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Broadcom Inc Earnings - Analysis & Highlights for Q1 2025
Overview
PositivesNegativesOutlook
- Operating income in Q1 was $9.8 billion, up 44% YoY, with an operating margin of 66% of revenue.
- The company ended Q1 with an inventory of $1.9 billion, up 8% sequentially to support revenue in future quarters.
- The company expects Q2 AI revenue of $4.4 billion, up 44% YoY.
- The company is seeing significant growth in the software segment for two reasons.
- The company has doubled the rate of capacity of the existing Tomahawk 5 to enable its AI customers to scale up on Ethernet towards the 1 million XPUs.
- Resales in industrial were down double digits in Q1 and are expected to be down in Q2.
- Non-AI semiconductor revenue in Q2 is expected to be flattish sequentially.
- Consolidated gross margin in Q2 is expected to be down approximately 20 bps sequentially on the revenue mix of infrastructure software and product mix within semiconductors.
- Revenue of non-AI semiconductors was down 9% sequentially on a seasonal decline in wireless.
- Server storage was down single digit sequentially in Q1.
- The company expects Q2 AI revenue of $4.4 billion, up 44% YoY.
- The company expects Q2 revenue of $4 billion for non-AI semiconductors.
- The company expects Q2 consolidated gross margin to be down approximately 20 bps sequentially on the revenue mix of infrastructure software and product mix within semiconductors.
- The company expects Q2 adjusted EBITDA to be approximately 66%.
- The company expects total semiconductor revenue to grow 2% sequentially and up 17% YoY to $8.4 billion in Q2.
Q&A Highlights from Broadcom Inc Earnings Call Q1 2025
- Analyst asked about the trend of four more customers coming online and if any of them could be as big as the current three.
- Hock E. Tan explained that these four customers are not yet considered customers by the company's definition, as they are still in the process of developing and creating their own XPUs. He also clarified that the company does not create the software models and algorithms that are required for the XPUs to work, but rather enables their partners to do so. He mentioned that the process of creating the first chip takes around 1.5 years, and that the four customers are still in the early stages of development. However, he stated that there is no reason why these four customers would not create demand in the range of what the first three customers have already achieved, but it may take longer due to their later start.
- Hock E. Tan explained that these four customers are not yet considered customers by the company's definition, as they are still in the process of developing and creating their own XPUs. He also clarified that the company does not create the software models and algorithms that are required for the XPUs to work, but rather enables their partners to do so. He mentioned that the process of creating the first chip takes around 1.5 years, and that the four customers are still in the early stages of development. However, he stated that there is no reason why these four customers would not create demand in the range of what the first three customers have already achieved, but it may take longer due to their later start.
- Analyst asked about the status of the 90-day ramp for the second half of 2023.
- Hock E. Tan stated that he only guides for Q2 and that it would not be appropriate to speculate on the second half.
- Hock E. Tan stated that he only guides for Q2 and that it would not be appropriate to speculate on the second half.
- Analyst asked about the impact of disruption from tariffs on chips and how it could affect Broadcom's business.
- Hock E. Tan, CEO of Broadcom, acknowledged that there is a disruption in the semiconductor industry due to the rise of generative AI, which is accelerating the development of semiconductor technology. He also mentioned that they are facing new challenges every month and trying to optimize their XPUs to meet the needs of their customers. He stated that they are experiencing a positive disruption, but it's too early to know where they'll all land. He also mentioned that there are other trends, such as enterprises pushing towards on-prem data centers, and that they have been seeing this trend for the past 12 months.
- Hock E. Tan, CEO of Broadcom, acknowledged that there is a disruption in the semiconductor industry due to the rise of generative AI, which is accelerating the development of semiconductor technology. He also mentioned that they are facing new challenges every month and trying to optimize their XPUs to meet the needs of their customers. He stated that they are experiencing a positive disruption, but it's too early to know where they'll all land. He also mentioned that there are other trends, such as enterprises pushing towards on-prem data centers, and that they have been seeing this trend for the past 12 months.
- Analyst asked about the potential impact of the AI market shifting towards inference workloads on Broadcom's opportunity and share.
- Hock E. Tan explained that Broadcom's XPUs focus on inference as a separate product line, and that the architecture of those chips is different from the architecture of training chips. He also clarified that the $60 billion to $90 billion SAM includes both training and inference workloads.
- Hock E. Tan explained that Broadcom's XPUs focus on inference as a separate product line, and that the architecture of those chips is different from the architecture of training chips. He also clarified that the $60 billion to $90 billion SAM includes both training and inference workloads.
- Analyst asked about Broadcom's involvement in the efforts of its partners to develop AI models.
- Hock E. Tan explained that Broadcom provides basic fundamental technology in semiconductors to enable its partners to use what they have and optimize it to their own particular models and algorithms. He emphasized that Broadcom does not provide any specific optimization for its partners and that the optimization is based on the partners' own models and algorithms.
- Hock E. Tan explained that Broadcom provides basic fundamental technology in semiconductors to enable its partners to use what they have and optimize it to their own particular models and algorithms. He emphasized that Broadcom does not provide any specific optimization for its partners and that the optimization is based on the partners' own models and algorithms.
- Analyst asked about the role of China in the AI market and its impact on Broadcom's business.
- Hock E. Tan stated that Broadcom does not have any opinion on the role of China in the AI market. He emphasized that Broadcom's focus is on the technical aspects of AI development and that the company does not get involved in geopolitical issues.
- Hock E. Tan stated that Broadcom does not have any opinion on the role of China in the AI market. He emphasized that Broadcom's focus is on the technical aspects of AI development and that the company does not get involved in geopolitical issues.
