Release Date: June 12, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Broadcom Inc (AVGO, Financial) reported consolidated net revenue of $12.5 billion for Q2 2024, up 43% year-on-year.
- The integration of VMware is progressing well, with significant restructuring and cost savings achieved.
- Networking revenue grew 44% year-on-year, driven by strong demand from hyperscalers.
- The company is leading the transition to 800 gigabit bandwidth in data centers, driving growth in DSPs, optical lasers, and pin diodes.
- Broadcom Inc (AVGO) raised its fiscal 2024 revenue guidance to $51 billion, reflecting strong performance and growth expectations.
Negative Points
- Semiconductor revenue from enterprises and telcos continues to face cyclical weakness.
- Broadband revenue declined 39% year-on-year due to a pause in telco and service provider spending.
- Server storage connectivity revenue was down 27% year-on-year, indicating challenges in this segment.
- Gross margins for the Semiconductor Solutions segment decreased by 370 basis points year-on-year.
- The company faces higher cash interest expenses and cash taxes due to debt related to the VMware acquisition and a higher mix of US income.
Q & A Highlights
Highlights of Broadcom Inc (AVGO) Q2 2024 Earnings Call
Q: Hock, I would appreciate your perspective on the emerging competition between Broadcom and Nvidia across both accelerators and Ethernet switching. How do you think customers will allocate decisions between the two?
A: (Hock Tan, President and CEO) On AI accelerators, Broadcom operates on a different scale and model than Nvidia. We focus on custom ASICs for selective hyperscalers, while Nvidia excels in the merchant GPU market. In networking, Broadcom has deep expertise in Ethernet, and we complement Nvidia's GPUs by enabling them to work efficiently in large AI clusters.
Q: Can you delineate the strong growth in AI between compute offload and connectivity? How do you see this split evolving?
A: (Hock Tan, President and CEO) The mix between AI accelerators and networking infrastructure is evolving. Historically, it was 80% accelerators and 20% networking, but it is now closer to two-thirds accelerators and one-third networking. We expect this to trend towards a 60-40 split by year-end.
Q: You mentioned an $11 billion AI revenue guide. Given current trends, why wouldn't this number be higher?
A: (Hock Tan, President and CEO) The $11 billion figure is a conservative estimate based on current visibility. Quarterly shipments can be lumpy, and while the general trend is positive, this is the best forecast we have at this point.
Q: Can you provide an update on the adoption of your latest Tomahawk and Jericho products?
A: (Hock Tan, President and CEO) We launched Tomahawk 5 in late 2023, and adoption has been strong, particularly in AI data centers. We are on track to introduce Tomahawk 6, a 100-terabit switch, by late 2025, maintaining our two-year cadence of new product introductions.
Q: How is the integration of VMware progressing, and what is the customer response to the transition to subscription models?
A: (Hock Tan, President and CEO) The integration of VMware is going well, and we are making significant progress in transitioning customers to subscription models. We have modernized product SKUs and simplified the go-to-market flow, which has been well-received by customers.
Q: Beyond VMware, how do you see Broadcom's growth strategy evolving? Is M&A still an option?
A: (Hock Tan, President and CEO) While we are not in a rush to acquire another company, we remain open to opportunities that create shareholder value. Our strategy includes both organic growth and strategic acquisitions to enhance our portfolio.
Q: Can you comment on the state of the networking business excluding AI? Are you seeing signs of recovery?
A: (Hock Tan, President and CEO) We see networking, particularly enterprise and hyperscaler segments, following a similar trajectory to server storage. We believe it has bottomed in Q2 and expect a modest recovery in the second half of the year.
Q: Is there a way to map GPU demand to Broadcom's AI networking opportunity?
A: (Hock Tan, President and CEO) Roughly 25-30% of the value of GPUs is associated with networking infrastructure. However, the deployment timing can vary, making it complex to model precisely. Over time, this ratio tends to hold.
Q: How do you differentiate Broadcom from new entrants in the market, particularly regarding profitability and competition?
A: (Hock Tan, President and CEO) Broadcom's AI accelerators are highly profitable, even with the inclusion of high-bandwidth memory. Our scale and expertise in networking and custom silicon solutions provide a significant competitive advantage.
Q: Are you seeing a growing mix of white-box networking switch deployments among hyperscalers?
A: (Charlie Kawwas, President, Semiconductor Solutions Group) Our portfolio provides flexibility for hyperscalers to build clusters using either switch-scheduled or endpoint-scheduled networks. This flexibility, combined with our open network operating system, differentiates our solutions and supports a mix of custom and standard products.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
