Broadcom Inc. Q4 FY2024 earnings call

• Acquisition of VMware: The integration is largely complete. Revenue is on a growth trajectory, and operating margin reached 70% exiting 2024. On track to exceed adjusted EBITDA target earlier than the initial 3-year plan.
• AI Performance: AI revenue grew 220% from $3.8 billion in fiscal 2023 to $12.2 billion in fiscal 2024, representing 41% of semiconductor revenue. Q4 AI revenue was $3.7 billion, up 150% year-over-year.
• Segment Details:
  • Networking: Q4 revenue $4.5 billion, up 45% year-over-year. AI networking revenue, 76% of networking, was up 158% year-over-year.
  • Server Storage: Q4 revenue $992 million, recovered ~20% from 6 months ago.
  • Wireless: Q4 revenue $2.2 billion, up 30% sequentially, flat year-over-year.
  • Broadband: Q4 $465 million, down 51% year-over-year, expected to recover in Q1.
  • Industrial: 1% of total revenue, Q4 resales $173 million, down 27% year-over-year.

Semiconductor Solutions: Revenue was $8.2 billion, representing 59% of total revenue in Q4. It grew 12% year-over-year. Gross margins were approximately 67%, down 220 basis points year-over-year due to a higher mix of AI XPUs. Operating expenses increased 11% year-over-year. Infrastructure Software: Revenue was $5.8 billion, up 196% year-over-year and representing 41% of total revenue. Gross margins were 91% in Q4, and operating expenses were $1.1 billion, resulting in an operating margin of 72%.

• Q1 FY2025 Guidance: Consolidated revenue expected to be approximately $14.6 billion, up 22% year-over-year. Semiconductor revenue expected to grow ~10% year-over-year to $8.1 billion. AI revenue expected to grow 65% year-over-year to $3.8 billion. Adjusted EBITDA expected to be ~66% of revenue.
• VMware: No longer break out VMware revenue and costs separately starting Q1 FY2025.
• Dividends: Quarterly common stock cash dividend increased to $0.59 per share on a split-adjusted basis, annualized $2.36 per share, 14th consecutive annual dividend increase.

• Risk factors from SEC filings could cause actual results to differ from forward-looking statements.
• Impact of debt related to VMware acquisition on cash flow and taxes.
• Quarterly variability in AI revenue ramp due to deployment timing of hyperscalers' XPU roadmaps.

Q: Clarification on AI networking revenue percentage and growth trends A: Hock Tan discussed networking growth and the higher AI component in networking revenue, noting more network AI connectivity components shipped in the back half of the year compared to the first half Q: $60 billion to $90 billion SAM for AI in FY27 and mix of XPU and networking A: Hock Tan clarified it's a Serviceable Addressable Market for specific hyperscale customers, with XPU and AI connectivity estimated to make up ~15%-20% of the dollar content Q: XPU market competition and architecture dynamics A: Hock Tan talked about the evolving architecture of scaling XPUs and GPUs, and how hyperscale customers are navigating scale-up and scale-out architectures Q: Cash return plans and debt paydown A: Kirsten Spears mentioned focus on paying down debt to reduce interest expense using free cash flow not used for dividends Q: AI SAM baseline, share, and margin impact A: Hock Tan discussed the baseline AI SAM in 2024 and how AI growth will impact semiconductor gross margins through revenue leverage despite margin dilution concerns Q: M&A interest post-organic growth acceleration A: Hock Tan stated M&A remains open as long as potential acquisitions meet the company's demanding criteria Q: AI custom silicon share, ramp, and future customers A: Hock Tan mentioned no specific guidance on AI custom silicon ramp for future customers but discussed the multi-year roadmaps and potential market trajectory