Broadcom Inc Q3 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Vivek Arya - BofA Global Research (US) - Analyst : Thanks for taking my question. Just a clarification, Hock, and then the question. So I think AI revenue roughly $3.1 billion-ish in Q3, flattish sequentially. What was the mix in terms of compute versus networking? And the $3.5 billion for Q4, what do you see as that mix? And then as we get into fiscal '25, I realize you're not guiding overall AI, but just how is your general kind of confidence and visibility? Do you think that Broadcom can kind of grow in line or better than the overall AI silicon industry in fiscal '25? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 05, 2024 / 9:00PM, AVGO.OQ - Q3 2024 Broadcom Inc Earnings Call

Question: William Stein - Truist Securities - Analyst : Great. Thanks for taking my question. Hock, one of the things that we've picked up from both suppliers and the broader ecosystem in AI, I think we heard this from NVIDIA as well, that there was a shift in their revenue in the quarter, somewhat away from cloud service providers towards enterprise. And I wondered if that might potentially have a slowing effect on your revenue outlook in this end market because your participation is really pretty focused on the cloud customers. I wonder if you're seeing that, if you view it as a challenge or maybe you have a contrary view. Thank you.

Question: Ross Seymore - Deutsche Bank Securities Inc. - Analyst : Hi. Thanks for the question. I wanted to pivot over to the software side of things. Hock, it seems like, obviously, the VMware business had a great fiscal third quarter. It seems like the classic Broadcom software fell off. So I guess the two-part question is, what happened in the classic Broadcom side of things to create that volatility? And are we now kind of reaching that $4 billion base in the fourth quarter that you talked about with VMware? And if so, what are the puts and takes in the growth rate as we look into the future on that business?

Question: Stacy Rasgon - Bernstein Institutional Services LLC - Analyst : Hi, guys. Thanks for taking my questions. I have two short ones, one on each segment. So on semis, the non-AI networking is like more than 50% below where it was running before it rolled off. And clearly, the other businesses are also way below their peaks. Is there any reason why those shouldn't -- and this is just cyclical or is there something else going on? Is there any reason why those shouldn't get back to prior levels once recovery happens? And then on the on the software side, so the non-VMware pieces looks like it's back to that 2 billion-ish a quarter level or so that it was at before. Is that just Brocade falling off? And is this sort of 2 billion-ish a quarter -- is that bottomed as well? Is that the right level, we ought to be thinking about the growth after the non-VMware software business as we go forward from here?

Question: Ben Reitzes - Melius Research LLC - Analyst : Hey. Thanks a lot for the question. Hock, I wanted to ask you about semiconductors, your AI revenue, if you could just clarify some of your comments. Was the third quarter 3.1-sh in line with your expectations and it was anything weaker than expected? And then with the sequential growth, the 3.5, where are you expecting that to come from? And then if you don't mind, you said next year AI revenue should grow quite a bit. I was just wondering if that was due to any additional customers within your hyperscaler and consumer Internet portfolio. Thanks.

Question: Karl Ackerman - BNP Paribas Securities Corp. - Analyst : Thank you. Curious and I was hoping you could speak to the relocation of IP back to the US that is causing a $4.5 billion tax liability. Historically, Broadcom has redomiciled ahead of a pending transaction, and I'm getting questions from investors if this action may relate to any asset sales as the company seeks to pay down debt. So if you could clarify that, that would be helpful.

Question: Timothy Arcuri - UBS Securities LLC - Analyst : Thanks a lot. Hock, I wanted to ask about the growth rate in your AI revenue versus what we're seeing on the GPU side. Your AI revenue grew in the same zip code this year is what the GPU compute is growing. And you did say that it would be up next year, but your main customer's ramping a new version of their custom ASIC next year, and there's some thought that they might shift some of their purchasing back to GPUs next year. So do you think that the growth of your AI revenue should still approximately track how much GPU compute is going to grow next year? If you can give us any qualitative or quantitative thoughts there, that would be great. Thank you.

Question: Timothy Arcuri - UBS Securities LLC - Analyst : Yes. So the question, Hock, really is around the growth rate of your AI revenue versus what we're seeing on the GPU side because this year, you grew about the same as what GPU compute's growing. And the question is, is there anything happening next year that would change that equation so that your growth rate of your AI revenue would be materially different than what GPU compute is growing next year?

Question: Harsh Kumar - Piper Sandler & Co. - Analyst : Yeah, Hock, I was curious about the profitability of VMware. Historically, your software businesses have had operating margins greater than 70%. VMware, I know, is newer, and you're doing things a little different. You're keeping more customers than you historically have kept. But I was curious if you see a similar profile as the rest of your software businesses for VMware after you're done with all the cuts and everything. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 05, 2024 / 9:00PM, AVGO.OQ - Q3 2024 Broadcom Inc Earnings Call

Question: CJ Muse - Cantor Fitzgerald & Co. - Analyst : Yeah, good afternoon. Thank you for taking the question. I wanted to focus on software gross margin. So when you closed the acquisition of VMware, we ticked lower from low 90s to kind of high 80s. And we're now pushing a bit higher into July. And curious, as we kind of get to that $4 billion threshold, and you've kind of indicated higher in fiscal '25, how should we think about the gross margin trajectory overall for software?

Question: Chris Caso - Wolfe Research, LLC - Analyst : Yeah, thank you. Good evening. I wonder if you could speak to the custom AI revenue and perhaps the contribution from some of the other customers aside from that largest customer. How meaningful are the other customers in that segment? And what do you expect into next year as some of those newer projects start to ramp?

Question: Christopher Rolland - Susquehanna Financial Group, LLLP - Analyst : Hi. Thanks for the question. My question is actually on storage. And Hock, you bought Seagate's hard disk drive SoC assets earlier in the year. Can you talk about what you actually bought there, what it means in terms of economics for your company, and whether this accelerates your storage business over the next few years? Thanks.

Question: Aaron Rakers - Wells Fargo Securities, LLC - Analyst : Yeah, thanks for taking the question. Kind of thinking strategically as we look forward ahead to NVIDIA's Blackwell product cycle. There's been some indications that possibly Broadcom has an opportunity to participate more deeply in the optical side of that product platform from NVIDIA. I'm curious, do you see that as an opportunity relative to prior generations of NVIDIA just to deepen a participation or just to participate in general in kind of the areas of DSPs and maybe other things related to the Blackwell cycle from NVIDIA? Thank you.

Question: Joe Moore - Morgan Stanley & Co. LLC - Analyst : Great, thank you. I wonder, Hock, if you could talk about your thoughts on further M&A. Is that still on your radar down the road? And if you did, would it be still software-focused or any possibility of semiconductors becoming interesting to you again?

Question: Harlan Sur - J.P. Morgan Securities LLC - Analyst : Good afternoon. Thanks for taking my question. Hock, last quarter, you talked about an acceleration in R&D investments by your AI customers, and you talked about your follow-on wins for their next-generation XPU ASIC programs. It also looks like they're trying to accelerate their deployments of their GPUs, XPUs, and networking into their data centers here in the second half of the year. We know that on AI accelerators specifically, supply is quite tight, given the co-ops packaging and the HBM memory constraints. So has the team seen upside orders and demand for XPUs and networking here in the second half? Have you been able to meet that upside demand or is the team somewhat supply constrained? I guess in other words, is the AI demand greater than your supply here in the second half of the year?

Question: Harlan Sur - J.P. Morgan Securities LLC - Analyst : Have you been able to meet that upside or are you somewhat limited by supply constraints? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 05, 2024 / 9:00PM, AVGO.OQ - Q3 2024 Broadcom Inc Earnings Call

Question: Edward Snyder - Charter Equity Research - Analyst : Thank you very much. Hock, that was a perfect segue into my question. You've said in the past calls that you thought that AI compute would move away from ASICs and go to merchant market. But it looks like the trend is kind of heading the other way. Are you still the opinion that that's going to be the long-term trend of this? And secondly, as you just pointed out, power is becoming the defining factor for deployment with all the big guys at this point. And given the performance per watt of the ASICs over GPUs, which is superior to GPUs, why shouldn't we see more of these guys moving to custom ASICs? I know it takes a long time, and it takes a lot of funding, et cetera. But especially as the enterprise starts getting more involved with this, there are going to be some applications that are kind of standard across some of the enterprises -- wouldn't we even see some of the bigger -- like AWS, move to a custom silicon for a specific workload? So basically, the overall trend in ASICs in AI. Thanks.

Question: Edward Snyder - Charter Equity Research - Analyst : Yes.

Question: Edward Snyder - Charter Equity Research - Analyst : Right. That basically suggests that you're on the early part of your curve where -- I'm not trying to call it GPUs whatever -- but you could be getting to something closer to the peak of the GPU market just because everything, right, beside the cost expense. And as you're spending all this money and you're paying all this money for power, the ASICs become more and more attractive. So the curves are going to look different, right?