Broadcom Inc. (AVGO) 2024 Q3 Earnings Call Summary
September 5, 2024 
Broadcom Inc. (AVGO)
| Market Cap | 0.21T |
|---|---|
| Beta | |
| P/E | 39.75452774136047 |
| EPS | 12.247158441111395 |
| Dividend | 0 |
| Dividend Yield | 0.00% |
Optimistic Highlights
Strong Financial Performance
Consolidated net revenue of $13.1 billion, up 47% year-on-year, and operating profit up 44% year-on-year.
AI Revenue Growth
AI revenue continues to grow strongly, with Q4 AI revenue expected to grow sequentially by 10% to over $3.5 billion.
VMware Integration Success
VMware bookings accelerated, contributing $3.8 billion in revenue, and the transformation of VMware's business model is progressing well.
Semiconductor Revenue
Q3 semiconductor revenue of $7.3 billion, up 5% year-on-year, driven by strong demand from hyperscalers for AI networking and custom AI accelerators.
Positive Q4 Guidance
Q4 consolidated revenue is expected to be approximately $14 billion, up 51% year-on-year, with adjusted EBITDA of approximately 64%.
Pessimistic Highlights
Non-AI Semiconductor Decline
Non-AI semiconductor revenue has stabilized but was down 41% year-on-year in Q3.
Broadband Weakness
Q3 broadband revenue declined 49% year-on-year, with continued weakness expected in Q4.
Industrial Resales Decline
Q3 industrial resales declined 31% year-on-year, with Q4 resales expected to be down approximately 20% year-on-year.
Higher Operating Expenses
Consolidated operating expenses were $2.2 billion, up year-on-year primarily due to the consolidation of VMware.
Cash Flow Impact
Free cash flow as a percentage of revenue has declined due to higher cash interest expense from debt related to the VMware acquisition and higher cash taxes.
Company Outlook
Positive AI Revenue Outlook
AI revenue for fiscal '24 is expected to be $12 billion, up from prior guidance of over $11 billion.
Semiconductor Recovery
Non-AI semiconductor markets have reached bottom, with recovery expected in Q4 and into fiscal '25.
VMware Growth
VMware's transformation and accelerated bookings are expected to continue, contributing to growth in fiscal '25.
Stable Software Revenue
Non-VMware software revenue has reached a level of stability, with VMware expected to drive future growth.
Focus on VMware Integration
The company is focused on transforming VMware's business model, with no immediate plans for further M&A.
Q & A Highlights
Q: AI Revenue Mix and Future Growth (Vivek Arya, from Bank of America)
A: Two-thirds in compute and one-third in networking for Q3 and Q4. Strong growth expected in fiscal '25. (Hock Tan)
Q: Shift in AI Revenue from Cloud to Enterprise (William Stein, from Truist Securities)
A: Broadcom focuses on hyperscalers, not enterprise AI, so no impact from this shift. (Hock Tan)
Q: Software Revenue Volatility (Ross Seymore, from Deutsche Bank)
A: VMware bookings are strong, and non-VMware software revenue has reached stability. (Hock Tan)
Q: Non-AI Semiconductor and Software Revenue Stability (Stacy Rasgon, from Bernstein)
A: Non-AI semiconductor markets are recovering, and non-VMware software revenue is stable. (Hock Tan)
Q: AI Revenue Expectations and Customer Base (Ben Reitzes, from Melius Research)
A: Q3 AI revenue was in line with expectations, and strong growth is expected in fiscal '25. (Hock Tan)
Q: Relocation of IP and Tax Liability (Karl Ackerman, from BNP Paribas)
A: The $4 billion tax charge is non-cash and unrelated to asset sales. (Kirsten Spears)
Q: AI Revenue Growth vs. GPU Compute (Timothy Arcuri, from UBS)
A: Broadcom's AI revenue growth is driven by hyperscalers, with a focus on custom silicon. (Hock Tan)
Q: VMware Profitability (Harsh Kumar, from Piper Sandler)
A: VMware's operating expenses are decreasing, leading to improved profitability. (Hock Tan)
Q: Software Gross Margin Trajectory (CJ Muse, from Cantor Fitzgerald)
A: Software gross margins are expected to remain around 90%. (Hock Tan)
Q: Custom AI Revenue and Customer Contribution (Christopher Caso, from Wolfe Research)
A: Broadcom has three meaningful AI customers, all in production. (Hock Tan)
Q: Storage Business and Seagate Assets (Christopher Rolland, from Susquehanna)
A: The acquisition is a partnership to advance hard disk drive technology. (Hock Tan)
Q: Participation in NVIDIA's Blackwell Cycle (Aaron Rakers, from Wells Fargo)
A: Broadcom is not directly involved but provides enabling technology. (Hock Tan)
Q: Future M&A Plans (Joseph Moore, from Morgan Stanley)
A: Focused on VMware integration, no immediate plans for further M&A. (Hock Tan)
Q: AI Customer R&D Investments and Supply Constraints (Harlan Sur, from JPMorgan)
A: Broadcom can meet upside demand for AI accelerators and networking. (Hock Tan)
Q: Trend Towards Custom AI Silicon (Edward Snyder, from Charter Equity Research)
A: Hyperscalers are moving towards custom silicon, with Broadcom supporting this trend. (Hock Tan)