- Broadcom stock dropped over 6% after quarterly results revealed a net loss and missed revenue guidance.
- The company posted adjusted earnings of $1.24 per share, slightly above expectations, with revenue up 47% to $13.07 billion.
- A $4.5 billion tax provision related to restructuring led to a net loss of $1.88 billion, compared to a $6.12 billion profit a year ago.
- AI-related revenue forecasts increased to $12 billion for fiscal 2024, driven by strong demand for networking and custom AI data center accelerators.
- Overall, the fourth-quarter revenue guidance of $14 billion missed analysts’ expectations of $14.11 billion.
- Broadcom’s semiconductor business grew only 5% year-over-year, underperforming expectations, while its infrastructure solutions, boosted by VMware, saw 200% growth.
- VMware contributed $3.8 billion in quarterly revenue, with success attributed to customer transition to subscription-based models.
- Broader concerns linger regarding the semiconductor market outside AI, particularly in the industrial and automotive sectors.
Main AI News:
Broadcom Inc.’s stock hit in after-hours trading after the company reported a quarterly net loss and provided revenue guidance that fell short of expectations. Despite strong AI-driven growth, shares fell over 6% following the earnings release as investors reacted to a weaker overall outlook.
While the chipmaker posted adjusted earnings of $1.24 per share, slightly surpassing Wall Street’s estimate of $1.20, and saw a 47% increase in revenue to $13.07 billion, the company reported a net loss of $1.88 billion. This loss was due to a $4.5 billion one-time tax provision related to a restructuring of intellectual property rights within the company. In contrast, Broadcom reported a $6.12 billion profit in the same quarter a year earlier.
Broadcom’s stock value has risen 75% year-to-date, largely due to its key role in AI chips. Its products are widely used in data centers and applications such as Google’s TPU chips. The company raised its AI-related revenue forecast to $12 billion for fiscal 2024, up from an estimated $11 billion, driven by its Ethernet networking and custom accelerators for AI data centers.
Despite this growth, Broadcom’s overall fourth-quarter revenue guidance of $14 billion fell below the market’s $14.11 billion estimate, with challenges arising in its semiconductor business. Semiconductor revenue rose only 5% year-over-year to $7.27 billion, missing expectations, while the company’s infrastructure solutions business, bolstered by VMware, saw a significant 200% growth to $5.8 billion, surpassing forecasts.
The acquisition of VMware, finalized in November 2023 for $69 billion, significantly impacted the infrastructure solutions division’s performance. VMware contributed $3.8 billion in revenue for the quarter. Broadcom has focused on transitioning VMware customers to subscription-based models, which has helped drive growth.
However, concerns remain about Broadcom’s semiconductor business, which has shown signs of slowing outside AI. Analysts have pointed to broader industry struggles in industrial and automotive chips. Although the company has reduced operating expenses at VMware, it must regain momentum in its core semiconductor operations to satisfy investors.
Looking ahead, Broadcom expects a return to profitability by the end of the current quarter, supported by continued revenue growth and further cost reductions in VMware operations.
Conclusion:
While Broadcom’s strong performance in AI-driven products positions it well in the rapidly growing artificial intelligence sector, the company faces headwinds in its broader semiconductor business. The underperformance of non-AI sectors, combined with a missed revenue forecast, suggests that the semiconductor industry may be entering a period of slower growth, especially in industrial and automotive markets. Broadcom’s ability to sustain profitability will hinge on its capacity to balance its AI momentum with the broader challenges in the chip market. It could signal a cautious outlook for the semiconductor sector as growth increasingly relies on AI-related demand.
