Broadcom's first quarter results were better-than-expected as technology buyers plan to closely watch comments about retaining VMware customers. Broadcom's chip business continues to benefit from the AI buildout.

The company reported first quarter earnings of $1.32 billion, or $2.84 a share, on revenue of $11.96 billion, up 34% from a year ago. Non-GAAP earnings for the first quarter were $10.99 a share. Revenue growth excluding VMware was 11% in the first quarter.

Wall Street was expecting Broadcom to report first quarter earnings of $10.42 a share on revenue of $11.72 billion.

Broadcom CEO Hock Tan said the acquisition of VMware is "accelerating revenue growth in our infrastructure software segment, as customers deploy VMware Cloud Foundation." He also noted that networking demand was strong as data centers retool for AI.

While Tan talked up VMware, signals in the field are less than positive.

Broadcom reiterated its fiscal 2024 guidance of revenue of $50 billion and adjusted EBITDA of $30 billion.

In the first quarter semiconductor revenue was 62% of revenue with infrastructure software (CA and VMware primarily) was 38%.

Tan said VMware will grow at a double-digit percentage rate sequentially. "This is simply a result of our strategy with VMware," said Tan. "We are focused on upselling customers, particularly those who are already running their compute workloads on vSphere virtualization tools, to upgrade to VMware Cloud Foundation otherwise branded as VCF."

"VCF is the complete software stack, integrating compute, storage and networking that virtualizes and modernizes our customers data centers. This on-prem self-service cloud platform provides our customers with a competent and an alternative to public cloud."

In other words, Tan's bet is that if VMware upsells you will come. Tan also said that AI workloads will be more on-premises for cost savings and that means VCF.  

Tan was asked about VMware upselling with a bit of skepticism. Tan said:

"We're very focused on selling upselling and helping customers to not just buy but deploy this private cloud, but what we call virtual private cloud solution or platform on their on-prem data centers. It has been very successful so far, and I agree that it's early evenings at this point. We've been very prepared to launch this push on private cloud."

Tan was also asked about VMware's annual revenue run rate and Tan agreed that the company is still at a $11 billion to $12 billion pace. Analysts were focused on VMware questions even after starting with AI questions. 

Tan said Broadcom is focusing on go-to-market and engineering VCF so it is more easily deployed. He added that the focus is on about 1,000 strategic customers that will be on-premises and leveraging hybrid deployments. "Most of these customers do not have an on-prem data center that resembles what's in the cloud, which is very high availability. very low latency, and highly resilient," said Tan. "What we are offering with VCF replicates what you get in the public cloud and we are seeing it in the level of bookings."

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