Broadcom (AVGO.US) FY1Q24 earnings call: Recently, there has been a significant increase in broadband and storage bookings compared to the previous year.

Recently, Broadcom (AVGO.US) held a FY1Q24 financial report performance meeting. Regarding the squeeze situation in broadband and storage, Broadcom pointed out that 24H1 is definitely a low point, and the situation for 24H2 is currently difficult to evaluate. The company has a 52-week preparation time and is maintaining this discipline, based on which the company has recently seen a significant increase in booking volume compared to the previous year. Broadcom introduced that Tomahawk 3 and Tomahawk 4 are mainly driven by AI expansion, and Tomahawk 5 51.2T is a good solution with higher adoption rates than expected, and it is a good solution for connecting GPUs. Currently, in terms of ASIC, the company has enough delivery time for customers, so there are currently no shortages. Compared to traditional enterprise networks and using AI networks like Tomahawk and Jericho, it is a relatively small market that is slowing down and the demand is mainly driven by AI. Of the $10 billion in AI revenue this year, approximately 70% comes from AI ASIC, around 20% comes from switches and routers, and the rest comes from other components. The company does not do optical modules, which is the OEM market, where they are more competitive, and the company does not vertically integrate into this. Q&A: Q: The AI business outlook is expected to increase by $2.5 billion, how much do ASIC and optics contribute to this? A: Out of the $3 billion increase, ASIC and networks contribute approximately 70%/30%. Q: Is the $10 billion guidance limited by supply? Does the 51.2T product contribute to this? A: Tomahawk 3 and Tomahawk 4 are mainly driven by AI expansion, and Tomahawk 5 51.2T is a good solution with higher adoption rates than expected, and it is a good solution for connecting GPUs. Currently, in terms of ASIC, the company has enough delivery time for customers, so there are currently no shortages. Q: How is the growth of VMware's core business? Will it still contribute $12 billion annually? A: The company has seen accelerated progress, with VMware continuously accumulating bookings and backlogged orders. Q: How are the VMware acquisitions different from previous software acquisitions the company has made? What is the company's view on channels and customer groups? A: Things are progressing smoothly, and the company's focus is not only on entering this market but also on designing an improved VCF counterattack. All these focus areas are concentrated on the largest 2000 strategic customers, some of whom still prefer to keep distributed data centers on-premise and consider hybrid solutions. Essentially, many customers have very traditional but important large equipment that has not yet been developed on old platforms. In the future, customers have two choices, one is on-premise data centers, and the other is to move some applications to the public cloud. Currently, the company's VMware Cloud Foundation solution through VCF completely replicates what customers are getting in the public cloud and has gained wide customer acceptance, as reflected in the booking volume over the past three months. Q: Are there new customers for the AI business? Does it bring higher ASP or profit? A: 1) AI has two main markets, one is for large-scale enterprises, especially those companies with a wide consumer base, whose model is to keep subscribers using this platform, not only to improve subscriber experience, but also to bring higher opportunities for advertisers. In this case, ASIC is very important, in addition, they also purchase AI accelerators and build clusters, which drive the demand for networks, but compared to AI ASIC, the growth in networking is relatively small; 2) Another market is enterprises that are driving AI transformation, including cloud and on-premises deployments. If they choose an on-premise solution, they typically use standard chips rather than custom ASICs, so the company does not have a market in this area, only in the network product business. Q: What is the backlog situation for broadband and storage? When will customers resume purchases? A: 24H1 is definitely a low point, and the situation for 24H2 is currently difficult to evaluate. The company has a 52-week preparation time and is maintaining this discipline, based on which the company has recently seen a significant increase in booking volume compared to the previous year. Q: What is the TAM for the company's AI business? Is the company vertically integrating its network products? A: Compared to traditional enterprise networks and using AI networks like Tomahawk and Jericho, it is a relatively small market that is slowing down and the demand is mainly driven by AI. Of the $10 billion in AI revenue this year, approximately 70% comes from AI ASIC, around 20% comes from switches and routers, and the rest comes from other components. The company does not do optical modules, which is the OEM market, where they are more competitive, and the company does not vertically integrate into this. Q: The company's competitor with headquarters in Asia believes that the largest design project in the future is just the company's major customer. What is the company's view on this? A: The company cannot prevent competitors from making provocative statements, but ultimately, numbers and technology prove everything, and the company always maintains strong strategic relationships with customers. Q: What is preventing other large-scale enterprises from expanding their custom ASICs? The industry mentioned a roadmap for custom SAIC, what is the company's view on this? A: 1) The company does not dominate this market, only has two customers; 2) Custom chips are very complex work, requiring not only hardware but also solutions, and a significant investment in building a software model suitable for ASIC. Even with the same customer, it is an evolving process, sometimes custom chips do not perform well, not due to hardware design, but because software layers, firmware do not work well together; 3) The company has been working with 2 customers for many years, one of whom has been working for 8 years to get to where they are today. Q: Is it possible for Nvidia to enter this market? A: The company cannot comment on this, and in terms of competition, the company's stance is to work twice as hard in areas where others excel to stay ahead. Q: Will the company provide customized network solutions? The implementation of custom chips seems to have no impact on gross margins, what is the reason for this? A: 1) Accelerator chips are not-It is only a simple multiplication hardware, which is also connected to storage. The company needs to purchase HBM from a storage leader. Therefore, even though the company has the ability to achieve decent gross margins in the logic chip segment, this ability cannot be replicated on HBM, which is a significant cost item. Additionally, the gross margin of AI ASIC is currently lower than other traditional silicon products, mainly due to the impact of memory.Q: Adjustments and outlook for sales expenses at VMware? A: The company has invested a lot of money in marketing because there are many VMware customers. The company has performed well with top customers, but for long-tail customers such as small businesses, the company needs to continue to drive sales activities. However, unlike the past acquisition of CA, the company's business is growing rapidly, so there is no need to increase additional expenses to support this business. Q: Progress on divesting non-core businesses at VMware? Why choose to retain them now? A: The company has found that retaining this department can bring more value. It is not large in scale, and the company can integrate and consolidate it, which is more valuable than divesting.