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Fabless chip and software maker Broadcom (NASDAQ:AVGO) reported results in line with analysts' expectations in Q4 FY2023, with revenue up 4.3% year on year to $9.30 billion. On the other hand, the company's full-year revenue guidance of $50 billion at the midpoint came in 2.1% below analysts' estimates. It made a GAAP profit of $8.25 per share, down from its profit of $8.80 per share in the same quarter last year.
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Broadcom (AVGO) Q4 FY2023 Highlights:
- Revenue: $9.30 billion vs analyst estimates of $9.28 billion (small beat)
- EPS (non-GAAP): $11.06 vs analyst estimates of $10.96 (small beat)
- Management's revenue guidance for the upcoming financial year 2024 is $50 billion at the midpoint, missing analyst estimates by 2.1% and implying 39.7% growth (vs 4.1% in FY2023)
- Free Cash Flow of $4.72 billion, similar to the previous quarter
- Inventory Days Outstanding: 60, down from 74 in the previous quarter
- Gross Margin (GAAP): 68.9%, down from 73.4% in the same quarter last year
Originally the semiconductor division of Hewlett Packard, Broadcom (NASDAQ:AVGO) is a semiconductor conglomerate that spans wireless, networking, data storage, and industrial end markets along with an infrastructure software business focused on mainframes and cybersecurity.
Processors and Graphics ChipsThe biggest demand drivers for processors (CPUs) and graphics chips at the moment are secular trends related to 5G and Internet of Things, autonomous driving, and high performance computing in the data center space, specifically around AI and machine learning. Like all semiconductor companies, digital chip makers exhibit a degree of cyclicality, driven by supply and demand imbalances and exposure to PC and Smartphone product cycles.
Sales GrowthBroadcom's revenue growth over the last three years has been mediocre, averaging 13.5% annually. As you can see below, this was a weaker quarter for the company, with revenue growing from $8.92 billion in the same quarter last year to $9.30 billion. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).
This was a sluggish quarter for the company as its revenue dropped 4.3% year on year, in line with analysts' estimates. Broadcom's growth, however, flipped from negative to positive this quarter. This encouraging sign will likely be welcomed by shareholders.
Product Demand & Outstanding InventoryDays Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.
This quarter, Broadcom's DIO came in at 60, which is 4 days below its five-year average. At the moment, these numbers show no indication of an excessive inventory buildup.
Key Takeaways from Broadcom's Q4 Results With a market capitalization of $373 billion, a $14.19 billion cash balance, and positive free cash flow over the last 12 months, we're confident that Broadcom has the resources needed to pursue a high-growth business strategy.
We were impressed by Broadcom's strong improvement in inventory levels. We were also happy its adjusted EBITDA and EPS outperformed Wall Street's estimates. On the other hand, its full-year FY24 revenue guidance underwhelmed, but it expects higher adjusted FY24 EBITDA profitability, partly thanks to its acquisition of software company VMware, which closed in November. Overall, the results could have been better. The company is down 2% on the results and currently trades at $901.55 per share.
