Release Date: December 12, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Broadcom Inc (AVGO, Financial) achieved a record consolidated revenue of $51.6 billion for fiscal year 2024, marking a 44% year-over-year growth.
- The acquisition and integration of VMWare have been largely completed, with VMWare's operating margin reaching 70% by the end of 2024.
- AI revenue grew significantly by 220% from $3.8 billion in fiscal '23 to $12.2 billion in fiscal '24, representing 41% of semiconductor revenue.
- The company returned a record $22 billion in cash to shareholders through dividends, buybacks, and eliminations, up 45% year on year.
- Broadcom Inc (AVGO) is well-positioned to capture a significant share of the AI semiconductor market, with a projected serviceable addressable market of $60 billion to $90 billion by fiscal 2027.
Negative Points
- Non-AI semiconductor revenue declined by 23% year on year, although it showed a 10% recovery from the bottom six months ago.
- Broadband revenue reached a low of $465 million in Q4, down 51% year on year, indicating challenges in this segment.
- Free cash flow as a percentage of revenue declined due to higher cash interest expenses from debt related to the VMware acquisition and higher cash taxes.
- Gross margins for the semiconductor solutions segment decreased by 220 basis points year on year, primarily due to a higher mix of AI XPUs.
- The company faces potential quarterly variability in AI revenue due to the concentrated customer base and the nature of large-scale deployments.
Q & A Highlights
Q: Can you clarify the AI networking revenue and discuss the trends in ASIC strength versus networking?
A: Both AI networking and ASICs are growing, but networking components have seen more shipments in the latter half of the year. This trend is expected to continue into the first half of the next fiscal year, with new generation XPUs ramping up in the second half of '25. - Hock Tan, President and CEO
Q: Regarding the $60 billion to $90 billion revenue range for fiscal '27 for AI, can you explain the mix between XPU and networking?
A: The $60 billion to $90 billion is a serviceable addressable market (SAM) for three hyperscale customers, focusing on XPUs and AI connectivity. AI connectivity is estimated to be about 15% to 20% of the dollar content. - Hock Tan, President and CEO
Q: How are your customers reacting to NVIDIA's rack scale products, and how does this affect your competitive dynamics?
A: Customers are figuring out how to scale up and scale out their architectures. Our hyperscale customers have developed roadmaps to grow from 100,000 to 1 million XPU clusters, and we are well-positioned to support them. - Hock Tan, President and CEO
Q: Can you discuss the AI guide for fiscal '25 and how it relates to data center CapEx spending trends?
A: AI spending outstrips non-AI spending in CapEx. The growth in our AI business does not necessarily mirror overall CapEx trends, as AI investments are significantly higher. - Hock Tan, President and CEO
Q: With software pushouts into Q1, how should we think about the shape of software revenue and gross margins for the year?
A: The pushouts are just slips and won't materially impact the rest of fiscal '25. We are not providing guidance beyond Q1, but the analysis suggesting a significant impact is incorrect. - Hock Tan, President and CEO
Q: Does the acceleration in your organic business change your interest in M&A?
A: Our interest in M&A remains unchanged. We are always open to acquiring franchise assets that meet our criteria, whether in semiconductors or infrastructure software. - Hock Tan, President and CEO
Q: What is the SAM for AI in 2024, and how do you see your share and margins evolving?
A: The SAM for AI in 2024 is estimated at $15 billion to $20 billion, growing to $60 billion to $90 billion by 2027. Gross margins in semiconductors may dilute, but operating margins are expected to improve due to revenue leverage. - Hock Tan, President and CEO
Q: Can you provide a simple dollar metric for network attached to XPUs, and is there a play for Broadcom outside of software in sovereign data centers?
A: Sovereign data centers will likely use merchant silicon and available software ecosystems. The ratio of AI connectivity to XPUs increases as clusters expand, potentially reaching 15% to 20% of content by the time clusters hit 500,000 to 1 million XPUs. - Hock Tan, President and CEO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
