Broadcom (AVGO) 5 Sep 24 2024 Q3 Earnings call transcript

In the latest earnings call, Broadcom Inc. showcased a robust performance, with net revenue up by 47% year-on-year, reaching $13.1 billion. The company's CEO, Hock Tan, highlighted three key factors driving this growth: the continued growth and strong performance of AI revenue, the accelerating VMware bookings, and the stabilization of non-AI semiconductor revenue.

AI Revenue and the Future of Custom Silicon

Broadcom's AI revenue continues to grow strongly, driven by the adoption of custom AI accelerators and networking solutions by hyperscalers. This trend is expected to continue, with expectations of further growth in the coming quarters. The shift towards custom silicon, such as XPUs, is becoming increasingly evident, as hyperscalers seek to control their own destiny and optimize their platforms for AI workloads. Broadcom's focus on providing solutions tailored to these needs is a strategic move that sets it apart in the market.

VMware's Transformation and Future Prospects

VMware's transformation into a full software stack company, with the virtualization of entire data centers, is progressing well. The success of VMware Cloud Foundation, or VCF, is evident in the high ratio of new subscribers and the significant revenue contribution from this segment. The company's cost reduction efforts, coupled with the acquisition of VMware, are on track to deliver the targeted adjusted EBITDA of $8.5 billion within three years.

Semiconductor Market Trends and the Road Ahead

The semiconductor segment also saw notable growth, with networking revenue up by 43% year-on-year. This growth is attributed to the strong demand for AI networking and on-custom AI accelerators. Broadcom's focus on hyperscalers and cloud platforms, as well as its ability to meet the upside demand for XPUs and networking solutions, positions it well for future growth.

Challenges and Opportunities

The earnings call also touched upon some challenges, including the ongoing down cycle in non-AI markets and the need to manage inventory levels across the ecosystem. However, Broadcom remains optimistic, with expectations of recovery in the coming quarters. The company's focus on innovation, cost reduction, and strategic partnerships, such as the acquisition of Seagate's hard disk drive SoC assets, is a testament to its forward-thinking approach and strategic vision.

Conclusion

Broadcom's strong financial performance and strategic focus on AI and custom silicon solutions position it well for future growth. The company's ability to navigate the challenges in the semiconductor market and its strategic acquisitions, such as VMware, underscore its commitment to innovation and market leadership. As Broadcom continues to transform its business model and capitalize on the opportunities in the AI market, it remains a company to watch in the semiconductor and software industries.