Broadcom's revenue surges, its stock price soars, and it will split its stock

Latest update time：2024-06-13

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Source: The content is compiled from Bloomberg by Semiconductor Industry Observer (ID: i c ban k), thank you.

Broadcom Inc, a chip supplier to Apple Inc and other big technology companies, rose in late trading after its latest earnings and annual forecast beat expectations, boosted by strong demand for artificial intelligence products.

The company said in a statement on Wednesday that second-quarter profit was $10.96 per share, excluding some items. That compares with an average estimate of $10.80. Revenue rose to $12.5 billion, compared with expectations of $12.1 billion.

The company said sales for the full fiscal year ending in October would reach about $51 billion. Analysts expected about $50.6 billion, while Broadcom earlier said the figure would be closer to $50 billion.

Broadcom is one of the chipmakers that has benefited from the AI boom, as its devices can run the kinds of AI applications that the tech industry loves. Broadcom said $3.1 billion of sales in the quarter can be attributed to revenue from AI products. For example, Broadcom worked with Google to partially design its own AI chip, the TPU.

The race for AI systems has benefited semiconductor companies such as Broadcom, even though they don’t sell the much-vaunted AI chips made by Nvidia Corp. Broadcom has been helped by the trend by offering a range of components used in computing and networking, including those crucial to data centers. Its custom chip unit has also attracted orders from large cloud providers that want to reduce their reliance on Nvidia’s expensive processors.

Broadcom CEO Hock Tan said the acquisition of VMware also boosted results.

“Broadcom’s second quarter results were again driven by AI demand and VMware,” he said in the statement. Revenue from AI products alone reached a record $3.1 billion, Mr. Chen said.

Mr. Chen predicts that total AI sales will exceed $11 billion in fiscal 2024. Non-AI chip revenue, which has been sluggish recently, bottomed out in the second quarter. He said on a conference call with analysts that "a modest recovery is likely in the second half of fiscal 24."

“Speaking of AI accelerators, you may know that our hyperscale customers are accelerating their investments to scale up the performance of these clusters,” Broadcom CEO Hock Tan said on the earnings call. “To that end, we have just been awarded contracts to provide the next generation of custom AI accelerators to these hyperscale customers.”

"Broadcom has tremendous upside as the data center market shifts to AI servers. In many ways, (Broadcom) will be the second-largest beneficiary of this shift, second only to Nvidia," said Ben Bajarin, an analyst at Creative Strategies.

Broadcom shares rose 14% in late trading after the report. They have risen 34% so far this year to $1,495.51 by the close in New York. By comparison, the closely watched Philadelphia Stock Exchange Semiconductor Index has risen 32%.

The Palo Alto, California-based company also announced a 10-for-1 stock split that will take effect July 15. Broadcom follows Nvidia in making this move. That company’s split took effect June 7.

Broadcom’s semiconductor unit had revenue of $7.2 billion in the three months ended May 5. That was above the average estimate of $7.12 billion, according to data compiled by Bloomberg. Infrastructure software sales were $5.29 billion, beating estimates of $4.93 billion.

As one of the largest companies in the semiconductor industry, Broadcom has risen to the top through a series of acquisitions by Hock Tan, making it a barometer of the performance of the entire chip market.

Data center providers rely on its custom chip designs and networking semiconductors to build AI systems, but the company also sells components for cars, smartphones and internet access equipment. It is increasingly moving into software, including products for mainframe computers, network security and data center optimization.

The VMware acquisition, completed in November, is a key component of the software business.

"We've made very good progress integrating VMware and accelerating its growth," Tan said on the call.

Apple is its biggest customer: Broadcom supplies key components for the iPhone. During earnings calls, Hock Tan typically updates Broadcom on its often contentious relationship with the company, though he indirectly refers to it as a “North American customer” or other vague descriptions.

Chen said on a conference call Wednesday that Broadcom's relationship with the customer remains "deep, strategic and will continue for many years."

Reference Links

https://www.bloomberg.com/news/articles/2024-06-12/broadcom-gains-after-ai-computing-demand-fuels-sales-growth?srnd=technology-vp

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