Broadcom Inc. (AVGO) on Q2 2021 Results - Earnings Call Transcript
Operator: Welcome to Broadcom Inc.'s Second Quarter Fiscal Year 2021 Financial Results Conference Call. At this time, for opening remarks and introductions, I'd like to turn the call over to Ji Yoo, Director of Investor Relations of Broadcom Inc. Please go ahead. Ji Yoo: Thank you, operator, and good afternoon, everyone. Joining me on today's call are Hock Tan, President and CEO; Kirsten Spears, Chief Financial Officer; Tom Krause, President, Infrastructure Software Group; and Charlie Kawwas, Chief Operating Officer. Broadcom also distributed a press release and financial tables after the market closed, describing our financial performance for the second quarter of fiscal year 2021. If you did not receive a copy, you may obtain the information from the Investors section of Broadcom's Web site at broadcom.com. This conference call is being webcast live, and a recording will be available via telephone playback for one week. It will also be archived in the Investors section of our Web site at broadcom.com. Hock Tan: Thank you, Ji, and thank you, everyone for joining us today. In Q2 semiconductor solutions revenue grew strong 20% year-on-year to $4.8 billion, with infrastructure software revenue growing an expected 4% year-on-year to $1.8 billion, consolidated net revenue was $6.6 billion, up 15% year-on-year. Now on the last earnings call we talked about how strong broadband and networking bookings were from hypercloud and service providers, even as wireless was declining seasonally. In Q2, just past not only do we see broadband and networking sustaining, we now see a recovery of bookings from enterprise. And on the supply side, our lead times have now stabilized, but the volume of bookings we are experiencing today continues to grow. Now, we intend to meet such demand and in doing so we maintain our discipline process of carefully reviewing our backlog, identifying real end user demand and delivering products accordingly. With that as context, let me provide you more color. Starting with broadband, which interestingly enough is going through somewhat of a renaissance. Revenue grew 28% year-on-year and represented 18% of semiconductor revenue. As discussed during our broadband teaching, the work, learn and play from home environment is driving global service providers to expand connectivity to the home. In our broadband carrier access business, PON fiber or otherwise known as PON, grew over 40% year-on-year, mostly with existing generation 2.5G, but with next generation 10G PON representing only 30% today. There is significant room for content growth as 10G PON deploys over the next few years. Not to be outdone by fiber, cable operators in the U.S. are driving deployments DOCSIS 3.1 cable modems, we saw an 80% year-on-year growth and planning to accelerate the upgrade to next generation DOCSIS 4.0. Our broadband technologies, in fact are enabling service providers to complement the 5G they delivered to deliver best experience for consumers. Kirsten Spears: Thank you, Hock. Let me now provide additional detail on our financial performance. Revenue was $6.6 billion for the quarter, up 15% from a year ago. Gross margins were a record 75% of revenue in the quarter, and up approximately 180 basis points year-on-year. Operating expenses were $1.2 billion down 1% year-on-year, driven by lower SG&A offset in part by increased investment in R&D. Operating income for the quarter was $3.8 billion and was up 25% from a year ago. Operating margin was 58% of revenue, up approximately 470 basis points year-on-year. Adjusted EBITDA was $4 billion or 60% of revenue. This figure excludes $133 million of depreciation. Operator: Thank you. Our first question comes from the line of John Pitzer of Credit Suisse. Your line is open. John Pitzer: Yeah. Good afternoon, guys. Thanks from me ask the question. Hock, I've got two quick ones. First, within your wireless business, you've been able to sign long-term contracts with your key customer. And I'd argue that's benefited both you and them. It's given you the confidence to invest in the business properly, and then the confidence that you'll have supply for them when they need it. I'm just kind of curious, given how tight things are elsewhere in the semi business have you been able to parlay this into any longer-term customer contracts? And what implication might that have as we all start to worry about the 'end of cycle?' And then secondly, just on your comments about enterprise recovery. Can you elaborate on that? Was that specifically a storage comment? Or, is that also a networking comment? Hock Tan: Okay, let me think the question one is a time. On arrangements we've long-term agreements, John. This is something we have been thoughtfully carefully putting in place with our core strategic customers. We just don't go do it as if it's commoditized. We're very thoughtful about doing it. And we do it in very specific areas where technology -- where we know for sure that the technology is fairly, fairly difficult complex to manage, and which requires a substantial amount of R&D spending. And we've been doing it for a while now. We've got strategic customers in core businesses. So we just don't do it across the board. And what you pointed out is very, very correct. It's a mutual, then it is a structure is an agreement with mutual benefit, we have the confidence to invest in R&D to make CapEx capacity investments. And in return, we offer the best leading-edge technology in specific areas in a timely manner to our critical customers. So yes, we have been doing it, and we will continue to thoughtfully do it in a very appropriate manner. On the second part, okay, which is if you could repeat the question, John, let me be sure I capture everything. John Pitzer: Can you just elaborate a little bit on your comments about an enterprise recovering brewing? Was that mostly within storage? Or, was it networking? So I'm a little bit surprised, given some of Cisco's comments that you're not a little bit more positive on the enterprise network space. Hock Tan: It is across -- it is for enterprise spending. It is I wouldn't say across the board necessarily when trying to define enterprise very appropriately. As you know, as you notice in my comments, we classified service providers, telcos as a separate animal, different from traditional enterprise. And so as I pointed out, based on broadband, telcos have been investing, big time service provider, telcos have been investing in a huge manner over the past 12-months. But traditional enterprise the companies, whether it's the banks, the manufacturing sector, various retail customers and airlines examples, no, these guys are in a recovery mode. And not surprising, we are seeing pandemic easing, like, say in North America. And as it eases, we see a step up in spending, but we do not see spending spiking up. Now obviously, if you look at some businesses that require like warehouses that require Wi-Fi networks, campus involved campus networking environment, you do see that improving. But to say across the board, all enterprises are just spending money, not we are still seeing and as I showed that in servers, storage connectivity, we still see a year-on-year things are not up to what it was a year ago. And that applies not just on data centers, namely compute, it also applies to data centers in enterprise, campus environment. We see less of that, but across the board. John Pitzer: Helpful. Thank you very much. Operator: Thank you. Our next question comes from line of Harlan Sur of JPMorgan. Your line is open. Harlan Sur: Good afternoon. Great job on the quarterly execution, strong margins and free cash flow generations. Hock, I think as you mentioned, we're still in the early phases of the 400 gig networking upgrade cycle with your hyperscale and telco customers. I know two of your big cloud piping customers have already started the upgrade. Let's say if there are another two more that are going to start the upgrade cycle here in the second-half of this year, and quite a bit more next year. And then as you mentioned, you still have Tomahawk 4 ahead of you. So given the extended visibility that the team has with a strong backlog, do you see the cloud and telco upgrade cycle an inevitable recovery in enterprise, driving continued year-over-year growth in networking into next year? Hock Tan: We don't really try to guide more than one quarter at a time, first of all, because we're not that smart to be able to do that. But, on a broader trajectory, it does appear fairly much the trend, as we said which is, the hypercloud guys will go will push out in the second-half as indicated on the data center sign on Tomahawk 4 the 800 G platform. There were substantial backlog for delivery in the back-half of the year for Tomahawk 4. So we see that going on. And you're right, we see the recovery step by step of their enterprise, though I do not see that really taking off enormous in terms of reaching the level it was a year ago, probably until 2022. But what we do not know for sure is would that give pause to hypercloud in their spending, and with that part I'm just putting everything on the table. We're not sure whether hypercloud spending will necessary on continue into 2022. We sense it would, we see some of the backlog. But as enterprise steps up one relevant never knows if the economy start to rebalance in that side. But what we do see in broadband is service providers, the telcos in particular, are for sure upgrading. And here, this is a longer cycle of upgrade, and we see them upgrade. And we see the backlog associated with it through 2022. Harlan Sur: Great. Thank you. Operator: Thank you. Our next question comes from Ross Seymore of Deutsche Bank. Your question, please. Ross Seymore: Hi, guys. Thanks for having me ask the question. Congrats on the strong results. Hock, I wanted to dive a little bit into the lead time commentary that you had with that stabilizing. Two quarters ago, you talked about the size of the book, the backlog you had, last quarter, you talked about the year-over-year, and even in some instances, the sequential growth being so large in bookings. And now we're hearing that the lead times are stabilizing. People could interpret that a bunch of different ways as far as the implication on the demand side of the equation or that supply is catching up to it. Or frankly, people are just ordering so far out that they're not willing to extend that any further. So, I was hoping to double click on that lead time commentary and get your feelings as to why it's stabilizing. And do you take that as a positive a negative? Hock Tan: Oh, I just made a comment to say we have stretched our lead time so far, Ross. Good point you bring up, and I'm glad you bring it up to give me a chance to clarify a set of quick comments I made in my opening remarks. We are comfortable at the lead times we are on. And so what it is, is customer, our customers are comfortable seeing our lead time now. But what we have found rather remarkable over the last quarter is that even if our lead times remain stable, consistent, the volume of bookings we receive every week continues to grow. I made that comment and I'm thankful for the opportunity to make that -- to reiterate that point. Sanely time stable for last three months, but the booking rate we are seeing every week continues to step up. Ross Seymore: Great. Thank you. Operator: Thank you. Our next question comes from Vivek Arya of Bank of America Securities. Your line is open. Vivek Arya: Thanks for taking my question. Hock, I had another one on the supply situation. If there were no supply constraints, how fast would your semiconductor business be growing? And, kind of part B of that is, what is driving the shortages for you right now? And what are you doing to resolve it? And do you have any kind of gut feel on when the supply situation will become normal? Thank you. Hock Tan: Great. I'll answer the first and the last, and in between I'm not sure. But on the first, it's we will not put ourselves in the situation nor should anyone do it, because there's also a certain amount you don't know we do not want our customers and I don't think any of our peers want to do that either to buy too hot to create buffers, to buy ahead of what they mean. So, we try to match identify, as I said and go through a process of rigorously understanding through end demand. In other words, we look for drop date quantities as the term is used in industry. And we ship to those drop date quantities and maybe a little more. And what you see today is the true growth rate we are representing. We are not hiding what could have been. There's no what could have been. We're shipping to what we believe with the customers consider is their true real demand. Now having said that, we may be delivering during JIT, just in time, but nonetheless, we do try to fulfill what customer truly want just in the timely basis. And that still continues today, regardless of the size of the backlog we have, where this really in that regard. And from our perspective, the challenges we have in the supply chain is a constant side challenges is to ensure that we get components, whether it's wafers, substrates, getting our products assembled, tested, and any other small components on a timely basis to make sure that we can keep this thing running. And we look at the size of our inventory versus the size of our cost of goods sold, or revenue quarterly, you can see that we run pretty close to just in time through our entire supply chain. And we've been able to do it and sustain that. And so what we're reporting to you like 20% year-on-year growth on semiconductor components is, in our view, a pretty decent reflection what is truly end demand needs out there. All right. Nice question. Operator: Our next question comes from Timothy Arcuri of UBS. Your line is open. Timothy Arcuri: Thanks a lot. Hock, I guess I wanted to ask you what you think the long-term growth rate is of your semiconductor business. You're sort of trending to the high teens this year. But that's kind of due to easy comps, and you have the compressed iPhone launch and the pull forward of some of these technologies due to the pandemic. So, once this all sort of normalizes, what do you think is the right long-term growth rate for the business? Are you still thinking 5%? Or, do you think maybe just given the strength of the bookings recently that it could be better than that? Thanks. Hock Tan: That's a hell of a question. And I'll tell you this, right now, we're in the midst of a very strong demand. And that's also created, perhaps, as we all know about a severe imbalance within demand and supply, as demand as supply works to catch up. But if you look at it long enough, I think the dynamics underlying the fundamental dynamics underlying the semiconductor industry hasn't yet changed. At least I haven't seen it to change. So Tim, that's my best, and that's the best answer I can give you, which is I haven't changed my thinking, even look over the next 10-years, how this industry will behave. Because it is a relatively matured industry, it's evolutionary. Technology is still evolving, which is great for us and it keeps getting better and better. But it's evolving. Disruption, as people like to say, in this industry is less of an event. It's evolutionary, and I have not seen anything that tells me there's a fundamental change. Timothy Arcuri: Thanks, Hock. Operator: Thank you. Our next question comes from Craig Hettenbach of Morgan Stanley. Your line is open. Craig Hettenbach: Thanks. Hock, just given the ongoing strength in the free cash flow and improved balance sheet, can you just talked about your thoughts on the M&A environment? And also, and/or buybacks, how you're thinking about cash deployment as you go forward? Kirsten Spears: Yeah, I'll take that one. This is Kirsten. Relative to capital allocation, first and foremost, we're dedicated to paying 50% of our free cash flows to our shareholders. And so that would be first. Secondly, M&A, if we can -- creative M&A, it would be the second objective. Then thirdly, stock buybacks and at the end, there would be debt repayments. So I think that's how we're looking at capital allocation in that order. There isn't anything yet on the M&A front that I can talk about. But if anything does come up, we'll let you know. Operator: Thank you. Our next question comes from Blayne Curtis of Barclays. Please go ahead. Blayne Curtis: Hey, good afternoon. Thanks for taking my question. Just curious, a little more detail on the gross margin, it's the record gross margin. Any color on product or segment? And then I guess as you look forward here, if you could describe what you're still dealing with in terms of excess costs due to COVID? And then how to think about it as enterprise comes back? Should that be added to the gross margin? Kirsten Spears: I expect gross margin next quarter to be about the same as it was this quarter. And then as you know, at the end of the year, we're expecting wireless to come back in for the normal ramp that we have, and so the margins will come down a bit towards the end of the year. But at this point, I see us being able to sustain the margins that we experienced this quarter, mostly coming from networking and broadband. Hock Tan: Blayne, and the result perhaps repeating ourselves to myself too much from past conversations that I had with you, with all you guys. Our gross margin has this natural trend of continuing to keep expanding year-on-year, not necessary quarter-on-quarter, but sequentially as much as year-on-year, simply because we tend to have a chance to go to a new product, new next generation product across some of our franchise products. And it's a combination of all this. So the natural growth of expansion of gross margin for our business, especially in the semi side, particularly in the semi side, which I assume your question is related to Blayne is, as I've always said, we have a gross margin expansion range of 50 to 150 basis points year-by-year. And it's an average across our 24, 25 different well, I should take out software just hardware, about 20 or so different product lines, each with a different product lifecycle. And each going with new generation product each time, because as you know, each time we come to a new generation product, we get a lift in margins on product margins, which translates to gross margin. So it's not unusual to see us go to the higher end of the range. And in this particular case, year-on-year is a bit more than a higher end range. And that's probably related to perhaps a separate mix of products in this environment because there are still puts and takes across our product range, not everything is on fire. And based on that we end up with higher than the normal 50 to 150 basis point range. But, I don't think this is something that will go on forever. But you should expect that year-after-year, you will see that 50 to 150 basis point improvement in gross margin on a semiconductor side. Blayne Curtis: Thanks so much. Operator: Thank you. Our next question comes from Toshiya Hari of Goldman Sachs. Your line is open. Toshiya Hari: Hi, guys. Thank you so much for taking my questions. I had two actually, one on wireless and one on the cost side. Hock, in terms of wireless, I guess, in Q2 revenue came in better than expected. I just wanted to understand was that primarily supply being better? Or, were there dynamics on the demand side that came in better than expected? And then sticking to wireless, as you think about the next generation product cycle your largest customer, how are you thinking about the content opportunity at this point? You pretty much know what's locked in. If you can comment on RF and Wi-Fi, and touch, maybe compare and contrast this uplift, in this cycle vis-à-vis past cycles that would be super helpful? And then on the cost side, based on the comments you just made about gross margin expansion and some of Kirsten's comments, I doubt cost inflation is having an impact on your business. But if you can speak to wafer pricing and substrates and what you're seeing from a cost perspective over the next year or so that would be super helpful? Thank you. Hock Tan: Alright, let's start with the first one. And if I lost track of the last two you better remind me, Toshiya. But on wireless, you're right. What indicated was Q2 wireless was kind of higher than we had originally planned. And it's all analog related to demand. Of course, it's demand. We will never ship just because we have the product. It is based on demand one thing, and we are happy to fulfill it. And part of the demand may actually come a bit from Q3. Not sure 100% yet, because this demand comes in short cycles and in May, and perhaps that's why I'm a bit careful about telling you Q3 year-on-year improvement is still 30% plus year-on-year growth. I'm not saying 40 plus, but we don't know for sure, except we know that we do pull in some from Q3 to Q2 not much. And that allows Q2 to perform 48% year-on-year growth which is great, but Q3 will still be pretty good year-on-year as we fully expect. And related to content and all that, I prefer at this point in this sensitive arena with a highly sensitive situation to not answer that question at all. No offense, please. But I can't answer that question. But I'll be happy to take the third question, which is, yeah, we have cost inflation in this environment, where as we all know, the semiconductor supply chain is under severe constraints on its ability to provide. Now whether we are very large, we are very, very large customer and a very loyal customer to many of our suppliers of our key components. And so we believe we are treated very well. Having said that, where prices are concerned, of course, not. We see cost inflation. And in this environment, we are very, very open to talking to our customers who are in turn very open to being able to address costs, inflationary costs, cost pressure in a higher purchase price on your site. So we're good, which is why our margin have been stable. Toshiya Hari: Thank you. Operator: Thank you. Our next question comes from CJ Muse of Evercore. Your line is open. CJ Muse: Yeah. Good afternoon. Thank you for taking the question. I guess another question on the supply chain and I guess a bigger picture question, Hock. If you think about, your increased lead times, you talked earlier to John's question about selective strategic agreements with key customers. At the same time we're taking multiyear kind of take or pay contracts with foundries. Curious if you see any structural changes to the semi industry as we kind of emerge post-pandemic? Hock Tan: Okay. My frank opinion, I don't know, they shouldn't be. Sane question that was asked is, do I think the semiconductor industry over the next 10, 20-years will grow any faster or slower. And my view is, no, I don't think, I don't see any fundamental things that have changed. See, while we're in the flick of this storm, so to speak, of course, all hell breaks loose as the expression goes. But these are cycles we all have seen many times in the semiconductor industry. And maybe this is a bit extreme in the context of the pandemic, over the course of 2020, now extending partly into 2021. But, the supply will stable at some point. And demand is always there, because people need technology, people need the performance, need the technology that we all offer in the products we provide. And we'll be competing the same way we have been competing. And it's not necessarily related to creating long-term agreements or any such thing. It's about being able to provide the best technology, the best product in a timely manner for your customers. And it doesn't matter that you do any agreements. If at the end of the day, you like the technology or you like the products that customers need to make themselves successful, or to be able to deploy in a very well in a good manner. And that has always been the semiconductor industry. And then there I do not see anything that changes that. Now, putting long-term agreements might make life easier, but I think it's just a myth. We still have to establish ourselves that we can outperform our engineer the competition. CJ Muse: Thank you. Operator: Thank you. Our next question comes from Chris Danely of Citi. Your line is open. Chris Danely: Hey, thanks, gang. There's a lot of talk worries, speculation I don’t know of old wives tales, whatever, about this big inventory build of handsets in China. Any thoughts there Hock and team And, what will be the potential impact for Broadcom? Hock Tan: Well, not directly, if there's such a big overhang sitting out there, not directly because, our wireless business, our wireless product, as we have fully articulated pretty much sells to two large customers largely. We're talking about handset. We do not sell much, if any, to the handset guys, OEMs that is in China. And we sell to two big customers, one in North America, one in Korea, and these are very high-end flagship status phones. And now there could be indirect blowback and then I do recognize in certain markets, if there is an excess of inventory that needs to be just thrown out there. But on the other side on a direct basis, we do not expect to see anything. Chris Danely: Thanks, Hock. Operator: Thank you. At this time, I'd like to turn the call over to Ji Yoo for closing remarks. Ji Yoo: Thank you, operator. In closing, please note that Hock will be presenting at the BOFA Securities Technology Conference on Tuesday, June 8. Following our networking and broadband teachings earlier this year, Broadcom and Bernstein will be hosting a teaching on our storage businesses on Wednesday, July 21, at 12pm Eastern 9am Pacific. Hock will be joined by Jas Tremblay, General Manager of our Server Storage Connectivity business, Jack Rondoni, General Manager of our thin business and Dan Dolan, marketing head of our hard disk drive business. That will conclude our earnings call today. Thank you all for joining. Operator, you may end the call. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Broadcom Inc. (NASDAQ:AVGO) Faces Pessimistic Outlook Despite Strong Market Position
- Broadcom Inc.'s (NASDAQ:AVGO) target price is significantly lower than its market price, indicating a pessimistic outlook from analysts.
- Despite a negative price percentage difference, Broadcom's diverse product offerings and market presence position it to navigate industry challenges.
- Advanced Micro Devices, Inc. (NASDAQ:AMD) is seen as having the highest growth potential among its peers, despite a similar pessimistic price outlook.
Broadcom Inc. (NASDAQ:AVGO) is a global technology company that designs, develops, and supplies a broad range of semiconductor and infrastructure software solutions. The company serves various markets, including data centers, networking, software, broadband, wireless, and industrial. Broadcom competes with other major players in the semiconductor industry, such as Advanced Micro Devices, Inc. (NASDAQ:AMD).
Currently, Broadcom's target price is set at $101.85, which is significantly lower than its market price of $224.80. This indicates a pessimistic outlook from investment analysts, with a price percentage difference of -54.69%. Such a large gap suggests that analysts may have concerns about Broadcom's future performance or market conditions affecting the semiconductor industry.
In comparison, AMD, one of Broadcom's closest peers, has a current stock price of $126.91 and a target price of $64.40. This results in a price percentage difference of -49.25%. Despite this negative outlook, AMD is considered to have the highest growth potential among its peers. This could be due to AMD's strong product lineup and strategic market positioning.
The semiconductor industry is known for its rapid technological advancements and intense competition. Companies like Broadcom and AMD must continuously innovate to maintain their market positions. While Broadcom faces a challenging outlook, its diverse product offerings and established market presence could help it navigate industry challenges.
Broadcom Jumps 17% on Strong AI Chip Demand and Upbeat Outlook
Broadcom (NASDAQ:AVGO) saw its stock surge over 17% in pre-market trading Friday after delivering robust revenue guidance and forecasting explosive demand for its custom AI chips in the years ahead. The positive outlook underscored the chipmaker’s dominant position in the AI market and fueled investor enthusiasm.
For the quarter, Broadcom reported earnings per share of $1.42 on revenue of $14.05 billion. While earnings slightly surpassed analyst expectations of $1.39 per share, revenue came in marginally below the anticipated $14.07 billion. The company’s semiconductor solutions segment, its primary revenue driver, grew 12% year-over-year to $8.23 billion, while infrastructure software revenue skyrocketed 196% to $5.82 billion.
Broadcom achieved record-breaking semiconductor revenue of $30.1 billion for fiscal 2024, driven by $12.2 billion in AI-related sales. This represented a staggering 220% year-over-year growth in AI revenue, attributed to the company’s advanced AI XPUs and Ethernet networking solutions.
Looking ahead, Broadcom projected first-quarter revenue of $14.6 billion, exceeding Wall Street’s consensus estimate of $14.55 billion. However, the most significant insight from the earnings call was management’s increasing confidence in the AI market's potential. According to projections, the Serviceable Addressable Market (SAM) for Broadcom’s three primary AI ASIC customers could reach $60–90 billion by fiscal 2027. This estimate hinges on all three customers transitioning from GPUs to ASICs for training clusters, with the potential for further expansion if Broadcom secures additional hyperscale clients.
Jefferies analysts highlighted the near-term clarity in AI revenue and the long-term growth potential of Broadcom’s xPU clusters as key factors driving investor interest. Following the earnings announcement, Jefferies raised its price target for Broadcom shares from $205 to $225, reflecting optimism about the company’s positioning in the rapidly growing AI sector.
Broadcom Inc. (NASDAQ:AVGO) Earnings Preview: What to Expect
- Broadcom Inc. (NASDAQ:AVGO) is set to release its quarterly earnings with an expected EPS of $1.38 and projected revenue of $14.07 billion.
- The company has been upgraded to a "Buy" rating due to its promising 3.5D XPSiP AI chip technology and revised VMware strategy.
- Broadcom's financial metrics, including a P/E ratio of 163.77 and a price-to-sales ratio of 17.85, reflect strong investor confidence and growth prospects.
Broadcom Inc. (NASDAQ:AVGO) is a prominent player in the semiconductor industry, known for its innovative technology solutions. The company is set to release its quarterly earnings on December 12, 2024, with Wall Street estimating an earnings per share (EPS) of $1.38 and projected revenue of approximately $14.07 billion. Broadcom's recent strategic moves and technological advancements have positioned it well for this earnings report.
Broadcom has been upgraded to a "Buy" rating, reflecting positive developments in its VMware strategy and the introduction of its promising 3.5D XPSiP AI chip technology. This new AI chip technology enhances interconnect density and power efficiency, potentially boosting the growth of custom AI chips. The company's revised VMware strategy targets the top 500 users, aiming to stabilize relationships with channel partners and reduce customer loss risks.
The company's financial metrics indicate a strong market position. Broadcom's price-to-earnings (P/E) ratio is approximately 163.77, showing investor confidence in its earnings potential. The price-to-sales ratio is about 17.85, and the enterprise value to sales ratio is around 19.13, reflecting the company's valuation in relation to its sales. These figures suggest that investors are willing to pay a premium for Broadcom's growth prospects.
Broadcom has consistently surpassed earnings estimates, with an average earnings surprise of 2.59% over the past two quarters. In the most recent quarter, the company exceeded expectations with earnings of $1.24 per share, marking a 3.33% surprise. This consistent performance has led to upward trends in earnings estimates, suggesting a positive outlook for the upcoming earnings report.
Despite challenges in the broadband and server storage markets, Broadcom's robust AI portfolio is expected to drive growth. The company's debt-to-equity ratio of approximately 1.07 indicates a moderate use of debt, while a current ratio of about 1.04 suggests a balanced liquidity position. These financial metrics, combined with strategic advancements, position Broadcom well for its upcoming earnings release.
Broadcom Shares Slide Over 9% After Underwhelming Sales Guidance Despite AI Growth
Shares of Broadcom (NASDAQ:AVGO) dropped over 9% intra-day today trading after the chipmaker's forecast for fourth-quarter revenue slightly missed market expectations. The company projected $14 billion in sales for the upcoming quarter, just under the $14.04 billion analysts had anticipated.
For the third quarter, Broadcom reported adjusted earnings per share of $1.24 on revenue of $13.07 billion, surpassing analyst forecasts of $1.21 EPS and $12.97 billion in revenue.
However, Broadcom’s broadband division remained a weak spot, with revenue in the segment plummeting by 49% in Q3. CEO Hock Tan attributed this to a continued pause in spending from telecommunications and service providers, noting that broadband sales are expected to remain down over 40% year-over-year in the fourth quarter, with recovery anticipated in 2025.
Despite the broadband challenges, Broadcom’s AI-optimized chips continued to show strong demand. The company raised its full-year sales outlook for AI components to $12 billion, up from a previous estimate of over $11 billion. In Q3, AI revenue was around $3.1 billion, with Tan saying AI sales were "in line" with expectations.
While no specific guidance was provided for AI revenue in fiscal 2025, Tan noted that the company expects AI demand to remain strong.
Broadcom Inc. (NASDAQ:AVGO) Surpasses Fiscal Third-Quarter Earnings Expectations
- Broadcom Inc. (NASDAQ:AVGO) reported fiscal third-quarter earnings with an EPS of $1.24 and revenue of $13.07 billion, exceeding analysts' expectations.
- The company's financial metrics, including a P/E ratio of approximately 139.86 and a P/S ratio of about 15.20, reflect high market valuation and investor confidence.
- Broadcom's balanced but significant level of debt, with a D/E ratio of around 1.07, and a stable liquidity position, indicated by a current ratio of approximately 1.04, underscore its financial stability and growth potential in the technology sector.
Broadcom Inc. (NASDAQ:AVGO), a leading player in the semiconductor industry, recently reported its fiscal third-quarter earnings, revealing figures that not only surpassed analysts' expectations but also highlighted the company's robust performance amidst a challenging market environment. With an earnings per share (EPS) of $1.24 against the estimated $1.22 and revenue reaching $13.07 billion, surpassing the expected $12.98 billion, Broadcom's financial health appears strong. This performance is particularly noteworthy given the mixed trading session on Wall Street, where the Nasdaq saw a slight gain of 0.25%, contrasting with declines across other major indexes.
The semiconductor giant's ability to exceed top and bottom-line expectations reflects its competitive edge in the market, especially during a period when the broader indices, including the S&P 500, Dow, and Russell 2000, experienced declines. This resilience is further underscored by the positive reports from the services sector, with both the ISM Services and S&P Services PMI for August surpassing expectations, indicating broader economic growth. Broadcom's success in this context suggests a strong demand for its products and services, contributing to its financial achievements.
Broadcom's financial metrics, such as the price-to-earnings (P/E) ratio of approximately 139.86 and the price-to-sales (P/S) ratio of about 15.20, indicate a high valuation level by the market, reflecting investor confidence in the company's future growth prospects. Additionally, the enterprise value to sales (EV/Sales) ratio of roughly 16.48 and the enterprise value to operating cash flow (EV/OCF) ratio of approximately 26.99 further highlight the company's substantial valuation compared to its sales and operating cash flow, respectively. These ratios suggest that investors are willing to pay a premium for Broadcom shares, banking on the company's continued success.
Moreover, Broadcom's debt-to-equity (D/E) ratio of around 1.07 shows a balanced but significant level of debt in its capital structure, which is not uncommon in the capital-intensive semiconductor industry. The current ratio of approximately 1.04 indicates that the company maintains a stable liquidity position, capable of covering its short-term obligations. This financial stability, combined with an earnings yield of about 0.71%, positions Broadcom favorably among its competitors and makes it an attractive option for investors looking for growth in the technology sector.
In summary, Broadcom Inc.'s recent earnings report not only demonstrates its ability to surpass market expectations but also highlights the company's strong financial health and competitive position within the semiconductor industry. Despite the mixed market conditions and high valuation metrics, Broadcom's performance and strategic financial management suggest a promising outlook for the company's sustainability and growth in the market.
Broadcom Surges 14% on Raised Guidance
Broadcom (NASDAQ:AVGO) raised its annual revenue outlook after surpassing expectations in its Q2 results, fueled by record AI revenue. The chipmaker also announced a ten-for-one stock split. Following the announcement, Broadcom saw a 14% increase in pre-market today.
The company reported adjusted earnings per share of $10.96 on revenue of $12.49 billion, exceeding analysts' expectations of $10.85 EPS on $10.85 billion in revenue.
The revenue beat was significantly driven by a record $3.1 billion in AI product sales during the quarter. Additionally, infrastructure software revenue grew as businesses continued to adopt the VMware software stack to develop their own private clouds.
Looking forward, Broadcom updated its full 2024-year revenue guidance to $51 billion, up from the previous $50 billion.
Melius Recommends Broadcom with Buy Rating and $1,850 Price Target
Melius analysts initiated coverage on Broadcom (NASDAQ:AVGO) with a Buy rating and a price target of $1,850 on the stock.
The analysts highlighted Broadcom as a key AI stock due to its leadership as a fabless semiconductor provider in various categories. They emphasized that the company's Networking division, which constitutes 30% of its revenues, is expected to benefit significantly from AI accelerators (XPUs) and networking chips, primarily sold to consumer internet companies. Additionally, 40% of Broadcom's revenue comes from more stable software streams, with VMware—recently acquired and accounting for about 60% of software sales—showing a positive shift towards subscriptions and its virtual private cloud (VCF).
