Broadcom CEO Hock E Tan has revealed AI (artificial intelligence) demand is driving the company’s revenue, while creating challenges in margins.
AI opportunity
Broadcom is expecting AI revenue of $12 billion for fiscal 2024, up from its prior guidance of over $11 billion.
Broadcom has generated AI revenue of roughly $3.1 billion in Q3. Broadcom is expecting AI related sales of $3.5 billion in Q4.
“We expect revenue from AI to be $12 billion for fiscal year 2024 driven by Ethernet networking and custom accelerators for AI data centers,” said Hock Tan, President and CEO of Broadcom.
Broadcom is targeting total revenue of approximately $14 billion in Q4 and $51.5 billion for fiscal 2024.
Broadcom’s revenue grew 47 percent to $13.1 billion in its third quarter of fiscal year 2024.
In Q3, Broadcom’s infrastructure software segment revenue reached $5.8 billion (up 200 percent), driven by $3.8 billion in revenue contribution from VMware. In semiconductors, networking revenue was $4 billion (up 43 percent).
VMware has revealed that there is strong demand for VMware Cloud Foundation (VCF), the full software stack that virtualizes an entire data center and creates a private cloud environment on-prem for enterprises.
VMware has booked more than 15 million CPU cores of VCF, representing 80 percent of the total VMware products booked during the quarter. Annualized booking value, or ABV, has reached $2.5 billion during Q3, up 32 percent from the preceding quarter.
Broadcom also noticed significant demand from hyperscalers for AI networking and on custom AI accelerators. Custom AI accelerators grew three and a half times. In the fabric, Ethernet switching, driven by Tomahawk 5 and Jericho3-AI grew over four times, while optical lasers and thin dies used in optical interconnects grew three-fold. PCI Express switches more than doubled.
Non-AI networking revenue rose 17 percent sequentially and down 41 percent year-on-year. Non-AI networking revenue will decline 30 percent in Q4. Q3 server storage connectivity revenue rose 5 percent sequentially and down 25 percent year-on-year to $861 million.
In Q4, Broadcom expect server storage revenue to grow mid- to high single-digit percent sequentially and down in high single-digit percent year on year.
Broadcom’s Q3 wireless revenue of $1.7 billion grew 1 percent year-on-year, representing 23 percent of semiconductor revenue. In Q4, wireless revenue will grow over 20 percent sequentially and relatively flat year-on-year.
Q3 broadband revenue declined 49 percent year-on-year to $557 million and represented 8 percent of semiconductor revenue. Broadcom’s broadband business revenue will be down over 40 percent year-on- year in Q4 due to lower spending.
Broadcom expects Q4 semiconductor revenue of approximately $8 billion, up 9 percent year-on-year. Infrastructure software revenue will be about $6 billion.
Broadcom faces AI pressure
Broadcom reported gross margins of 77.4 percent of revenue in the quarter. R&D expense was $1.5 billion, and operating expenses were $2.2 billion.
Gross margins for semiconductor solutions segment were approximately 68 percent, down 270 basis points year-on-year, driven primarily by a higher mix of custom AI accelerators. Operating expenses increased 11 percent to $881 million on increased investment in R&D, resulting in semiconductor operating margins of 56 percent.
Baburajan Kizhakedath
