Q4 2024 Summary
Published Feb 7, 2025, 7:58 PM UTC- 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.
- 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."
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +51% | Strong demand for AI-based solutions in semiconductors drove revenue up, while the acquisition of VMware added a substantial boost to infrastructure software sales. This dual impact elevated total revenue compared to the prior year. |
Semiconductor Solutions | +12% | Growth largely resulted from robust AI networking demand, as hyperscalers scaled up their data center infrastructure. This partially offset softness in non-AI semiconductor markets compared to previous quarters. |
Infrastructure Software | +196% | The VMware acquisition drove a major revenue surge, transforming the segment’s subscription and services revenue base. This overcame the moderate growth from the mainframe software and other legacy products seen in earlier periods. |
Operating Income (EBIT) | +9% | Higher top-line growth, especially in AI-driven networking solutions and newly integrated infrastructure software, boosted EBIT. However, increased operating expenses tied to VMware integration somewhat tempered the gains compared to prior quarters. |
Net Income | +23% | Despite significantly higher amortization of acquired intangibles and rising interest expenses, strong revenue performance and cost synergies from the VMware integration lifted net income relative to the previous year. |
Basic EPS | –89% | Large acquisition-related costs, particularly amortization of intangible assets and higher tax expenses, contributed to EPS compression despite overall revenue growth. This stands in stark contrast to the prior year’s lower expense base. |
Americas | +90% | Steep increase stemmed from the inclusion of VMware subscription sales and a continued ramp in enterprise networking demand. Comparatively, prior periods lacked the sizable software contribution now evident in the region’s results. |
Asia Pacific | +27% | Stable AI networking uptake and the recovery in non-AI semiconductor orders supported revenue growth. This builds upon the region’s prior strength in high-volume manufacturing and robust data center infrastructure expansions. |
EMEA | +127% | The VMware integration significantly boosted subscriptions and services revenue, which had been more limited in prior periods. Additionally, expanded enterprise-level AI initiatives helped drive stronger demand across telecom and cloud customers in EMEA. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Consolidated Revenue | Q4 2024 | $14B (up 51% YoY) | no current guidance | no current guidance |
Adjusted EBITDA | Q4 2024 | 64% of revenue | no current guidance | no current guidance |
Consolidated Gross Margins | Q4 2024 | decline ~100 bps sequentially | no current guidance | no current guidance |
Semiconductor Revenue | Q4 2024 | $8B (up 9% YoY) | no current guidance | no current guidance |
Infrastructure Software | Q4 2024 | $6B | no current guidance | no current guidance |
AI Revenue | Q4 2024 | $3.5B (up 10% sequentially) | no current guidance | no current guidance |
AI Revenue | FY 2024 | $12B | no current guidance | no current guidance |
Server Storage Revenue | Q4 2024 | mid- to high single-digit % sequential growth, down high single-digit % YoY | no current guidance | no current guidance |
Wireless Revenue | Q4 2024 | over 20% sequential growth, flat YoY | no current guidance | no current guidance |
Broadband Revenue | Q4 2024 | decline over 40% YoY | no current guidance | no current guidance |
Industrial Resales | Q4 2024 | down ~20% YoY | no current guidance | no current guidance |
Non-AI Networking Revenue | Q4 2024 | decline ~30% YoY | no current guidance | no current guidance |
Consolidated Revenue | Q1 2025 | no prior guidance | $14.6B (up 22% YoY) | no prior guidance |
Semiconductor Revenue | Q1 2025 | no prior guidance | $8.1B (up 10% YoY) | no prior guidance |
AI Revenue | Q1 2025 | no prior guidance | $3.8B (up 65% YoY) | no prior guidance |
Non-AI Semiconductor Revenue | Q1 2025 | no prior guidance | decline mid-teens % YoY | no prior guidance |
Infrastructure Software | Q1 2025 | no prior guidance | $6.5B (up 41% YoY) | no prior guidance |
Adjusted EBITDA | Q1 2025 | no prior guidance | 66% of revenue | no prior guidance |
Consolidated Gross Margins | Q1 2025 | no prior guidance | increase ~100 bps sequentially | no prior guidance |
Non-GAAP Tax Rate | FY 2025 | no prior guidance | 14.5% | no prior guidance |
Non-GAAP Diluted Share Count | Q1 2025 | no prior guidance | ~4.9B shares | no prior guidance |
Debt Repayment | Q1 2025 | no prior guidance | $495M | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Consolidated Revenue | Q4 2024 | ~$14 billion | $14,054 million | Beat |
Semiconductor Revenue | Q4 2024 | ~$8 billion | $8.23 billion | Beat |
Infrastructure Software | Q4 2024 | ~$6 billion | $5.824 billion | Miss |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Sustained focus on AI revenue growth centered around a small number of hyperscale customers | Emphasized each quarter with strong growth tied to limited hyperscaler base | AI revenue reached $12.2B (41% of semiconductor revenue), driven by a few large hyperscalers | Recurring topic with growing optimism each period |
Newly introduced large AI serviceable addressable market (up to $60B–$90B by fiscal 2027) | No mention in Q1–Q3 [none] | $60B–$90B SAM highlighted for 2027 as a one-year AI opportunity | New in Q4, seen as expanding future growth |
Concerns over gross margin dilution in semiconductors due to increasing AI product mix emphasize changing profitability dynamics | AI mix dilution discussed each quarter due to memory costs and shifting product mix | Hock Tan acknowledged gross margin headwinds but stressed improving operating margins from AI scale | Consistent concern with focus now on operating margin leverage |
Ongoing transformation of VMware’s business model and integration into Broadcom’s software portfolio, driving long-term margin expansion | Discussed each quarter, citing subscription model transition and cost optimization | Integration largely complete, VMware’s operating margin at 70% exiting 2024 | Steady progress, positive sentiment on margin expansion |
Cyclical recovery in non-AI semiconductors remains uncertain, with partial rebounds and ongoing weakness in certain segments | Partial or delayed recovery noted each quarter, especially in broadband and storage | Non-AI semis bottomed at $17.8B, broadband and industrial still weak | Recurring theme, still uncertain despite some improvement ahead |
Emergence of advanced AI networking products (Tomahawk 5, Jericho3, and upcoming Tomahawk 6) underscoring Broadcom’s technology lead | Tomahawk 5, Jericho3, and future Tomahawk 6 repeatedly highlighted in prior calls | Not much detail in Q4, though Jericho3-AI remains a growth driver | Ongoing but Q4 mentions are less explicit |
Past mention of Carbon Black divestiture strategy | Q1 noted a change in plan, opting to integrate rather than divest | No reference in Q4 [none] | No longer mentioned after Q1, presumably fully integrated |
Competition from merchant AI solutions (e.g., NVIDIA) consistently noted as a growing threat to Broadcom’s custom accelerators | Addressed in Q2–Q3; Broadcom noted different niches vs. merchant GPUs | No direct mention of NVIDIA threat or competition in Q4 | Less emphasis in Q4, overshadowed by hyperscaler partnerships |
Gradual shift in sentiment toward stronger optimism on AI revenue through each quarter, balanced by caution over lumpy shipments | Q2–Q3 showed increasing AI guidance, with caution over deployment timing | $12.2B total AI revenue, recognized shipments can be uneven | Growing optimism tempered by lumpy demand patterns |
Potential large impact on future performance from AI expansion, hyperscaler partnerships, and ongoing software transformation | Emphasized in every quarter, citing rising AI demand and software integration | Major AI growth plus VMware synergy highlighted as key drivers | Consistent bullish driver, viewed as significant upside |
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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.