Nvidia's rising profitability amid the AI surge has captivated attention from around the globe. However, regarding AI chip revenue, SemiAnalysis analysts have highlighted that Broadcom might be considered the world's second-largest firm. Broadcom anticipates that AI market contributions will constitute 35% of its semiconductor revenue in the 2024 fiscal year, surpassing US$10 billion.
According to reports by MarketWatch and Reuters, Broadcom's revenue in the first quarter of the fiscal year 2024 (1QFY24, ending February 4) saw a year-on-year increase of 34%. However, revenue from its mainstay semiconductor solutions grew by only 4% to US$7.4 billion. This indicates a weak demand from telecom markets and corporate clients. Nonetheless, the booming AI market has helped mitigate the impact on semiconductor sales performance.
AI to the rescue
Broadcom's CEO, Hock Tan, stated that the company's switches have helped weather the recent wave of decommissioning of Ethernet cards. Sales of digital signal processors (DSPs) and optical components have significantly benefited from the robust demand in AI data centers. He revealed that purchases related to customized AI accelerators by "two" hyperscale cloud service customers were the main drivers behind the 46% increase in 1QFY24 network product revenue, reaching US$3.3 billion.
While Broadcom did not disclose the identity of these two clients, speculation suggests one of them might be Google. Previous reports by The Register indicated that Google's custom AI accelerators, known as Tensor Processing Units (TPUs), incorporate Broadcom's critical networking technologies, such as serializer/deserializer (SerDes).
Broadcom forecasts a total revenue of US$50 billion for FY24, including US$30 billion from semiconductor sales. Moreover, the AI market is expected to contribute 35% of the overall semiconductor revenue, amounting to over US$10 billion. This is a significant increase from the earlier estimate of 25%, demonstrating Broadcom's growing confidence in the AI market.
Another segment of Broadcom's business, infrastructure software, reported a year-on-year revenue increase of 153% to US$4.6 billion in 1QFY24, with US$2.1 billion contributed by VMware. Broadcom's upsell strategy for VMware customers has proven successful, anticipating double-digit percentage revenue growth quarter-on-quarter for the remainder of FY24.
Broadcom's upselling involves encouraging clients using the vSphere virtualization tool for computing workloads to upgrade to VMware Cloud Foundation (VCF). VCF, a local self-service cloud platform, is touted as a supplement or alternative to public clouds, integrating computing, storage, and networking technologies to virtualize and upgrade customer data centers.
VMware has also collaborated with Nvidia on the VMware Private AI Foundation, enabling VCF to run GPUs for local AI model deployment, ensuring data security. Broadcom believes this advantage has sparked strong market demand for VCF, projecting full-year software revenue to reach US$20 billion.
