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(Bloomberg) – Broadcom, a chip supplier to Apple and other big tech companies, said its semiconductor business reported disappointing earnings despite a faster-than-expected growth in AI demand. The company suffered its worst share price decline in four years.
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Broadcom said Thursday that its semiconductor division had first-quarter sales of $7.39 billion, below analysts’ expectations of $7.7 billion. Still, the company is on track for $50 billion in sales in fiscal 2024, which ends in October. This is consistent with the previous prediction.
Although the artificial intelligence boom is boosting demand for Broadcom equipment, the company is battling weak sales in some areas, such as telecommunications. That’s hurting the company’s chip business. Meanwhile, Broadcom’s infrastructure software sales exceeded analysts’ expectations.
The company’s shares had risen 26% year-to-date through Thursday, but were down 7% in New York on Friday. This was the biggest single-day decline since March 2020, at the beginning of the pandemic. Shares of fellow chipmaker Marvell Technology also fell due to the weak outlook. The company is also seen as a beneficiary of AI spending.
CEO Hock Tan said on a conference call with analysts that AI spending will be stepped up this year. The Palo Alto, California-based company now expects demand to account for 35% of its semiconductor sales in fiscal 2024, up from its previous forecast of 25%.
Nvidia Corp.’s rapid growth over the past year has investors looking for other companies poised to cash in on the AI windfall. Broadcom doesn’t manufacture his Nvidia-style chips (chips used to train the large-scale language models that power AI tools), but it provides critical networking components and custom-builds his chip design work. going. This makes it essential for large data centers processing AI workloads.
Despite lacking chip revenue estimates, Tan said demand for the company’s networking products from AI data centers is strong, with major cloud computing providers seeking the company’s custom artificial intelligence chips. . They are “driving the growth of our semiconductor division,” he said in a statement.
Broadcom’s first-quarter earnings were $10.99 per share, excluding certain items. Analysts had expected earnings of $10.42 per share for the current fiscal year, which ends Feb. 4. Total sales rose 34% to $11.96 billion, compared to the average analyst estimate of $11.8 billion.
Software demand offset weaker-than-expected semiconductor sales. Infrastructure Software segment revenue was $4.57 billion, beating expectations of $4.33 billion. Broadcom has suspended quarterly forecasts while it integrates and restructures its acquisition of software maker VMware.
Broadcom’s Mr. Tan built one of the chip industry’s largest companies through a series of acquisitions. He also pursued software initiatives and diversified the business. This commitment was further strengthened by his recent acquisition of VMware. Tan said the deal would take a year to integrate and cost about $1 billion, including employee termination costs.
Broadcom provides key components for Apple’s iPhone, designs custom chips for Alphabet Inc.’s Google, and is the largest supplier of network components that control traffic between computers in data centers. During earnings calls, Mr. Tan typically provides updates on Broadcom’s sometimes contentious relationship with Apple, euphemistically referring to it as the “North American customer” or another vague nickname. I’m here.
Tan said Thursday that Broadcom has “very deep, strategic, multi-year relationships” with its customers.
—With assistance from Mark Gurman.
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