Key Metrics
- Revenue:
- Semiconductor Solutions: $7,274 million (5% yoy)
- Infrastructure Software: $5,798 million (200% yoy)
- Non-GAAP Gross Margin: 77.4% of revenue
- Non-GAAP Operating Margin: 61% of revenue
- Cash from Operations: $14,358 million
- Free Cash Flow: $4.8 billion (14% yoy excluding restructuring and integration costs)
Forward guidance
- Q4 Consolidated Revenue: Expected to be approximately $14 billion, up 51% year-on-year.
- Q4 Semiconductor Revenue: Projected at approximately $8 billion, up 9% year-on-year.
- Q4 Infrastructure Software Revenue: Anticipated to be about $6 billion.
- AI Revenue for Q4: Expected to grow sequentially 10% to over $3.5 billion, translating to $12 billion for fiscal 2024, up from prior guidance of over $11 billion.
- Q4 Adjusted EBITDA: Expected to achieve approximately 64% of revenue.
- Fiscal 2024 Revenue Guidance: Raised to $51.5 billion.
- Fiscal 2024 Adjusted EBITDA Guidance: Increased to 61.5%.
Key takeaways
- Positives:
- Hock Tan noted, "AI revenue continues to grow and grow strongly," indicating robust demand in the AI sector, with Q3 AI revenue at approximately $3.1 billion and expected to rise to $3.5 billion in Q4.
- VMware integration is progressing well, with Hock stating, "The transformation of the business model of VMware continues to progress very well," contributing significantly to Q3 revenue growth of 200% year-on-year in the software segment.
- Non-AI semiconductor revenue has stabilized, with Hock mentioning, "We believe we did bottom in Q2," and forecasting a 40% year-on-year growth in total networking revenue for Q4.
- Strong cash flow generation, with free cash flow of $4.8 billion in Q3, supports ongoing investments and shareholder returns.
- Negatives:
- Broadband revenue declined 49% year-on-year, with Hock acknowledging, "Broadband remains weak on a continued pause in telco and service provider spending," indicating ongoing challenges in this segment.
- Non-AI networking revenue is still down 41% year-on-year, although Hock expressed optimism about recovery, stating, "We have, in fact, passed through the bottom."
- Increased operating expenses due to VMware integration, with consolidated operating expenses rising to $2.2 billion, which could pressure margins in the short term.
- Regulatory challenges, including a $4.5 billion tax liability from relocating IP to the U.S., could impact cash flow and financial flexibility.
Peer Summary
- Wireless Technology & Semiconductors (QUALCOMM INC):
- Qualcomm's QCT IoT revenue is expected to grow by more than 20%, indicating strong demand in this segment, contrasting with BROADCOM's challenges in non-AI networking.
- The automotive sector is projected to grow by 50%, highlighting a robust market that may impact semiconductor demand dynamics.
- Microprocessors & Semiconductor Products (INTEL CORP):
- Intel's focus on efficiency and execution is critical as they navigate a competitive landscape, with Gelsinger stating, "We need to fight for every inch," reflecting industry pressures that may also affect BROADCOM.
- Graphics Processing Units & AI Technology (NVIDIA CORP):
- NVIDIA's anticipated revenue growth driven by AI demand, with Huang noting, "The next-generation models could take 10 to 20 times more compute," suggests a rapidly evolving competitive environment in AI technology.
- Memory & Storage Solutions (MICRON TECHNOLOGY INC):
- Micron's strong positioning in data centers and automotive sectors, with Mehrotra stating, "Memory is essential to extend the frontier of AI capability," indicates a growing market that could influence semiconductor demand trends.