Broadcom Inc., a chipmaker that supplies some of the largest companies in the tech industry, gave a strong sales forecast for the current quarter, allaying fears that spending on internet infrastructure is slowing.
(Bloomberg) — Broadcom Inc., a chipmaker that supplies some of the largest companies in the tech industry, gave a strong sales forecast for the current quarter, allaying fears that spending on internet infrastructure 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 estimate of $8.72 billion. The shares rose about 2% in late trading.
The outlook suggests Broadcom is sidestepping a broader decline in chip demand, at least for now. Other suppliers, including Nvidia Corp., Intel Corp. and Micron Technology Inc., have predicted a steep slowdown — hurt by sluggish demand for personal computers and smartphones. But Broadcom serves markets that have held up better.
“We expect solid demand across our end markets to continue in the fourth quarter, reflecting continued investment by our customers of next generation technologies in data centers, broadband and wireless,” Chief Executive Officer Hock Tan said in the statement. “Broadcom’s record third quarter results were driven by robust demand across cloud, service providers and enterprise.”
That contrasts with demand for PCs and phones, which has fizzled as consumers cope with inflation and put off big-ticket purchases. Nvidia revealed an additional headache this week when it said that new restrictions on exporting to China could hurt sales. The warning triggered a decline in chip stocks Thursday, with Nvidia suffering its worst intraday rout in two years.
Broadcom sells a wide range of chips to most of the world’s tech giants, making the San Jose, California-based company a bellwether.
Its semiconductors provide short-range connectivity for many Apple Inc. devices, including the iPhone. Other products are key to the networking machinery inside giant data centers owned by Amazon.com Inc.’s AWS and Alphabet Inc.’s Google. Cisco Systems Inc. uses those same chips in its products for corporate data centers, and a different range of Broadcom silicon runs many of the world’s set-top boxes.
The company has also branched out into enterprise software by acquiring security and mainframe capabilities. And it’s trying to extend that diversification with a $61 billion purchase of VMWare Inc. in a transaction announced May 26.
The company, like many of its peers, outsources much of its production. The biggest struggle in the past two years has been getting enough supply from those manufacturers. Now those shortages are at risk of turning into an inventory buildup.
Broadcom executives have assured investors that it’s not contributing to the accumulation of inventory. The company is only filling orders when it’s sure customers need the chips to go into devices, rather than having the supplies sit in a warehouse.
In the third quarter, which ended July 31, Broadcom’s profit rose to $9.73 a share, excluding some items. Revenue climbed to $8.46 billion. Analysts had predicted a profit of $9.57 a share on sales of $8.41 billion.
Tan has predicted that the chip business will decelerate to historical growth rates of about 5% or less. That would be a major comedown from last year, when sales surged 26%.
Investors have already decided that the latest chip boom has run its course. Broadcom has fallen 26% in 2022 through Thursday’s close, in line with the Philadelphia Stock Exchange Semiconductor Index.
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