Shares of Broadcom Inc. traded lower following the closing bell today, after the chipmaker reported quarterly financial results that swung to a loss and offered guidance that fell short of expectations.
The company may have hoped for a reprieve as it boosted its guidance in terms of annual artificial intelligence revenue, having topped analysts’ expectations in its third-quarter results. But instead, the stock was down more than 6% in extended trading after its overall revenue forecast came up short.
The chipmaker reported earnings before certain costs such as stock compensation of $1.24 per share, beating the Street’s forecast of $1.20 per share, while revenue jumped by an impressive 47%, to $13.07 billion, well ahead of the $12.97 billion consensus estimate.
However, Broadcom took a hit from a onetime tax provision of $4.5 billion related to trading intellectual property rights from one company segment to another that’s based in the U.S., as part of a supply chain restructuring. As a result, it reported a net loss of $1.88 billion in the quarter, compared to a profit of $6.12 billion in the year-ago period.
The company’s stock was up 75% in the year to date going into today’s report, thanks in part to its strong presence in the AI chip industry. It produces a number of components required in data centers for processing AI workloads. As an example, it helped to design Google LLC’s TPU chips, which are used by Apple Inc. to train some AI features. It also makes computer chips that are used in networking, server storage, broadband, wireless and industrial applications.
Broadcom Chief Executive Hock Tan (pictured) said in a statement that the company now expects to make $12 billion in AI-related revenue this year, up from its prior outlook of over $11 billion.
“Broadcom’s third-quarter results reflect continued strength in our AI semiconductor solutions and VMware,” he said. “We expect revenue from AI to be $12 billion for fiscal year 2024 driven by Ethernet networking and custom accelerators for AI data centers.”
But the boost in AI looks like it won’t be enough to raise the company’s overall prospects, for it offered total revenue guidance that fell short of the Street’s expectations. Broadcom called for fourth-quarter sales of $14 billion, shy of the consensus estimate of $14.11 billion.
One of the reasons for that shortfall is that the rest of Broadcom’s semiconductor business appears to be faltering. It’s notable that most of the company’s growth in the prior quarter came from its infrastructure solutions business, which includes the virtualization software giant VMware.
During the quarter, Broadcom’s semiconductor solutions delivered revenue of $7.27 billion, up just 5% from a year earlier and below the consensus estimate of $7.42 billion. Meanwhile, infrastructure solutions revenue jumped more than 200%, to $5.8 billion, well ahead of the Street’s $5.52 billion target.
On a conference call with analysts, Tan said VMware contributed $3.8 billion to the infrastructure solutions business during the quarter. He said this was a result of the company rapidly transforming how VMware sells its products after closing on the $69 billion deal to buy it in November 2023.
“The VMware business continues to book very well as we convert customers in two ways,” Tan said. “One from perpetual to subscription licenses, but also those subscription licenses are for the full stack of VCF, and that has been very successful given the high ratio of new VCF subscribers we have achieved. We see this trend continuing in Q4, very much so and likely into fiscal 2025.”
Mizuho Americas Jordan Klein told Yahoo Finance that Broadcom was making good progress on VMware, but he said that was “just not enough” for investors, who are concerned about the slowing growth in its semiconductor business. “They beat this quarter’s revenue, but the upside was all their software business,” Klein noted. “It was not the semiconductor business and that’s going to be a disappointment.”
Klein said that the latest earnings results from chipmakers suggest that outside of AI-related products, the broader industry is in trouble. “If anything, areas like industrial and autos are weakening,” he said.
Still, Tan indicated that investors can expect to see a quick return to profitability by the end of the current quarter. He explained that the company has been very successful in its efforts to reduce spending at VMware, with operating costs coming to just $1.3 billion in the quarter, down from $1.6 billion three months earlier.
“Q4 will continue the trajectory of revenue continuing to grow and expenses still dropping, even as it starts to stabilize, but continues to reduce,” Tan said.