Broadcom gives strong forecast, avoiding bearish marks

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(Bloomberg) — Broadcom Inc., a chipmaker that supplies some of the biggest companies in the technology industry, gave a strong sales forecast for the current quarter, allaying fears that spending on Internet infrastructure is slowing.

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Revenue in the fiscal fourth quarter will be about $8.9 billion, Broadcom said in a statement Thursday, compared with an average analyst estimate of $8.72 billion. Shares rose about 2% in late trading after the report.

The outlook suggests that Broadcom is riding out a broader decline in chip demand, at least for now. Other vendors, including Nvidia Corp., Intel Corp. and Micron Technology Inc., have forecast a sharp sales slowdown — hurt by sluggish orders for personal computers and smartphones. Given that pessimism, Broadcom CEO Hock Tan acknowledged that his company’s report was “kind of surreal.”

“From our vantage point, infrastructure spending is still largely subdued,” Tan said on a conference call with analysts. “It’s true end demand.”

Broadcom’s backlog, which cannot be canceled, is expanding and now stands at $31 billion, Tan said. The company is strict about making sure these orders reflect demand for real products — and aren’t just going to sit in a warehouse. Broadcom’s average lead time, the gap between receiving an order and filling it, remains at 50 weeks, Tan said.

Broadcom is doing better than companies focused on computer chips, which are not selling well as consumers grapple with inflation and put off big-ticket purchases. Nvidia revealed an additional headache this week when it said new restrictions on exports to China could hurt sales. The warning sent chip stocks tumbling on Thursday, with Nvidia down as much as 12 percent.

Broadcom, which gets about 30% of its chip revenue from China, has not received a notice from the US government and does not expect to, according to Tan.

Broadcom sells a wide range of chips, making the San Jose, California-based company a bellwether for the technology industry.

Its semiconductors provide short-range connectivity for many Apple Inc. devices, including the iPhone. Other products are key to the networking engine inside giant data centers owned by Amazon.com Inc.’s AWS. and Alphabet Inc.’s Google. Cisco Systems Inc. it uses these same chips in its enterprise data center products, and a different line of Broadcom silicon runs many of the world’s set-top boxes.

Broadcom said demand from its big North American customer, its codename for Apple, has been steady and it expects to pick up in the current period when the company debuts a new line of models. The chip supplier said it expects unit volumes to be roughly the same as when the previous model was introduced.

Broadcom has also expanded into enterprise software by acquiring security and mainframe capabilities. And it’s trying to expand that diversification with a $61 billion purchase of VMWare Inc. in a transaction announced on May 26.

The company, like many of its peers, outsources much of its production. The biggest struggle over the past couple of years has been getting enough supply from these manufacturers. Now these shortages are at risk of turning into stockpiles.

In the third quarter ended July 31, Broadcom’s earnings rose to $9.73 a share, excluding certain items. Revenue rose to $8.46 billion. Analysts had forecast earnings of $9.57 per share on sales of $8.41 billion.

Tan has predicted that chip activity will slow to historical growth rates of about 5% or less. That would be a significant drop from last year, when sales rose 26%.

Investors have already decided that the latest chip boom has run its course. Broadcom is down 26% in 2022 through Thursday’s close, according to the Philadelphia Stock Exchange’s Semiconductor Index.

(Updates with comment from the CEO in the fourth paragraph.)

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