September 1, 2023

Broadcom’s Downbeat Forecast Reflects Sluggish Chip Demand, Raising Concerns

Broadcoms, Chip, Concerns, Demand, Downbeat, Forecast, Raising, Reflects, Sluggish

Broadcom Gives Disappointing Forecast Amid Sluggish Demand

Introduction

Broadcom Inc., a supplier of chips to Apple Inc. and a broad swath of the tech industry, gave a disappointing forecast for the current period, signaling that demand remains sluggish for electronic components.

Forecast Details

Revenue for the fiscal fourth quarter is expected to be approximately $9.27 billion.
This falls short of the average Wall Street estimate of $9.28 billion.
Some analysts predicted revenue as high as $9.8 billion.
The projected gain would be the slowest since 2020.

Market Conditions

The outlook shows that Broadcom is facing a broad spending slowdown, even as the artificial intelligence boom fuels demand in pockets of the industry.

Broadcom is a key component supplier for Apple’s iPhone, which has suffered a sales decline.
Spending in the market for semiconductors that help direct traffic between computers in giant data centers has been uneven.

Stock Performance

The stock fell more than 4% in late trading after the quarterly report was released. Broadcom shares had gained 65% this year through the close, part of a broader run-up in chip stocks.

AI Market Potential

Despite the overall slowdown, AI is seen as a bright spot for Broadcom. CEO Hock Tan expects revenue related to the AI market to increase rapidly and account for more than a quarter of sales soon. Healthy demand for next-generation technology among large cloud computing providers is driving growth in this area.

Analyst Perspective

“People were hoping for more given the hype around AI,” said Stacy Rasgon, an analyst at Sanford C. Bernstein & Co.

Broadcom’s Reach and Performance

Broadcom, in addition to offering chips, has expanded into software used by large corporations. Its results are considered a bellwether for spending on technology.

In the fiscal third quarter, Broadcom’s profit was $10.54 a share, excluding some items, with revenue of $8.88 billion.
Revenue came in slightly better than expected.

Comparison to Nvidia

Broadcom hasn’t matched the rapid sales gains of fellow chipmaker Nvidia Corp. Nvidia’s AI accelerators have fueled insatiable demand and propelled the company to a $1 trillion valuation.

Wireless Unit and Apple

In the wireless unit, sales are expected to improve this quarter compared with the previous three months, but will remain down from a year earlier. The trends are being driven by a large North American customer, a veiled reference to Apple.

Expansion into Enterprise Software

Broadcom has expanded into enterprise software by acquiring security and mainframe capabilities. Its planned purchase of VMware Inc. is awaiting regulatory approval, which is expected by Oct. 30.

Conclusion

Broadcom’s disappointing forecast reflects the overall sluggish demand for electronic components, despite the growth in the AI market. The company continues to face challenges in certain sectors, such as the smartphone industry. However, its expansion into enterprise software presents potential opportunities for future growth.