The Six Five team discusses Broadcom Q1 FY2024 Earnings.
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Transcript:
Daniel Newman: I think my tweet said one of the best run companies on the planet delivers on top and bottom once again, although it was a little light on its guidance, Broadcom. Let’s talk Hockonomics. Let’s talk a little Hockonomics right now. Company’s up 34% year-on-year, but about 11% revenue ex VMware. So this VMware add really did make a huge delta to the bottom line. The company… eight, almost $7.156 billion of EBITDA adjusted on the first year on its revenue. And I want you to guess what percentage of revenue this company’s EBITDA is, Pat. You know how much I love EBITDA, right?
Patrick Moorhead: Oh no, it’s incredible. And by the way, their margins are just, I mean, like 77% for its margins are just amazing.
Daniel Newman: But guess what’s left after that, what the EBITDA number is?
Patrick Moorhead: I don’t know. Tell me.
Daniel Newman: Take a stab just for fun. Let’s have some fun.
Patrick Moorhead: As a percent?
Daniel Newman: As a percentage of all of its revenue, how much of it’s EBITDA?
Patrick Moorhead: Oh, 20%, I’m going to guess.
Daniel Newman: 60. 60% of its revenue is adjusted EBITDA.
Patrick Moorhead: Oh, sorry, I was thinking of op. Okay.
Daniel Newman: Net Inc. Yeah, dude, don’t worry. It’s such an absurdly high number that the number you gave is very typical as to where companies land, 10, 20, 30 for a well run company. 60% of the company’s revenue.
Patrick Moorhead: Wait, 60% after R&D?
Daniel Newman: Adjusted EBITDA, yeah. Now again, the adjustments, I don’t know how much they’re really-
Patrick Moorhead: I’m embarrassed. I’ve embarrassed myself.
Daniel Newman: Yeah, we can edit that out.
Patrick Moorhead: We are live.
Daniel Newman: Pat, Take a stab, what percentage of their revenue do you think was adjusted EBITDA?
Patrick Moorhead: Typically in the industry it’s like 20%, but I’m guessing 60-ish percent.
Daniel Newman: Yeah, let’s say. That’s probably it. Actually, good job, Pat. It’s 60% on the head.
Patrick Moorhead: ka-ching.
Daniel Newman: So the company continued. It reiterated its guidance of about 50 billion with an adjusted EBITDA of 30 billion next year, Pat. So their guidance was just a little bit below consensus, but it was right there. And of course, the company is continuing to pay down debt, pay a dividend, and the stock has just been high-flying, Pat. I mean, I think it crossed $1,350 a share this week. I think it even broke $1,400, which it was trading at like 800 like six months ago. So while, yes, NVIDIA has been the fastest growing. This one has just been slow and steadily gaining about 100% year to date, in the last, sorry, year, whole year.
Just a couple of other items on the company’s business. The semiconductor business grew 4%. The infrastructure software business accretive to the VMware was up 153%. So big accretive add with the inclusion of VMware. And overall, Pat, all we can say is that Hockonomics work. Hockonomics deliver-
Patrick Moorhead: Is that a new thing? Did you just make up another one?
Daniel Newman: I’ve been talking about it for a couple of weeks now, but I’ve decided to go all in on making sure that, on the record, I’ve never heard anyone else say Hockonomics, but I’m pretty sure that this is a new way of running a business. I did say it to the board in one of my board meetings. And then I did say it to my leadership team in a meeting, that there’s something to be said for the way this man runs this company.
Patrick Moorhead: Sure is. Hey, I’m going to just try to add some filler to what you said. So some big things here. AI revenue quadrupled year-on-year, at 2.3 billion. I thought that was incredible. I got to tell you, software consolidated bookings going from less than 600 million to 1.8 billion, to over 3 billion in Q2. And by the way, that number was so big that Hock got a bunch of questions from investors in the call. And basically he was like, “We’re upselling on VMware.” It’s all about VMware Cloud Foundation, which is compute, storage, networking, virtualization. And I love that number. It’s just astounding. And you know that the investors had to do a double take when he pulled that out. Pretty big.
And then getting the semiconductors, aside from AI, it was very similar to what you would expect in the industry. They sell a lot to Apple, and Apple is down, so their wireless revenue was down. Imagine that. Storage industry is down, and therefore their storage number was down, and so was broadband related to all the carriers, which is down. And we’re going to see some very similar stuff when we talk about Marvell though. And by the way, final thing I love when Hock talks about Tomahawk. He loves talking Tomahawk. Tomahawk is essentially the basis for-
Daniel Newman: You like Tomahawk?
Patrick Moorhead: Yeah.
Daniel Newman: Tomahawk.
Patrick Moorhead: Yeah. Whoa, Dan. Jeez. God, you’re just nailing it today. No, Tomahawk is basically the glue that’s pulling all these AI systems together. And guess what, it’s off the rail. And they just keep cranking it out, cranking it out, cranking it out and printing money. So anyways, stock was down, whatever. I don’t care about it.
Daniel Newman: Down for a moment. That’s not the business we’re in. What does it mean? What does it mean?
Patrick Moorhead: I don’t even care.
Daniel Newman: Listen, it was a good set of results. This company, 20%, 30% of AI compute bomb is going to be networking, and you are going to need a lot of custom silicon. You’re going to need a lot of custom compute. You’re going to need a lot of networking and connectivity. I don’t think Broadcom sits in a bad position on the semi side. And then all the private AI that enterprises are going to need to build to take advantage of their data, it sure seems like VMware Cloud Foundation has the potential to be a good partner for that.
So I think whether it’s at the mainframe, in the cloud or down to the silicon layer, it’s pretty compelling.
Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
