Generative AI Demand ‘Virtually All the Growth’ In Broadcom Q3 Semiconductor Business

‘As you know, we supply major hyperscale customers with custom AI compute engines. We are also supplying several hyperscalers [with] a portfolio of networking technologies as they scale up and scale out their AI clusters within their data centers, now representing over $1 billion,’ Broadcom CEO Hock Tan said on the company’s earning call. ‘This represented virtually all the growth in infrastructure business in Q3.’

Broadcom CEO Hock Tan said he expects the generative AI boom to continue growing through fiscal year 2024, as demand has remained “very strong.”

“Our AI revenue has been on an accelerating trajectory. No surprise. Deployment has been on an urgent basis and the demand we are seeing has been very strong. We saw that accelerating through the end of ’22 and continue to accelerate through the end of ’23. For fiscal ’24 we expect a somewhat similar accelerating trend.”

Tan compared this to Broadcom’s semiconductor revenue outside AI, which he said is “bumping along” but not growing.

“As you know, we supply major hyperscale customers with custom AI compute engines. We are also supplying several hyperscalers [with] a portfolio of networking technologies as they scale up and scale out their AI clusters within their data centers, now representing over $1 billion,” Tan said. “This represented virtually all the growth in infrastructure business in Q3.”

He expects that for fiscal year 2024 generative AI demand will represent more than 25 percent of the company’s semiconductor revenue. However, he said it is also a chance to grow networking.

“These things go hand in hand. You don’t deploy those AI engines, particularly in these days, for generative AI in onesies or twosies anymore. They come in large clusters of parts,” he said. “You need a fabric. Networking and connectivity among tens of thousands of those AI engines whether it’s GPUs or some other customized AI silica compute engine. The whole fabric with its AI engine represents, literally, the computer. It’s hand in hand.”

Meanwhile, Tan said there is “no legal impediment” remaining in the U.S. to close the $61 billion deal to buy VMware, and he expects the deal to close Oct. 30.

“We continue to work constructively with regulators in a few other jurisdictions and we are in the advanced stages of the process towards obtaining the remaining required regulatory approvals,” Tan said.

Broadcom revenue was up 5 percent from the same period last year to $8.87 billion, semiconductor revenue increased 5 percent, and infrastructure software revenue was up 5 percent year on year to $1.9 billion.

VMware presented its earnings in a written statement without hosting a presentation or taking questions from analysts. VMware CFO Karen Dykstra stated that the company has been successful in shifting more of its revenue from perpetual licenses to subscription. Subscription and SaaS annual recurring revenue reached $5.31 billion last quarter, an increase of 36 percent year over year.

Meanwhile, CEO Raghu Raghuram trumpeted the success of the company’s flagship conference, VMware Explore, where it unveiled several new products and partnerships, including a generative AI offering, VMware Private AI Foundation with Nvidia.

“Our customers continue to invest in our multi-cloud offerings as they modernize their infrastructure to run enterprise, cloud-native and new AI workloads,” Raghuram said in the statement.

VMware said its revenue was up 2 percent to $3.41 billion from the year before. SaaS and subscription revenue for the quarter was up 34 percent year on year to $1.26 billion. Net income rose 34 percent to $477 million for a per-diluted share value of $1.10.

Regulators around the globe have given a green light to the tie-up between Broadcom and VMware with the European Union approving the deal only on conditions that guarantee the chip giant will not withhold VMware technology from competitors.

The European Commission will enforce the provisions, which create a fast track process to handle disputes between Broadcom and competitors over the use of VMware technology.

This is the second enforcement order issued by the EU that Broadcom is subject to. In 2021, Broadcom was ordered to turn over its books for inspection to the European Commission regularly for the next seven years after it was found to have committed illegal sales practices.