Broadcom reported a net income loss of $1.87bn for the third quarter of fiscal year 2024 (Q3 FY24), primarily due to a one-time discrete non-cash tax provision of $4.5bn. This provision is associated with an intra-group transfer of certain intellectual property (IP) rights to the US as part of supply chain realignment.
In contrast to Q3 FY24, the semiconductor manufacturing company reported a net income of $3.3bn for the same quarter of the previous fiscal year. The Q3 FY24 loss occurred despite seeing growth in revenues of its artificial intelligence (AI)-driven semiconductor solutions and infrastructure software segments.
Broadcom’s AI chip earnings ballooning
Somewhat more positively for Broadcom, revenue from its AI-driven semiconductor solutions unit increased by 5% to $7.27bn in the third quarter of FY24, while infrastructure software segment revenue showcased a surge of 200% to $5.8bn.
Despite this, Broadcom’s shares fell nearly 5% in extended trading. Overall, the firm’s total net revenue for Q3 FY24 increased by 47% to $13.07bn, compared to $8,87bn in the same quarter of the previous year.
The surge in infrastructure software revenue for Q3 FY24 is attributed to Broadcom’s acquisition of VMware, a cloud computing and virtualisation technology company. The deal closed in late 2023.
At the end of the fiscal quarter, Broadcom’s cash and cash equivalents stood at $9.95bn, up from $9.81bn in Q3 FY23. The company generated $4.96bn in cash from operations and allocated $172m allocated to capital expenditures. The semiconductor manufacturing firm also paid $1.35bn of withholding taxes associated with net settled equity awards that vested during the quarter, which led to the cancellation of 8.4 million shares.
“Consolidated revenue grew 47% year-over-year to $13.1bn, including the contribution from VMware, and was up 4% year-over-year, excluding VMware,” said Broadcom’s chief financial officer, Kirsten Spears. “Free cash flow, excluding restructuring and integration in the quarter, was $5.3 billion, up 14% year-over-year.”
During a post-earnings conference call, Broadcom executives highlighted a 49% decline in broadband revenue for the quarter, while non-AI networking revenue fell by 41%.
This suggests that a strong performance in the AI-related segments was offset by the weak demand in other areas.
VMware acquisition positive for Broadcom’s bottom line
Broadcom has updated its annual AI revenue forecast to $12bn, up from the previous expectation of $11bn. It has been raised due to the increased demand for its custom chips and AI networking equipment.
Additionally, the company projects its Q4 FY24 revenue to be around $14bn, with an adjusted EBITDA margin expected to be about 64% of projected revenue.
“Broadcom’s third-quarter results reflect continued strength in our AI semiconductor solutions and VMware,” said Broadcom’s president and chief executive, Hock Tan. “We expect revenue from AI to be $12bn for fiscal year 2024 driven by Ethernet networking and custom accelerators for AI data centres.
“The transformation of VMware continues to progress very well. The integration of VMware is driving adjusted EBITDA margin to 64% of revenue as we exit fiscal year 2024.”
Last week, another significant player in the AI chip market, Nvidia, reported $16.6bn in GAAP net income, a year-on-year increase of 168%, in its Q2 FY25. Its shares also fell 6% in after-hours trading.
Nvidia’s total revenue for Q2 FY25 reached $30bn, a 122% rise from $13.5bn in Q2 FY24. Its positive results were primarily driven by a surge in demand for its data centre products and accelerated computing solutions.
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