Q1 gross margin execution .
• Narrative drivers: VMware private cloud adoption, Ethernet’s share gains vs alternative fabrics, and hyperscaler custom silicon roadmaps; each can drive estimate revisions upward once consensus is available .