Broadcom CEO predicts AI chipmaker’s sales will double

(Bloomberg) — Broadcom Inc., one of the world’s largest chipmakers, predicted that AI-related sales will double this year, helping to offset a broader slowdown in technology spending.

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Chip revenues from companies developing their AI capabilities could hit $1 billion a quarter, chief executive Hock Tan said in a Thursday conference call following Broadcom’s quarterly earnings release. Sales of AI-related chips could soon account for more than 20% of the company’s total, he said.

The outlook suggests that Nvidia Corp. isn’t the only chipmaker benefiting from the AI ​​frenzy. Broadcom’s network components help direct traffic between computers in giant data centers and manufacture custom chips for some of the biggest cloud computing providers. These customers have been scrambling to add more capacity to handle the demand for AI services — a trend that helped send Nvidia near the $1 trillion valuation mark this week.

Tan’s remarks helped Broadcom shares pare losses after falling more than 3%. They were down about 1.5% as of 5:37 p.m. New York time.

The shares had closed at $789.95 in New York, leaving them up 41% this year. This makes it one of the best performing semiconductor stocks in 2023.

Broadcom is still grappling with an industry-wide decline in technology demand, and its overall sales growth has slowed sharply since a pandemic-fueled surge in recent years.

Revenue for the third fiscal quarter will be about $8.85 billion, up 4.6% from a year earlier, the company said in an earlier statement Thursday. While that tops analysts’ estimate of $8.76 billion, it would represent Broadcom’s slowest growth in years.

Tan had warned analysts and investors that pandemic boom times would not last. Shortages in recent years have given way to a glut of inventory in some regions, prompting customers to postpone new orders.

In touting Broadcom’s gains in artificial intelligence, Tan is using a now-common tactic for tech companies. But, like others, he has yet to match the dramatic boost his counterpart Jensen Huang at Nvidia is seeing. Broadcom may be growing in a weakening overall market, but Nvidia predicts a sales increase of more than 60%.

Broadcom’s chips go into smartphones and home networking — in addition to data centers — making it a proxy for a wide range of tech spending. The company previously said it would have full order books for the remainder of the fiscal year, which ends in October.

In the second quarter, which ended April 30, Broadcom’s earnings were $10.32 per share, excluding certain items. Revenue rose 7.8% to $8.73 billion, marking the first time growth has been below double digits since 2020. Analysts had forecast earnings of $10.15 per share and sales of $8.72 billion.

Broadcom’s chip business had sales of $6.81 billion in the quarter, up 9% from a year ago. Infrastructure software increased 3% to $1.93 billion.

Broadcom provides semiconductors to Apple Inc. for the iPhone that provide short-range connectivity. The chipmaker warned earlier that wireless sales would slow in the second quarter.

Broadcom, based in San Jose, Calif., has also branched out into enterprise software by acquiring security and mainframe capabilities. A planned purchase of cloud software maker VMware Inc., however, is undergoing regulatory review and has taken longer than expected to close. That company also released quarterly results after Thursday’s close, reporting missed sales and earnings estimates.

Broadcom said it is making good progress in removing regulatory hurdles and still expects the VMware deal to close in fiscal year 2023.

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