(Bloomberg) — Broadcom Inc., which supplies chips to Apple Inc. and other big tech companies, is forecasting its biggest profit increase in four years after its latest results beat expectations, buoyed by strong demand for artificial intelligence products.
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The company said in a statement on Wednesday that second-quarter earnings per share, excluding certain items, were $10.96, beating the average estimate of $10.80. Revenue rose to $12.5 billion, beating expectations of $12.1 billion.
The company said it expects sales of about $51 billion for the fiscal year ending in October. Analysts are expecting sales of about $50.6 billion, and Broadcom has previously said sales would be closer to $50 billion.
The race to build artificial intelligence systems is benefiting semiconductor companies like Broadcom Inc., even though the company doesn't sell Nvidia Corp.'s highly-prized AI chips. Broadcom is a beneficiary of the trend because it offers a range of components used in computing and networking, including some that are essential to data centers. Broadcom Chief Executive Officer Hock Tan said its acquisition of VMware Inc. also boosted performance.
“Broadcom's second-quarter performance was again driven by AI demand and VMware,” he said in a statement. Revenue from AI products alone reached a record $3.1 billion in the quarter, Tan said.
Tan projected total AI-related revenue to exceed $11 billion in fiscal 2024. Non-AI chip revenue, which had been sluggish recently, bottomed out in the second quarter and is “likely to recover modestly in the second half of fiscal 2024,” he said on a conference call with analysts.
Broadcom shares rose 14% in premarket trading on Thursday, which if sustained would be its biggest intraday gain since March 2020. The stock has risen 34% this year to $1,495.51 as of the close of New York trading on Wednesday.
The Palo Alto, California-based company also announced a 10-for-1 stock split effective July 15. Broadcom followed suit after Nvidia. The company's stock split went into effect on June 7.
Broadcom's semiconductor unit earned $7.2 billion in revenue for the three months ended May 5, beating the average estimate of $7.12 billion, according to data compiled by Bloomberg. Infrastructure software sales came in at $5.29 billion, beating estimates of $4.93 billion.
Broadcom, one of the biggest companies in semiconductors, has risen through the ranks through a series of acquisitions made by Mr. Tan, making it a barometer for how the overall chip market is performing.
Data center providers use the company's custom chip designs and networking semiconductors to build AI systems, but the company also sells parts for cars, smartphones and internet access devices, and is expanding into software, including products for mainframe computers, cybersecurity and data center optimization.
The acquisition of VMware, which closed in November, has been a big part of the software push.
“We are making great progress in integrating with VMware and accelerating its growth,” Tan said on the conference call.
Apple is a major customer and Broadcom supplies a key component for the iPhone. During earnings calls, Mr. Tan often gives updates on Broadcom's relationship with Apple, but when he does, he uses vague language, such as referring to the company as a “North American customer.”
Tan said on a conference call Wednesday that Broadcom's relationship with the customer is “deep, strategic and multi-year.”
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