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Broadcom revenue tops expectations as AI boosts demand, investors still dissatisfied

A smartphone with a displayed Broadcom logo is placed on a computer motherboard in this image shot March 6, 2023

March 7 (mod1s) - Tech giant Broadcom (AVGO.O), opens new tab surpassed market projections for first-quarter revenue on Thursday, as cloud providers continue to modernize data centers to enable AI, helping fuel demand for its sophisticated networking chips.
 
However, smaller competitor Marvell Technology (MRVL.O), opens new tab predicted revenue below market estimates, sending its shares down 6% in extended trade.
 
Broadcom did not revise its annual sales prediction of $50 billion, which falls barely below of forecasts, likely upsetting investors. The business anticipates about a fifth of yearly revenue to come from AI, CEO Hock Tan said on a post-earnings teleconference.
 
A 26% surge in Broadcom's shares in 2024, fuelled mostly by AI confidence, has come with strong growth forecasts for the Palo Alto, California-based business. The shares sank more than 1% in after-hours trading.
 
Marvell and Broadcom provide technology allowing rapid communication between high-end computers, and the two have been considered on Wall Street as large potential winners from the tremendous increase in AI computing.

Ahead of their findings, Broadcom and Marvell both climbed over 4%, both touching record highs having risen in previous months.
 
Broadcom has been praised as a benefactor of a generative AI drive throughout the tech landscape which has caused enterprises to boost investment on infrastructure, driving demand for its chips which enable various components of major cloud companies' systems to connect with one another.

Complex data centers, which are engaged in the creation of generative AI, are outdated without networking hardware from vendors such as Broadcom to support them. This has effectively incorporated Broadcom in supply chains, making it one of the bigger benefactors of AI.
 
AI sales increased from a year earlier to $2.3 billion during the quarter, more than compensating the current cyclical dip in corporate and telecoms, Tan noted.

Revenue from its semiconductor solutions division moved up 4% to $7.39 billion for the first quarter, barely short of the Visible Alpha projections of $7.45 billion.
 
Broadcom plans to rake in almost $10 billion in AI revenue in its semiconductor division in 2024, Tan added.
 
"While investors might be disappointed that management did not raise its outlook, we think there remains upside possibility in spite of the weaker macro environment and weaker carrier and enterprise demand," said Summit Insights analyst Kinngai Chan.
 
But for rival Marvell, its results threw a shadow of uncertainty over investors' prospects of income produced by AI buoying it over projections, despite decreasing demand from telecom firms.
 
SOFTWARE SEGMENT GROWTH
 
While largely recognized as a chipmaker, Broadcom's portfolio has since broadened to encompass other tech enterprises such as VMware and software provider CA technologies.
 
Infrastructure software sales climbed 153% to $4.57 billion, which was above of Visible Alpha forecasts of $4.49 billion.
 
Broadcom is well recognized for its bespoke chips, acclaimed among the leaders in the ASICs (application specific integrated circuit) sector.
 
ASICS refer to semiconductors that may be customized according to a customer's preferences, contrast to general purpose chips such as those supplied by Nvidia (NVDA.O), opens new tab.
 
Broadcom's first-quarter networking revenue increase of 46% was mostly driven by demand for bespoke AI chips from two hyperscale customers, Tan added, without identifying the clients.
 
The business is primarily regarded as the chipmaker behind internet giant Alphabet's (GOOGL.O), opens new tab Google tensor processing units (TPUs)- specialized processors that power some of its cloud services.
 
Alphabet saw capital spending jump up 45% in the fourth quarter in 2023, as it spent aggressively in developing its AI products. Meanwhile, Meta Platforms (META.O), opens new tab had paid roughly $500 million to Broadcom last year, according to a February filing.
 
The business posted quarterly net sales of $11.96 billion, surpassing analysts' average forecast of $11.72 billion, according to LSEG data.
 
Broadcom announced adjusted first-quarter net income of $5.25 billion, compared with analysts' projections of $5.01 billion. Adjusted for stock compensation, among other things, profits were $10.99 a share, compared with projections of $10.30 a share.
 
(This item has been amended to indicate that Broadcom outperformed sales projections, in paragraph 22)

Source: https://www.reuters.com/

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