Table of Contents
1. Broadcom (AVGO) – Earnings Review
a. Broadcom 101
Broadcom designs a slew of semiconductor equipment for AI training/inference, networking, mobile and more. It doesn't design Graphics Processing Units (GPUs) like Nvidia, but it does help giant customers create and coordinate the manufacturing for more specialized chips. These are called XPUs, with the "X" meaning it's a variable processing unit and customizable piece of hardware. Alphabet's tensor processing units (TPUs), which Broadcom co-designs, are an example. XPUs do not do nearly as much as a GPU can, but they're highly capable for specific machine learning tasks that are paramount for AI work. They're specialists, while GPUs are generalists.
Its semiconductor solutions business includes a range of chips that function as switches with world-class throughput. The Ethernet-based Tomahawk 6 product for data centers is a key example. These deliver great bandwidth gains, which bolster and accelerate data center networking.
It also offers a range of software tools, which significantly broadened out with its VMware acquisition. VMware offers virtual, localized layers of software that sit on top of hardware. This allows the centralized hardware to run several different operating systems from the same place. The company, which is now a Broadcom unit, calls this offering a "virtual private cloud" (virtual machine). Finally, VMware also gives AVGO more software-based tools to optimize its various semiconductors, providing compelling upselling potential.
b. Key Points
AI chip revenue keeps accelerating.
They added a 5th major customer this quarter.
Anthropic followed their $10B chip order last quarter with another $11B order this quarter (good for both Broadcom and Alphabet).
The Tomahawk 6 Switch is dominating.
c. Demand
Beat revenue estimate by 3.1% & beat guidance by 3.4%.
Semiconductor (semi) solutions revenue beat estimates by 3.0%.
AI semi solutions revenue of $6.2B rose 66% Y/Y and met AVGO guidance.
Non-AI semi solutions revenue met estimates.
Infrastructure (infra.) software revenue beat estimates by 3.3% and beat guidance by 3.6%.
Revenue for the full fiscal year (FY) rose by 24% Y/Y vs. 44% growth last year and 8% growth the year before.
d. Profits & Margins
Beat 77.7% GPM estimates & identical guidance by 20 basis points (bps; 1 basis point = 0.01%).
Beat $1.87 EPS estimates by $0.08.
Beat EBITDA estimates by 4.9% & beat guidance by 4.8%.
EBITDA rose by 34% Y/Y.
Infra. software EBIT was helped by wrapping up VMware integration work.
EBITDA margin expanded Q/Q despite the Q/Q GPM decline due to strong and broad-based leverage across operating expense (OpEx) buckets.
Missed free cash flow (FCF) estimates by 19%. This metric is very noisy on a quarterly basis, as it's tied to cadence of payments & collections. It is best to focus on annual FCF generation.
e. Balance Sheet
$16.2B cash & equivalents.
Inventory rose by 29% Y/Y – nearly in line with revenue. Days of inventory on hand fell from 66 days to 58 days Q/Q.
$65B total debt.
Dividends rose by 13% Y/Y. Dividends will grow by 10% Y/Y next year.
1.2% Y/Y diluted share count growth. They've gotten through the sharp dilution associated with their VMware purchase.
Broadcom has $7.5B left in buybacks (under 4% of the giant market cap) and just extended that program through the end of FY 2026.
f. Guidance & Valuation
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