Broadcom Anticipates AI Demand Will Counterbalance Weakness in Other Areas
Broadcom Inc., a chip supplier for Apple Inc. and other major tech companies, forecasted that AI spending would drive growth at a faster pace than previously anticipated this year, despite slower demand in other sectors impacting semiconductor sales.
The company’s semiconductor division posted revenue of $7.39 billion in the first fiscal quarter, Broadcom said Thursday, missing analysts’ forecast of $7.7 billion. Still, the chipmaker will continue to post $50 billion in sales for the 2024 fiscal year, which ends in October. That’s in line with its earlier prediction.
While the artificial intelligence boom is fueling demand for Broadcom equipment, the company is struggling with slowing sales in some segments, such as telecommunications. That will hurt its chip business. Broadcom’s infrastructure software sales, on the other hand, exceeded analysts’ estimates.
The company’s stock, which had risen 26% this year, fell about 1% in extended trading after the announcement. Shares of chipmaker Marvell Technology Inc. also fell after hours due to the weak forecast. It has also been seen as a beneficiary of AI spending.
Speaking on a conference call with analysts, CEO Hock Tan said AI consumption will strengthen this year. The Palo Alto, Calif.-based company now expects demand to account for 35 percent of its semiconductor revenue in 2024, up from previous forecasts of 25 percent.
Nvidia Corp.’s stratospheric rise in the past year has investors looking for other companies poised to embrace artificial intelligence. Broadcom doesn’t make Nvidia-style chips—the kind used to train large language models that use AI tools—but it supplies key networking components and handles custom chip design work. This makes it an integral part of giant data centers that handle AI workloads.
Despite missing chip revenue estimates, Tan said demand for its networking products from AI data centers was strong and that major cloud service providers were clamoring for its custom AI chips. They will “drive growth in our semiconductor segment,” he said in a statement.
Broadcom’s profit was $10.99 per share in the first quarter, excluding some items. Analysts had forecast $10.42 per share for the period ending February 4th. Total revenue rose 34% to $11.96 billion, compared with the average analyst estimate of $11.8 billion.
Software demand helped offset slower-than-expected semiconductor sales. The infrastructure software division reported revenue of $4.57 billion, beating estimates of $4.33 billion. Broadcom has suspended quarterly forecasts while it integrates and restructures its purchase of software maker VMware.
Broadcom’s Tan has built one of the largest companies in the chip industry through a series of acquisitions. He has also diversified his business by moving into software, an effort bolstered by the recent acquisition of VMware. The integration of this deal will take a year and cost about $1 billion, including the cost of severance, Tan has said.
Broadcom supplies key components for Apple’s iPhone, designs custom chips for Alphabet Inc’s Google and is the largest supplier of network components that direct traffic between computers in data centers. During earnings calls, Tan typically provides updates on Broadcom’s sometimes contentious relationship with Apple, though he obliquely refers to it as “his North American customer” or some other vague moniker.
On Thursday, Tan said Broadcom has a “very deep strategic and multi-year relationship” with the customer.
