Broadcom reported better-than-expected third quarter results and cited strong demand for custom AI accelerators, networking and VMware.
The company reported third quarter earnings of $4.14 billion, or 85 cents a share, on revenue of $15.95 billion, up 22% from a year ago. Non-GAAP earnings were $1.69 a share.
Wall Street was expecting Broadcom to report non-GAAP earnings of $1.66 a share on revenue of $15.82 billion.
CEO Hock Tan said third quarter AI revenue was $5.2 billion, up 63% from a year ago. "We expect growth in AI semiconductor revenue to accelerate to $6.2 billion in Q4, delivering eleven consecutive quarters of growth, as our customers continue to strongly invest," said Tan.
Broadcom is a design partner for Google's Tensor Processor Units. Google announced its TPUs in 2016.
In the quarter, semiconductors represented 57% of sales with revenue of $9.17 billion, up 26% from year ago. Infrastructure software was 43% of sales with revenue of $6.79 billion, up 17% from a year ago.
As for the outlook, Broadcom projected fourth quarter revenue of $17.4 billion with adjusted EBITDA at 67% of projected revenue.
On a conference call with analysts, Tan said:
- "Demand for custom AI accelerators from our 3 customers continue to grow as each of them journeys at their own pace towards compute self-sufficiency. And progressively, we continue to gain share with these customers."
- "We have been working with other prospects on their own AI accelerators. Last quarter, one of these prospects released production orders to Broadcom, and we have accordingly characterized them as a qualified customer for XPUs and, in fact, have secured over $10 billion of orders of AI racks based on our XPUs."
- "We know the biggest challenge to deploying larger clusters of compute for generative AI will be in networking. And for the past 20 years, Broadcom has developed for Ethernet networking that is entirely applicable to the challenges of scale up, scale out and scale across in generative AI."
- VMware: "First phase is convincing people to convert from perpetual subscription and so doing purchase VCF (VMware Cloud Foundation). Second phase now is make that purchase they made on VCF create the value they look for in private cloud on their premise, on their IT data center. That's what's happening. And that will sustain for quite a while because on top of that, we will start selling advanced services, security, disaster recovery, even AI, running AI workloads on it."
Constellation Research analyst Holger Mueller said:
"Broadcom is on a roll. Not only does the vendor seem to be affected the competition trying to replace VMware, but it also growing nicely with its custom AI chips. This quarter more than a third of Broadcom revenue will come from custom AI chips. Notably these chips are desired by the cloud providers, in contrast to their initial posture towards AI giant Nvidia. Remarkably, Hock Tan and team delivered the 20% revenue growth with no increase in selling, general and administrative expenses--something very rare in technology companies. If things go well in Q4 Broadcom will have record revenue and profitability for the fiscal year."
