- Consolidated Net Revenue: $13.1 billion, up 47% year on year.
- Operating Profit: $7.9 billion, up 44% year on year.
- Infrastructure Software Segment Revenue: $5.8 billion, up 200% year on year.
- VMware Revenue Contribution: $3.8 billion.
- Annualized Booking Value (ABV) for VMware: $2.5 billion, up 32% from the preceding quarter.
- VMware Spending Reduction: Down to $1.3 million in Q3 from $1.6 million in Q2.
- Networking Revenue: $4 billion, up 43% year on year.
- Server Storage Connectivity Revenue: $861 million, up 5% sequentially, down 25% year on year.
- Wireless Revenue: $1.7 billion, up 1% year on year.
- Broadband Revenue: $557 million, down 49% year on year.
- Industrial Resales: $164 million, down 31% year on year.
- Q4 Semiconductor Revenue Guidance: Approximately $8 billion, up 9% year on year.
- Q4 Infrastructure Software Revenue Guidance: Approximately $6 billion.
- Q4 Consolidated Revenue Guidance: Approximately $14 billion, up 51% year on year.
- Q4 Consolidated Adjusted EBITDA Guidance: Approximately 64% of revenue.
- Gross Margins: 77.4% of revenue.
- R&D Expenses: $1.5 billion.
- Consolidated Operating Expenses: $2.2 billion.
- Adjusted EBITDA: $8.2 billion or 63% of revenue.
- Free Cash Flow: $4.8 billion, representing 37% of revenues.
- Capital Expenditures: $172 million.
- Cash and Cash Equivalents: $10 billion.
- Gross Principal Debt: $72.3 billion.
- Q3 Cash Dividends Paid: $2.5 billion.
- Q4 Quarterly Cash Dividend: $0.53 per share.
Release Date: September 05, 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 $13.1 billion for Q3 2024, up 47% year on year.
- AI revenue continues to grow strongly, contributing significantly to the overall revenue.
- VMware bookings accelerated, with more than 15 million CPU cores of VMware Cloud Foundation booked in Q3.
- Non-AI semiconductor revenue has stabilized, indicating a potential recovery in the sector.
- Q4 guidance projects consolidated revenue of approximately $14 billion, up 51% year on year.
Negative Points
- Broadband revenue declined 49% year on year to $557 million, with expectations of continued decline in Q4.
- Industrial resales declined 31% year on year, with Q4 resales expected to be down approximately 20% year on year.
- Non-AI networking revenue was down 41% year on year, despite a sequential increase.
- Free cash flow as a percentage of revenue declined due to higher cash interest expense from debt related to the VMware acquisition and higher cash taxes.
- Gross margins for the semiconductor solutions segment were down 270 basis points year on year, driven primarily by a higher mix of custom AI accelerators.
Q & A Highlights
Highlights of Broadcom Inc (AVGO) Q3 2024 Earnings Call
Q: AI revenue roughly $3.1 billion-ish in Q3, flattish sequentially. What was the mix in terms of compute versus networking? And the $3.5 billion for Q4, what do you see as that mix? How is your general confidence and visibility for fiscal '25 AI growth?
A: Hock Tan, President and CEO: In Q3, AI revenue was two-thirds compute and one-third networking. We expect a similar trend in Q4. For fiscal '25, we anticipate strong growth in AI revenue.
Q: There was a shift in AI revenue from cloud service providers towards enterprise. Does this affect your revenue outlook since your focus is on cloud customers?
A: Hock Tan, President and CEO: We do not focus on the enterprise AI market. Our AI products are largely for hyperscalers and cloud customers, so we do not see this shift affecting us.
Q: What happened in the classic Broadcom software side of things to create volatility? Are we reaching a $4 billion base in Q4 with VMware?
A: Hock Tan, President and CEO: VMware business continues to book well, converting customers to subscription licenses. We see this trend continuing in Q4 and into '25, indicating accelerated bookings and growth.
Q: Non-AI networking is significantly below its previous levels. Is this cyclical, and will it return to prior levels? Also, is the non-VMware software business stable at $2 billion per quarter?
A: Hock Tan, President and CEO: Non-AI semiconductor demand is recovering, with bookings up 20% in Q3. We expect a return to previous levels as the cycle recovers. Non-VMware software revenue has reached stability.
Q: Clarify your comments on AI revenue. Was Q3 in line with expectations? Where is the sequential growth in Q4 coming from? Will AI revenue grow next year due to additional customers?
A: Hock Tan, President and CEO: Q3 AI revenue was in line with expectations. Q4 growth is based on backlog, indicating strong trends. We expect continued strong growth in AI revenue next year, primarily from hyperscalers.
Q: Can you speak to the relocation of IP back to the US causing a $4.5 billion tax liability? Does this relate to any asset sales?
A: Kirsten Spears, CFO: The relocation of IP caused the $4 billion charge, which is non-cash with minimal cash impact. It does not relate to any asset sales.
Q: Will the growth rate of your AI revenue track GPU compute growth next year? Is there any change in your AI revenue growth outlook?
A: Hock Tan, President and CEO: It's difficult to compare directly with GPU growth. Our focus is on hyperscalers and custom silicon, which we expect to continue growing strongly.
Q: What is the profitability outlook for VMware? Will it reach similar margins as other Broadcom software businesses?
A: Hock Tan, President and CEO: VMware's Q3 revenue was $3.8 billion with $1.3 billion in operating expenses. We expect continued revenue growth and expense reduction, leading to strong operating margins.
Q: How should we think about the gross margin trajectory for software as VMware revenue grows?
A: Hock Tan, President and CEO: Software gross margins will remain around 90%, as most of our products are on subscription rather than SaaS.
Q: Can you discuss the custom AI revenue and the contribution from other customers aside from the largest customer?
A: Hock Tan, President and CEO: We have three meaningful customers for AI accelerators, all in production volumes. We do not consider proof of concepts as production volume.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
