Broadcom Inc., a major chip supplier for tech giants like Apple Inc., experienced a significant drop in its stock value following disappointing revenue results in its semiconductor business. Despite strong demand for artificial intelligence (AI) products, the company fell short of analyst expectations with semiconductor revenue reaching $7.39 billion in the first fiscal quarter, lower than the projected $7.7 billion. However, Broadcom remains on track to achieve $50 billion in sales by the end of fiscal 2024.
The surge in AI technology has been driving demand for Broadcom’s equipment, but the company is facing challenges in certain sectors such as telecommunications, impacting its chip sales. Nevertheless, infrastructure software sales exceeded analyst estimates, offering a silver lining amid the semiconductor revenue setback.
The stock price of Broadcom dropped by 7% in New York, marking its biggest single-day decline in four years. This decline also affected chipmaker Marvell Technology Inc., which saw its shares fall due to a weak outlook. Despite the setback, Broadcom CEO Hock Tan expressed optimism about AI spending strengthening throughout the year. The company anticipates AI demand to contribute to 35% of its semiconductor revenue in fiscal 2024, up from the previous forecast of 25%.
While Broadcom does not produce the same type of chips as industry leader Nvidia Corp., it plays a crucial role in providing networking components for data centers processing AI workloads. The company’s focus on custom chip design work and essential networking components positions it as a key player in the AI sector, particularly as large cloud computing providers order custom AI chips.
Broadcom reported a profit of $10.99 per share, excluding certain items, for the first quarter, surpassing analysts’ expectations. Total revenue also saw a significant increase to $11.96 billion, reflecting a 34% rise. Software demand helped offset the lower-than-expected semiconductor sales, with infrastructure software revenue exceeding projections at $4.57 billion.
CEO Hock Tan has expanded Broadcom through strategic acquisitions in both the chip and software sectors, with the recent purchase of VMware enhancing the company’s software capabilities. Integrating this acquisition is expected to take a year and incur expenses of around $1 billion, including workforce restructuring costs.
Broadcom’s close relationship with major customers like Apple has been a focal point during earnings presentations. Tan emphasized the deep strategic partnership with the “North American customer,” hinting at the strong connections with tech giants like Apple and Google. Despite the challenges in the semiconductor segment, Broadcom remains optimistic about the growth opportunities in the AI market and its overall business trajectory.
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https://finance.yahoo.com/news/broadcom-expects-ai-demand-help-232417739.html
