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(Amends paragraph 22 to reflect that Broadcom beat revenue estimates)
Written by Max A. Cherney and Arsheeya Bajwa
(Reuters) – Technology conglomerate Broadcom on Thursday reported first-quarter revenue that beat market expectations. This comes as cloud providers continue to upgrade their data centers to support AI, driving demand for the company’s advanced networking chips.
But smaller rival Marvell Technology Inc.’s sales fell short of market expectations, and its stock fell 6% in extended trading.
Broadcom did not update its annual revenue forecast of $50 billion, which was slightly lower than expected and likely disappointed investors. CEO Hock Tan said in a post-earnings conference call that he expects nearly a fifth of the company’s annual revenue to come from AI.
Largely driven by AI optimism, Broadcom stock’s 26% rise in 2024 comes with high growth expectations for the Palo Alto, California-based company. The stock price fell more than 1% in after-hours trading.
Marvell and Broadcom sell technology that provides high-speed communications between high-end computers, and Wall Street sees both companies as potentially big winners from the explosive growth in AI computing.
Broadcom and Marvell each rose more than 4% ahead of the earnings release, with both companies soaring in recent months to record highs.
Broadcom has been hailed as a beneficiary of the push for generative AI across the technology industry. This has led companies to increase spending on infrastructure, driving demand for chips that enable different parts of large cloud companies’ systems to talk to each other.
The complex data centers involved in developing generative AI will be obsolete without the network equipment from providers like Broadcom to support them. This has allowed Broadcom to be integrated into the supply chain, making him one of the biggest beneficiaries of AI.
AI revenue for the quarter quadrupled year-on-year to $2.3 billion, more than offsetting the current cyclical slowdown in enterprise and telecom businesses, Tan added.
Semiconductor Solutions’ revenue rose 4% to $7.39 billion in the first quarter, slightly missing Visible Alpha’s forecast of $7.45 billion.
Broadcom expects to cash in on nearly $10 billion in AI revenue from its semiconductor division in 2024, Tan said.
“Investors may be disappointed that management did not raise its outlook, but given the deteriorating macro environment and weak demand from carriers and businesses, Despite this, we still think there is a possibility of upside.”
But for rival Marvell, the results cast doubt on investors’ expectations that AI-generated revenue would exceed expectations amid weak demand from telecom companies.
Software segment growth
Widely known as a chipmaker, Broadcom’s portfolio has now expanded to include a variety of technology companies, including VMware and software company CA Technology.
Infrastructure software revenue rose 153% to $4.57 billion, beating Visible Alpha’s estimate of $4.49 billion.
Broadcom is also known for its custom chips and is recognized as a leader in the ASIC (application-specific integrated circuit) market.
ASICS refers to semiconductors that can be modified according to customer preferences, as opposed to general-purpose chips like those sold by Nvidia.
Broadcom’s 46% increase in networking revenue in the first quarter was driven primarily by demand for custom AI chips from two hyperscale customers, Tan said, without naming the customers.
The company is widely known as the chipmaker behind tech giant Alphabet’s Google tensor processing units (TPUs), custom chips that power some cloud services.
Alphabet saw capital spending jump 45% in the fourth quarter of 2023 as it invested heavily in expanding its AI services. Meanwhile, Metaplatforms paid Broadcom about $500 million last year, according to a February filing.
The company had quarterly net sales of $11.96 billion, beating analysts’ average estimate of $11.72 billion, according to LSEG data.
Broadcom reported adjusted first-quarter net income of $5.25 billion, compared to analysts’ expectations of $5.01 billion. Earnings, adjusted for stock-based compensation, were $10.99 per share, compared with expectations of $10.30 per share.
(Reporting by Arsheeya Bajwa in Bengaluru and Max A. Cherney in San Francisco; Editing by Krishna Chandra Eluri and Diane Craft)
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