Broadcom Gives Strong Forecast on Data Center Chips Demand

Ian King (Bloomberg) -- Broadcom Inc., one of the world’s largest chipmakers, gave a bullish forecast for quarterly sales, boosted by demand for chips used in data centers and equipment needed to improve consumer home internet speeds.

Revenue in the fiscal third quarter will be about $6.75 billion, the San Jose, California-based company said Thursday in a statement. That compares with an average analyst estimate of $6.59 billion, according to data compiled by Bloomberg.

A succession of acquisitions by Chief Executive Officer Hock Tan have made Broadcom one of the world’s top semiconductor makers by market value. He’s also added a software division that makes his company’s earnings a broader indicator of trends in corporate spending across the economy.

“Due to the strength in demand for semiconductors across our multiple end markets, we delivered 20% year-over-year increase in semiconductor revenue,” Tan said in the statement.

Broadcom’s wireless connectivity chips are used in Apple Inc.’s iPhone and other smartphones. Its switch silicon and custom designs are essential parts of data centers owned by cloud computing giants such as Alphabet Inc.’s Google and Amazon.com Inc.’s AWS. Broadcom is also a major provider of silicon used in set-top boxes and home-networking gear.

Internet service providers are adding to their network capacity and upgrading the boxes they rent to their subscribers to improve data speeds into the home. And the cloud companies are spending on improving the links among their networks of computers, Tan said. While corporations, more broadly, have yet to accelerate their spending, the positive trends allow Broadcom to give the strong forecast, he said.

Like many of its peers, Broadcom has been swamped with orders from customers amid rising concerns that industrywide shortages will hurt their ability to build new gear. Tan has said he’s already sold 90% of what he can supply this year by taking orders that he won’t allow to be canceled. Normally, chipmakers have about a quarter of their supply locked up like this. More than a year ago, Tan was one of the first chip CEOs to warn customers to order well in advance to guarantee supply.

Broadcom, and other chipmakers, are not shipping enough chips to customers to allow them to hoard inventory. He’s filling orders in amounts that match what his customers need to meet the demand for their electronic products, Tan said.

“It’s a pretty decent reflection of what end-demand is out there,” he told analysts. “We try to fulfill what customers want in a timely basis. The volume of bookings we receive every week continues to grow.”

In the fiscal second quarter, which ended May 2, Broadcom’s profit rose to $1.49 billion, or $3.30 a share. Revenue jumped 15% to $6.61 billion. Excluding certain items, profit was $6.62 a share. On that basis, analysts had predicted a profit of $6.44 a share on sales of $6.51 billion.

The company’s main chip division, semiconductor solutions, generated $4.82 billion in sales. Analysts were looking for $4.68 billion, according to data compiled by Bloomberg.

Broadcom’s stock was little changed in extended trading after the report. The shares have lagged behind average gains by other semiconductor stocks this year, increasing 6.2%, compared with a 12% gain by the Philadelphia Stock Exchange Semiconductor Index.