(Bloomberg) — Shares of Broadcom Inc., a chipmaker to Apple Inc. and other big tech companies, fell after divisions unrelated to artificial intelligence were hit and the company issued a disappointing sales outlook.
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The company forecast revenue of about $14 billion for the fourth quarter that ended in October, falling short of analysts’ expectations. For the full year, the company expects revenue from AI-related products to reach $12 billion, above the average forecast of $11.8 billion.
Broadcom Inc.’s non-AI business is growing more slowly than expected, according to a forecast released late Thursday. The company is benefiting from a surge in spending on artificial intelligence, but not all of its diverse divisions are reaping big benefits from the boom.
Broadcom shares fell 7.5% to $141.35 in premarket trading on Friday. They closed at $152.82 in regular trading in New York, up 37% this year.
The AI spending boom has made Broadcom’s semiconductor rival Nvidia Inc. the industry’s largest and most valuable company, selling so-called AI accelerators that help develop tools such as ChatGPT. Broadcom is also benefiting from supplies of related parts and software.
Data-center providers use Broadcom’s custom chip designs and networking semiconductors to build AI systems, and the company also sells parts for cars, smartphones and internet-access devices, while its forays into software also include products for mainframe computers, cybersecurity and data-center optimization.
CEO Hock Tan said most of the company’s non-AI chip businesses are in or have passed the worst. In some of those markets, revenues are starting to grow again sequentially, though they are still significantly lower than in the same period last year. He said preorders, an indicator of future revenues, are up 20%. There’s no reason those markets can’t return to their previous high levels, he said.
“Overall, the non-AI market has bottomed out, but we expect it to recover in the fourth quarter,” he said on a conference call with analysts. “AI demand remains strong.”
Third-quarter earnings per share, excluding some items, were $1.24, beating the average estimate of $1.22. Revenue rose to $13.07 billion, beating estimates of $13.03 billion. The company is significantly larger than it was a year ago, thanks in part to its acquisition of VMware Inc. for about $69 billion.
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Broadcom’s semiconductor division generated revenue of $7.27 billion for the three months ended Aug. 4. Software sales were $5.8 billion.
Tan said he is confident that AI will continue to produce great results next year.
The CEO built Broadcom into one of the semiconductor industry’s biggest companies through a series of acquisitions. His strategy was to find companies with strengths in specific areas, buy them, and restructure the business to focus on those areas. Tan has also used this method to expand into software.
In the long term, Tan believes the AI chip market will shift to custom in-house designs. This could be a shift in Broadcom’s favor as it means a shift away from Nvidia components and allows customers to manufacture their own chips. He declined to offer an exact prediction for when this will happen, saying it could take several years.
Apple is also a major customer — Broadcom supplies a key component for the iPhone — and during earnings calls, Tan typically gives updates on Broadcom’s relationship with Apple, euphemistically referring to the company as a “North American customer.”
On that point, Tan said on a conference call on Thursday that he expects next-generation devices to help Broadcom’s fourth-quarter wireless revenue grow 20% from the previous quarter, but that it will still be flat compared to the same period last year.
When asked what he called a “great question” about potentially exploring new acquisitions in the semiconductor space, the Broadcom CEO told the audience not to expect anything to happen soon, saying the company is focused on integrating with VMware and that the process could take two years.
“We really have our hands full right now,” Tan said.
(Adds pre-market trading in fourth paragraph)
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