Broadcom gives strong forecast, avoiding chip slump

(Bloomberg) — Broadcom Inc., a chipmaker that supplies some of the technology industry’s biggest companies, gave a strong sales forecast for the current quarter, allaying concerns that Internet infrastructure spending is slowing.

Revenue in the fiscal fourth quarter will be about $8.9 billion, Broadcom said in a statement Thursday, compared with an average analyst forecast of $8.72 billion. Shares rose about 2% in late trading after the report.

The forecast suggests Broadcom is skirting the broader decline in chip demand, at least for now. Other vendors, including Nvidia Corp., Intel Corp. and Micron Technology Inc., forecast a sharp slowdown in sales — hit by sluggish orders for PCs and smartphones. Given that pessimism, Broadcom CEO Hock Tan admitted his company’s report was “somewhat surreal.”

“From our perspective, infrastructure spending is still very high,” Tan said on a conference call with analysts. “It’s a real ultimate quest.”

Broadcom’s non-cancellable order backlog is expanding and now stands at $31 billion, Tan said. The company is strict about ensuring that these orders reflect demand for real products – and won’t just sit in stock. Broadcom’s average lead time, the gap between when an order is received and when it is fulfilled, remains 50 weeks, Tan said.

Broadcom is doing better than companies that focus on PC chips that aren’t selling well because consumers are dealing with inflation and putting off big purchases. Nvidia revealed a further headache this week when it said new restrictions on exports to China could hurt sales. The warning sent chip stocks tumbling on Thursday, with Nvidia down as much as 12%.

Broadcom, which gets about 30 percent of its chip revenue from China, has not received notice from the U.S. government and does not expect to, according to Tan.

Broadcom sells a wide range of chips, making the San Jose, California-based company a leader in the technology industry.

Its semiconductors provide short-range connectivity for many Apple Inc. devices, including the iPhone. Other products are key to the networking engine in giant data centers owned by Amazon.com Inc.’s AWS. and Alphabet Inc.’s Google. Cisco Systems Inc. uses these same chips in its enterprise data center products, and a different range of Broadcom silicon works with many of the world’s decoders.

Broadcom said that demand from its major North American customer, its code for Apple, is solid and that it expects an increase in the current period as that company debuts a new range of models. The chip supplier said it expects unit volumes to be roughly the same as the previous model’s launch.

Broadcom has also branched out into enterprise software by acquiring security and mainframe capabilities. And it’s trying to expand that diversification with a purchase of VMWare Inc. for $61 billion in a deal announced May 26.

The company, like many of its peers, outsources much of its manufacturing. The biggest struggle over the past two years has been getting enough supply from these manufacturers. Now there is a risk that this shortage will turn into a stockpile.

In the third quarter ended July 31, Broadcom’s profit rose to $9.73 a share, excluding certain items. Revenue rose to $8.46 billion. Analysts had forecast earnings of $9.57 per share on sales of $8.41 billion.

Tan predicted that the chip business would slow to historical growth rates of around 5% or less. That would be a big drop from last year, when sales jumped 26%.

Investors have already decided that the latest chip boom is over. Broadcom had fallen 26% in 2022 through Thursday’s close, according to the Philadelphia Stock Exchange.

(Updates with CEO comment in the fourth paragraph.)

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