(Bloomberg) — Broadcom Inc., a chip supplier to Apple Inc. and other big technology companies, fell in late trading after delivering a disappointing sales forecast, hurt by the part of its business not linked to artificial intelligence.
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Sales will be about $14 billion in the fiscal fourth quarter, which runs through October, the company said in a statement Thursday. Analysts had projected about $14.1 billion.
The forecast suggests that Broadcom’s non-AI operations are growing more slowly than anticipated. While the company has benefited from a surge in AI spending, its other divisions are not as connected to this bonanza. The company has a wide variety of offerings, including products for mainframes, security and data center software, chips for mobile phones and data storage equipment.
Broadcom shares fell about 6% in trading after the announcement. The stock closed at $152.82 in regular New York trading, leaving it up 37% for the year.
The company expects revenue of $12 billion from AI-related products for the full year, beating the average analyst forecast of $11.8 billion. That suggests the shortfall in the overall quarterly sales forecast was due to other areas.
Chief Executive Hock Tan said most of its non-AI chip businesses are at or past their worst. Revenue in some of those markets has started to grow again sequentially, though it remains well below where it was a year ago. Bookings, a proxy for future sales, rose 20%, he said. There’s no reason those markets can’t return to previous high levels, he said.
“Overall, we have bottomed out in our non-AI markets and expect a recovery in the fourth quarter,” he said on a conference call with analysts. “Demand for AI remains strong.”
Third-quarter profit was $1.24 a share, excluding some items, versus an average estimate of $1.22. Revenue rose to $13.07 billion, versus a forecast of $13.03 billion. The company is much larger than a year ago, in part because of its acquisition of VMware Inc., which it bought for about $69 billion.
Broadcom's semiconductor division had revenue of $7.27 billion in the three months ended Aug. 4. Software sales were $5.8 billion.
Looking ahead to next year, Tan said he remains confident that AI will remain strong.
The chief executive built Broadcom into a major player in the chip industry through a series of acquisitions. His strategy is to find companies that are dominant in certain fields, buy them, and then refocus them exclusively on those areas. Tan has also used that formula to expand into software.
Booming spending on artificial intelligence has made Nvidia Corp., Broadcom’s chip company, the largest and most valuable in the sector. Nvidia sells so-called artificial intelligence accelerators that help develop tools like ChatGPT, but Broadcom has also benefited by supplying related components and software.
Data center providers rely on Broadcom’s custom chip design and networking semiconductors to build their AI systems. The company also sells components for cars, smartphones and internet access equipment. Meanwhile, its foray into software includes products for mainframe computers, cybersecurity and data center optimization.
In the long term, Tan believes the AI chip market will shift toward custom, proprietary designs, which would mean moving away from Nvidia components — a shift that could benefit Broadcom as it helps customers produce their own chips. He declined to provide a precise prediction for when this might happen, admitting it could take several years.
Apple is also a major customer: Broadcom provides key components for the iPhone. During earnings presentations, Tan often offers updates on Broadcom’s often contentious relationship with that company, which he refers to obliquely as his “North American customer.”
On that point, Tan said on Thursday's call that he expects next-generation devices to help boost Broadcom's wireless revenue 20% sequentially in the fourth quarter, though it would still be flat compared with the prior year.
Broadcom's chief executive, when asked what he called a “beautiful question” about whether he might pursue a new acquisition in the semiconductor space, told his audience not to expect anything soon. The executive said he was focused on integrating VMware, a process that could take two years.
“I have my hands very full right now,” Tan said.
(Updated with more information from the conference call in the last five paragraphs.)
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