March 1, 2024


It's the Technology

Broadcom's stock rises on solid earnings beat as chip sales stay strong

Broadcom’s stock rises on solid earnings beat as chip sales stay strong

Computer chip giant Broadcom Inc. delivered fiscal fourth-quarter earnings and revenue today that topped expectations, followed by an outlook that came in ahead of estimates, sending its stock higher in extended trading today.

Shares of the company rose more than 3% in the after-hours trading session, adding a rise of about 2.5% earlier in the day.

That came after Broadcom reported fourth-quarter net income of $3.31 billion, with earnings before certain costs such as stock-based compensation coming to $10.45 per share. Revenue for the period rose 21% from a year earlier to $8.93 billion. The numbers came in ahead of Wall Street’s guidance of $10.28 per share in earnings and $8.9 billion in revenue.

Broadcom is primarily known for its semiconductor business, which involves selling wireless chips for smartphones to companies such as Apple Inc. In addition, it makes silicon used for broadband communications, networking, storage and industrial applications. Furthermore, it has a growing infrastructure software business that’s focused on mainframes, cybersecurity and data centers.

Broadcom President and Chief Executive Hock Tan (pictured) highlighted how the company’s fiscal 2022 revenue rose 21% from a year earlier to a record $33.2 billion, on the back of strong demand from hyperscalers such as cloud computing providers, service providers and enterprises. “This growth was driven by our strong partnerships with customers and accelerated adoption of our next-generation technologies,” he said. “As we look into fiscal 2023, our increased R&D investments during the preceding years position us to extend our leadership in next-generation products within the end markets we address.”

Breaking Broadcom’s revenue down by segment, the semiconductor solutions business saw sales rise by 26% to $7.09 billion in the quarter just gone, while infrastructure software sales rose 4% to $1.84 billion.

Looking to the fiscal first quarter, Broadcom issued positive guidance with a revenue forecast of $8.9 billion, ahead of Wall Street’s consensus estimate of $8.78 billion.

Three months earlier, similarly positive guidance from the company raised a few eyebrows, coming at a time when most other chipmakers were battening down the hatches as demand for semiconductors appeared to be cooling off. Some analysts wondered if the demand being seen by Broadcom was false, led by customers simply stockpiling chips. But Broadcom’s latest results proved the company was right, and few analysts seem to doubt the company this time.

Broadcom made headlines back in May when it announced its planned $61.2 billion deal to acquire the virtualization software firm VMware Inc. The deal, which has to be approved by a number of regulators before it can go ahead, is now subject to an investigation by the U.K.’s Competition and Markets Authority to determine if there is any risk that it will substantially reduce competition in a given market. Despite this development, Broadcom insists that it expects to close on the acquisition sometime during its fiscal 2023 year.

“Broadcom keeps on growing as if there were no chip and economic challenges, with an attractive portfolio that customers keep buying,” said Holger Mueller of Constellation Research Inc. “Profitability is also up for the quarter and the full year, so Hock Tan and team have figured out something the rest of the industry is still grappling with. One of the few concerns is that the diversification into software is not delivering, as its contribution to Broadcom’s overall revenue declined year-over-year.”

Photo: Wikimedia Commons

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