Strong quarter for Broadcom, driven by AI growth and VMware integration.
Broadcom Inc. (NASDAQ: AVGO) closed its fiscal year 2024 on a high note, reflecting exceptional performance in Q4 driven by strategic acquisitions, robust AI expansion, and a strong focus on infrastructure software.
With a strong revenue surge and significant strides in AI and data center solutions, Broadcom continues reinforcing its leadership in the semiconductor and software industries. This article explores the financial highlights, growth drivers, segment performance, and forward-looking strategies discussed in Broadcom’s Q4 2024 earnings call.
Fiscal Year 2024 Highlights: A Record-Breaking Year
Revenue Growth: The company achieved a consolidated revenue of $51.6 billion, marking a 44% increase year over year. Excluding contributions from VMware, which Broadcom acquired earlier in the fiscal year, organic revenue growth stood at over 9%.
Operating Profit: Operating profit, excluding transition costs, grew by 42% year over year, reflecting efficient integration and operational strategies.
Shareholder Returns: Broadcom returned a record $22 billion to shareholders through dividends, buybacks, and eliminations, representing a 45% increase compared to the previous year.
Q4 2024 showed strong results, with consolidated revenue reaching $14.1 billion—a 51% year-over-year increase. Organic growth (excluding VMware) was reported at 11%, reflecting strong demand for Broadcom’s semiconductor and networking solutions.
Operating profit for the quarter was $8.8 billion, marking a 53% rise year over year. AI and cloud demand drove strong performance, VMware integration, and continued strength in networking solutions.
Key Growth Drivers
1. VMware Acquisition and Integration
Broadcom completed the acquisition of VMware early in fiscal 2024, focusing on enhancing VMware’s technology leadership in data center virtualization. The integration is largely complete, with VMware’s operating margin reaching 70% by the end of the fiscal year. The company is on track to exceed the initially projected incremental adjusted EBITDA of $8.5 billion, achieving this milestone ahead of the three-year target.
2. AI Expansion and Semiconductor Growth
AI-related revenues surged by 220%, from $3.8 billion in fiscal 2023 to $12.2 billion in fiscal 2024, accounting for 41% of semiconductor revenue. This growth was propelled by increased demand for custom AI accelerators (XPUs) and networking solutions.
3. Infrastructure Software Strength
Broadcom’s infrastructure software segment generated $5.8 billion in revenue during Q4, reflecting a 196% year-over-year increase. This growth was primarily driven by VMware’s integration and steady demand for Broadcom’s enterprise software solutions.
Despite some deals slipping into Q1 2025, Broadcom remains optimistic about infrastructure software growth, projecting a sequential revenue increase of 11% in the next quarter. VMware’s ABV is expected to exceed $3 billion in Q1 2025.
Segment Analysis
1. Semiconductor Solutions
Networking revenue for Q4 was $4.5 billion, a 45% increase year over year. AI networking revenue, comprising 76% of the networking segment, grew by 158%, driven by a doubling of AI XPU shipments to three hyperscale customers and a fourfold increase in AI connectivity revenue through global shipments of Tomahawk and Jericho products.
2. Infrastructure Software
The segment generated $5.8 billion in revenue during Q4, up 196% year over year and flat sequentially, despite some deals slipping into Q1. VMware’s total bookings reached $21 million, with approximately 70% attributed to VMware Cloud Foundation (vSphere), translating to an annualized booking value (ABV) of $2.7 billion, up from $2.5 billion in Q3. Spending reductions brought VMware’s expenses down to $1.2 billion in Q4, compared to over $2.4 billion per quarter prior to the acquisition, with operating margins previously below 30%.
Outlook for Q1 Fiscal Year 2025
Infrastructure Software: Revenue is expected to grow to $6.5 billion, an 11% sequential increase and a 41% rise year over year. VMware’s ABV is projected to exceed $3 billion, up from $2.7 billion in the preceding quarter.
Revenue Projections: Broadcom anticipates Q1 revenue to rise to $14.6 billion, representing a 22% increase year over year. The company also projects an adjusted EBITDA margin of 66% of projected revenue.
Strategic Focus and Future Projections
Broadcom’s strategic emphasis on AI is evident, with AI-related products, including custom AI chips and Ethernet networking solutions for AI data centers, contributing significantly to revenue. CEO Hock Tan projected that AI revenue could reach between $60 billion to $90 billion by fiscal 2027, indicating a compound annual growth rate (CAGR) of at least 70% to 95%. This projection is based on existing relationships with three major hyperscale customers, with potential upside from two additional hyperscale customers recently added.
Dividend Policy
Broadcom announced an 11% increase in its quarterly dividend to $0.59 per share for fiscal year 2025, marking the fourteenth consecutive annual increase since initiating dividends in fiscal 2011. At the close of the reported quarter, the dividend yield was approximately 1.18%.
Market Position and Valuation
As of December 5, 2024, Broadcom’s market capitalization was approximately $797 billion, with a price-to-earnings (P/E) ratio of 125.19. The company’s gross margin stood at 58.2%, reflecting strong profitability in its operations.
Conclusion
Broadcom’s fiscal year 2024 results underscore the company’s successful integration of strategic acquisitions and its robust positioning within the rapidly expanding AI sector. With substantial growth in its semiconductor and infrastructure software segments, Broadcom is poised for continued expansion, leveraging its technological advancements and strategic partnerships to capitalize on emerging market opportunities.
