AI frenzy fails to reverse the decline in technology spending! Broadcom's Q3 performance exceeds expectations, but Q4 guidance is disappointing.

Zhitong Financial APP learned that after U.S. stock trading on Thursday, Eastern Time, Broadcom (AVGO.US) announced its third-quarter results for fiscal year 2023 ending July 30. According to the data, Broadcom's Q3 net revenue was $8.88 billion, up 4.9 per cent from a year earlier, better than market expectations of $8.87 billion; net profit was $3.3 billion, compared with $3.07 billion a year earlier; and adjusted earnings per share was $10.54, better than market expectations of $10.43. Despite Broadcom's progress in the artificial intelligence (AI) market, its sales growth has not been able to match that of chipmaker NVIDIA (NVDA.US). Nvidia's AI chips help so-called large language models process massive data streams. Strong demand for artificial intelligence chips pushed Nvidia's market capitalization above $1.2 trillion. In contrast, most of Broadcom's revenue comes from slower-growing or no-growth markets at all. This includes the smartphone industry. Data show that in the third quarter, Broadcom's chip business revenue was $6.94 billion, up 4.8 percent year-on-year, with market expectations of $6.87 billion; infrastructure software revenue was $1.94 billion, up 5.2 percent year-on-year, with market expectations of $1.91 billion.! Broadcom. png Broadcom CEO Hock Tan said that all of the growth in its semiconductor division is related to artificial intelligence devices. Without that, the division's performance would have been on par with last year. Overall, the chip market is experiencing a "soft landing," with big companies and telecom vendors buying fewer equipment, Tan said. At this stage, growth will again be driven by AI-related spending. Guidance Disappointing Broadcom, which supplies chips to Apple (AAPL.US) and numerous technology companies, has a disappointing forecast for the current quarter, indicating that demand for electronic components remains sluggish. Broadcom expects revenue to reach about $9.27 billion in the fourth quarter. By comparison, Wall Street's average estimate was $9.28 billion, with some analysts expecting as much as $9.8 billion. The increase is expected to be the lowest since 2020. This outlook suggests that Broadcom is stuck with a slowdown in spending across the board, even as the AI boom spurs some of the demand. Broadcom is a key component maker for Apple's iPhone, and iPhone sales have been declining. Broadcom dominates the market for semiconductors that help guide communication between computers in large data centers, but spending in that area has been mixed. The artificial intelligence business is seen as a bright spot. Tan told investors last quarter that he expects AI-related revenue to grow rapidly and soon account for more than 1/4 of total revenue. On Thursday, he noted the healthy need for next-generation technology from large cloud computing providers. In the statement, he said that these companies are expanding "artificial intelligence clusters in data centers". But for now, that growth is overshadowed by a broader recession. "Given the hype surrounding artificial intelligence, people want to see more," said Bernstein analyst Stacy Rasgon." In addition to offering a range of different chips, Broadcom is also expanding its business into software used by large enterprises. This influence makes its performance a bellwether for technology spending. Sales in the wireless business will improve this quarter from the previous three months, but will remain below year-ago levels. These trends are driven by what Broadcom calls "big North American customers," alluding to Apple. Broadcom expanded its business into enterprise software through acquisitions. Broadcom's plan to buy Veritas (VMW.US) was delayed by regulatory review, but the company said Thursday it still expects to get the necessary approvals by Oct. 30. As of press time, Broadcom was down 4.75 percent at $879.04.