Broadcom’s turnaround plan for VMware appears to be working, as the silicon-and-software-slinger reported 47 percent year on year revenue growth – but also posted a loss.
The acquisitive conglomerate today announced Q3 revenue of $13.07 billion – $7.25 billion of which came from its Semiconductor Solutions operation. Of the $5.8 billion earned by its Infrastructure Software outfit, $3.8 billion came from VMware.
VMware last year reported [PDF] $3.4 billion revenue for a quarter that ended on the same day – August 4 – that Broadcom stops counting cash. Broadcom’s revenue haul could be even more impressive, given VMware’s pre-acquisition numbers included the end-user compute and Carbon Black products that were respectively spun out into a new org called Omnissa and shunted off to Symantec. Omnissa has revealed its annual revenue exceeds $1.5 billion and Carbon Black is thought to have been a $320 million business – meaning they brought perhaps $450 million to VMware’s quarterly revenue.
On the earnings call, Broadcom CEO Hock Tan told investors VMware bookings “continue to accelerate” and revealed costs at the virtualization giant fell from $1.6 billion in Q2 to $1.3 billion this quarter. “When we acquired VMware, our target was to deliver adjusted EBITDA of $8.5 billion within three years of the acquisition,” Tan recalled. “We are well on the path to achieving or even exceeding this EBITDA goal in the next fiscal ’25.” Sales of VMware Cloud Foundation – its flagship private cloud suite – grew strongly, seemingly validating Broadcom’s contentious licensing and business model changes.
The news wasn’t all good – Broadcom’s headline revenue and growth figures were inflated by the arrival of VMware. Revenue from businesses Broadcom operated in 2023’s Q3 grew by just four percent year-on-year, and the biz posted a loss of almost $2 billion – largely thanks to a $4.5 billion tax liability caused by shifting some IP across divisions. Using non-GAAP principles, that result was $6.1 billion of net income. Financial analysts noted that Broadcom has moved IP ahead of past acquisitions. CFO Kristen Spears argued that’s not the reason for this move. She also pointed to “higher cash interest expense from debt related to the VMware acquisition” and noted that Broadcom exited the quarter with $72.3 billion debt to service.
Business was spotty across Broadcom’s silicon business, which won around $3.1 billion of its revenue from AI-related products and saw non-AI demand rise by 20 percent. Sales of custom AI accelerators grew by 3.5 times year-on-year, helping the two thirds of silicon revenue related to compute to grow nicely. Networking silicon also grew strongly, but saw dips in broadband and server connectivity revenue.
Tan told investors to expect $12 billion of AI-related silicon revenue for the full year – a billion bucks more than forecast. More cash will flow in 2025, Tan predicted, but declined to offer guidance even as he expressed optimism about hyperscalers’ purchasing plans.
Tan and Spears both told investors sales of non-AI silicon have bottomed out.
“We have reached bottom in our non-AI markets and we’re expecting a recovery in Q4,” Spears told investors.
Tan said Broadcom is not immune to what he called “your typical down cycle of semiconductors” as “broad ecosystems work on an adjustment in inventory levels in all stages in the supply chain.”
Better days are ahead, he insisted. “We’ll see Q4 continuing that recovery and obviously, in our view, into ’25 in terms of the cycle.”
Broadcom shares entered 2024 trading at around $108 and ended the day at just under $153. But trading after hours – and after the results announcement – saw the price dip to around $142.50. ®
