Broadcom's Mixed Fortunes: Strong AI Chip Sales and VMware Bookings Overshadowed by Weak Outlook

Broadcom CEO Hock Tan: VMware Bookings 'Continued To Accelerate,' While AI Chip Sales Surge

'The transformation of the business model of VMware continues to progress very well .. The success of this strategy was reflected in the performance in Q3. We booked more than 15 million CPU cores of VCF,' Broadcom CEO Hock Tan told investors. Broadcom's third quarter saw overall revenue leap 47 percent to $13.07 billion during its most recent quarter, as AI infrastructure sales surged and VMware bookings "continue to accelerate," CEO and President Hock Tan said. "The VMware business continues to book very well as we convert our customers in two ways," Tan said during the company's third quarter earnings call Thursday. "One from perpetual to subscription license, but also those subscription licenses are for the full stack of VCF and that has been very successful given the high ratio of VCF subscribers, new subscribers, that we have achieved. We see this trend continuing in Q4, very much so and very likely into '25." Tan told investors that VMware revenue contributed $3.8 billion as Broadcom has rapidly changed how VMware is sold since completing a $69 billion acquisition to buy the virtualization market leader in November 2023. "The transformation of the business model of VMware continues to progress very well .. The success of this strategy was reflected in the performance in Q3," Tan said. "We booked more than 15 million CPU cores of VCF." Tan said that translates into annual booking value of $2.5 billion, which represents 32 percent growth quarter to quarter. [RELATED: Broadcom's Five Biggest Announcements At VMware Explore] "Directionally, we continue to see accelerated bookings and accelerated growth," Tan said. He said spending at VMware has also continued to fall under Broadcom. Operating costs last quarter were $1.3 billion, down from $1.6 billion in the previous quarter. He aims to cut more. Broadcom reported a net loss of $1.8 billion for its latest quarter, compared with net income of $3.3 billion in the same quarter a year ago. "Q4 will continue the trajectory of revenue continuing to grow and expenses still dropping, even as it starts to stabilize, but continue to reduce," Tan said on the call. Tan said sales of Broadcom's semiconductor accelerators and networking to hyperscalers grew at 5 percent year on year. He said there has been a turn towards spending on infrastructure products including AI. As a result Broadcom raised its guidance on AI chips for the year from $11 billion to $12 billion, driven by strong demand from hyperscalers for custom AI accelerators which Tan said grew 3.5x year on year. "We expect revenue from AI to be $12 billion for fiscal year 2024 driven by ethernet networking and custom accelerators for AI data centers," Hock Tan, President and CEO of Broadcom Inc., said "We don't guide yet for fiscal '25, but we do expect fiscal '25 to be strong. Strong growth on our AI revenue," Tan said. Tan said following an extended down cycle in enterprise spending, Broadcom said it sees more spending ahead. "We've gone through the downcycle," Tan said. "It's on an uptick ... And given the rate of bookings it will go, I dare say, as AI goes to the enterprise. You need to upgrade servers. You need to upgrade storage. You need to upgrade networking across your entire ecosystem. We could be headed for an upcycle that could meet or even surpass previous upcycles. Simply because the amount of bandwidth you ned to store and manage all the workloads coming out of AI." Broadcom shares sank more than 6 percent in after-hours trading Thursday to $142.51.

Broadcom's stock falls on weak outlook, despite strong AI chip sales and VMware bookings - SiliconANGLE

Broadcom's stock falls on weak outlook, despite strong AI chip sales and VMware bookings Shares of Broadcom Inc. were trading lower following the closing bell today, after the chipmaker reported quarterly financial results that swung to a loss and offered guidance that fell short of expectations. The company may have hoped for a reprieve as it boosted its guidance in terms of annual artificial intelligence revenue, having topped analysts' expectations in its third-quarter results. But instead, the stock was down more than 6% in extended trading after its overall revenue forecast came up short. The chipmaker reported earnings before certain costs such as stock compensation of $1.24 per share, beating the Street's forecast of $1.20 per share, while revenue jumped by an impressive 47% to $13.07 billion, well ahead of the $12.97 billion consensus estimate. However, Broadcom took a hit due to a one-time tax provision of $4.5 billion related to trading intellectual property rights from one company segment to another that's based in the U.S., as part of a supply chain restructuring. As a result, it reported a net loss of $1.88 billion in the quarter, compared to a profit of $6.12 billion in the year-ago period. The company's stock was up 75% in the year to date going into today's report, due in part to its strong presence in the AI chip industry. It produces a number of components required in data centers for processing AI workloads. As an example, it helped to design Google LLC's TPU chips, which are used by Apple Inc. to train some AI features. It also makes computer chips that are used in networking, server storage, broadband, wireless and industrial applications. Broadcom Chief Executive Hock Tan (pictured) said in a statement that the company now expects to make $12 billion in AI-related revenue this year, up from its prior outlook of over $11 billion. "Broadcom's third quarter results reflect continued strength in our AI semiconductor solutions and VMware," he said. "We expect revenue from AI to be $12 billion for fiscal year 2024 driven by Ethernet networking and custom accelerators for AI data centers." But the boost in AI looks like it won't be enough to raise the company's overall prospects, for it offered total revenue guidance that fell short of the Street's expectations. Broadcom called for fourth quarter sales of $14 billion, shy of the consensus estimate of $14.11 billion. One of the reasons for that shortfall is that the rest of Broadcom's semiconductor business appears to be faltering. It's notable that most of the company's growth in the prior quarter came from its infrastructure solutions business, which includes the virtualization software giant VMware. During the quarter, Broadcom's semiconductor solutions delivered revenue of $7.27 billion, up just 5% from a year earlier and below the consensus estimate of $7.42 billion. Meanwhile, infrastructure solutions revenue jumped more than 200% to $5.8 billion, well ahead of the Street's $5.52 billion target. On a conference call with analysts, Tan said VMware contributed $3.8 billion towards the infrastructure solutions business during the quarter. He said this was a result of the company rapidly transforming how VMware sells its products after closing on a $69 billion deal to buy it in November 2023. "The VMware business continues to book very well as we convert customers in two ways," Tan said. "One from perpetual to subscription licenses, but also those subscription licenses are for the full stack of VCF, and that has been very successful given the high ratio of new VCF subscribers we have achieved. We see this trend continuing in Q4, very much so and likely into fiscal 2025." Mizuho Americas Jordan Klein told Yahoo Finance that Broadcom was making good progress on VMware, but he said that was "just not enough" for investors, who are concerned about the slowing growth in its semiconductor business. "They beat this quarter's revenue, but the upside was all their software business," Klein noted. "It was not the semiconductor business and that's going to be a disappointment." Klein said that the latest earnings results from chipmakers suggest that outside of AI-related products, the broader industry is in trouble. "If anything, areas like industrial and autos are weakening," he said. Still, Tan indicated that investors can expect to see a quick return to profitability by the end of the current quarter. He explained that the company has been very successful in its efforts to reduce spending at VMware, with operating costs coming to just $1.3 billion in the quarter, down from $1.6 billion three months earlier. "Q4 will continue the trajectory of revenue continuing to grow and expenses still dropping, even as it starts to stabilize, but continues to reduce," Tan said.