(Bloomberg) — Broadcom Inc., which supplies chips to Apple Inc.
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Revenue for the fiscal fourth quarter will be about $9.27 billion, the company said in a statement Thursday. That compared with the average Wall Street estimate of $9.28 billion, with some analysts predicting as high as $9.8 billion. Profits are projected to be the slowest since 2020.
The outlook shows that Broadcom is mired in a broad spending slump — even as artificial intelligence boosts demand in growing pockets of the industry. It is the maker of key components for Apple’s iPhone, which has experienced a sales decline. And while Broadcom dominates the market for semiconductors that help direct traffic between computers in giant data centers, spending in that area is disproportionate.
The stock fell more than 4% after the quarterly report was released. Broadcom shares are up 65% this year, part of a broader rally in chip stocks.
AI is seen as a bright spot. CEO Hok Tan told investors last quarter that the revenue related to the AI market will increase rapidly and is expected to account for more than one quarter of sales soon. Thursday signaled healthy demand for next-generation technology among major cloud computing providers.
Those businesses are “expanding AI clusters in data centers,” he said in a statement. But for now, that growth has been overshadowed by the broader recession.
“People were more hopeful about the hype around AI,” Sanford C. Bernstein & Co. analyst Stacey Rasgon said on Bloomberg Television.
In addition to offering an arsenal of chips, Broadcom has developed software used by large corporations. This reach makes the result a bellwether for technology spending.
Although Broadcom’s growth slowed significantly from pandemic levels, sales were still slightly better than expected in the previous quarter. In the year Broadcom’s profit for the fiscal third quarter ended July 30, excluding certain items, was $10.54 a share. Revenue rose 4.9 percent to $8.88 billion. Analysts forecast earnings of $10.43 per share and sales of $8.87 billion.
Broadcom has not matched the rapid sales gains in the IT market. The insatiable demand for Nvidia’s AI accelerators, which help the so-called large linguistic models to handle large data flows, prompted this company. Worth about $1 trillion.
Broadcom, on the other hand, still gets most of its revenue from slow-growing markets. It boosts the smartphone industry.
Broadcom’s chip business had sales of $6.94 billion in the third quarter, compared to the average estimate of $6.87 billion. Infrastructure software revenue was $1.94 billion, versus forecasts of $1.91 billion.
CEO Tan told analysts that all the growth in the semiconductor unit is related to artificial intelligence tools. Without that, business would have been flat year after year.
“There are things that support the AI piece there,” Rasgon said.
In general, the chip market is experiencing a “soft landing”, with large companies and telecommunications providers buying smaller equipment, Tan. In the current period, the growth is again led by the costs related to AI.
In the wireless unit, sales improved this quarter compared to the previous three months, but were down from a year ago. The trends are driven by Apple’s veiled reference to Broadcom’s “biggest North American customer.”
Based in San Jose, Calif., Broadcom expanded into enterprise software by acquiring security and mainframe capabilities. VMware Inc. was about to buy it. It has been delayed by regulatory oversight, but the company said Thursday it still expects to get the necessary approvals by Oct. 30.
(Updates the sharing performance in the fourth paragraph.)
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