Analyst: Steven Dickens
Publication Date: September 10, 2024
Document #: MCESD202409
Broadcom’s Q3 2024 results highlight its expanding AI revenue, which accounts for 9% of total revenues. Significant contributions from the VMware acquisition boosted profitability. The Mainframe Software Division continues to offer steady support, ensuring a balanced approach to growth and stability across Broadcom’s business sectors.
What is Covered in this Article:
- AI’s Role in Contributing 9% of Broadcom’s Overall Revenue
- VMware’s Impact on Profitability and Operational Synergies
- Contributions of the Mainframe Software Division to Stable Revenue Streams
- Strategic Outlook for AI, Cloud, and Mainframe Technologies
- Broadcom’s Future Growth Potential Through AI and Cloud Expansion
Broadcom Q3 2024: AI Revenue, VMware Merger, and Mainframe Division Overview
The News: Broadcom Inc. continues to deliver robust financial results in Q3 2024, with total revenues reaching $13.1 billion, a 47% year-over-year increase. The company’s strategic focus on expanding its AI solutions and completing the VMware integration has been pivotal to this impressive growth. The main areas of interest for stakeholders are AI’s impact on revenue, VMware’s role in reshaping Broadcom’s financial structure, and the steady contributions of the Mainframe Software Division.
Broadcom Q3 2024: AI Revenue, VMware Merger, and Mainframe Division Overview
Analyst Take: 2024 has been a breakout year for Broadcom. With the closing of the VMware acquisition and AI revenue manifesting itself in the company’s chip business, the company has been growing on all fronts. When you couple this with the continued execution of the Mainframe unit, the company is firing on all cylinders. Broadcom’s Q3 2024 results reflect a strategic pivot toward AI, with 9% of total revenue now generated from AI-driven solutions. This growth highlights the increasing demand for AI infrastructure as enterprises invest in technologies that support data center operations and advanced computing needs. Broadcom’s strength lies in its ability to scale AI offerings through Ethernet networking and custom accelerators, positioning the company to further capitalize on this trend. The AI sector’s potential for expansion suggests that Broadcom’s role within this market will deepen, particularly as competition intensifies and enterprise reliance on AI technologies grows.
The integration of VMware continues to have a material impact on Broadcom’s financial structure, significantly enhancing profitability and margin performance. VMware’s cloud and virtualization solutions have enabled Broadcom to expand its software offerings, resulting in a more substantial alignment between its hardware and software portfolios. This synergy contributes to higher efficiency and bolsters Broadcom’s ability to provide comprehensive solutions across its customer base. Meanwhile, the Mainframe Software Division remains a steady source of revenue, underscoring the company’s balanced approach between growth sectors and more traditional product lines. Broadcom’s performance suggests it is well-positioned to navigate the evolving technology landscape with a diversified and resilient business model.
AI as a Growing Percentage of Revenue
AI has swiftly become a cornerstone of Broadcom’s financial performance. For fiscal year 2024, Broadcom estimates that its AI revenue will hit $12 billion, refitsompany’s strategic investment in AI-enabled infrastructure, custom accelerators, and Ethernet networking for data centers. AI now makes up a significant portion of Broadcom’s total revenue, accounting for around 9% of the overall revenue, clearly indicating that AI is no longer a niche offering but a key driver for Broadcom’s business.
The impressive demand for AI-powered solutions across industries such as data centers, networking, and cloud infrastructure plays a pivotal role. Broadcom’s Ethernet and custom AI accelerators have fueled this growth as enterprises increasingly prioritize AI workloads. Furthermore, the company’s robust partnerships with leading cloud providers have created pathways for further expansion in AI infrastructure.
Broadcom is positioning itself at the forefront of this technological shift as AI evolves. The company continuously improves AI solutions, integrating them with crucial technologies such as machine learning and deep learning. Moving into fiscal year 2025, the expectation is for AI to drive better revenue growth, potentially increasing its share to 10-15% of the overall revenue, fueled by the expansion in demand for AI-driven cloud services and semiconductor solutions.
VMware’s Impact on Profitability
The acquisition and integration of VMware profoundly impacted Broadcom’s financial performance. In Q3 2024, VMware contributed significantly to Broadcom’s 47% year-over-year revenue growth. This integration has not only bolstered Broadcom’s infrastructure software division, which saw its revenue grow by 200% compared to the prior year, but it also transformed Broadcom’s adjusted EBITDA margin, which rose to 64% of total revenue.
The VMware business has provided Broadcom with valuable assets, including a broad customer base, a robust cloud and virtualization technologies market, and substantial recurring revenues from software licensing. VMware’s software-defined data center solutions complement Broadcom’s core hardware products, creating a powerful synergy that enhances profitability. VMware’s contribution is expected to grow as more of its services are aligned with Broadcom’s AI and semiconductor portfolio, enhancing cross-selling opportunities.
As Broadcom continues to refine its integration strategy, cost efficiencies and synergies will likely lead to higher profitability margins. This integration also underscores Broadcom’s broader ambition of becoming a dominant player in hardware and software ecosystems. VMware will likely play a critical role in driving future earnings, mainly as Broadcom leverages its extensive customer relationships in cloud, networking, and AI to offer end-to-end solutions.
The Role of Mainframe Software Division
Broadcom’s Mainframe Software Division remains a solid contributor to overall profitability, demonstrating the company’s continued strength in serving large enterprise customers. Although this division doesn’t command the same level of topline growth as AI or VMware, it plays a vital role in stabilizing Broadcom’s financials, providing a foundation of consistent cash flow that allows the company to pursue more volatile growth sectors like AI and cloud solutions.
The Mainframe Software Division has particularly benefited from the surge in demand for cybersecurity, data management, and operational efficiency. Broadcom’s mainframe solutions are embedded in the critical infrastructure of many large financial institutions, government agencies, and multinational corporations. These customers rely heavily on Broadcom’s software to manage and secure massive volumes of data, driving long-term contracts and recurring revenue streams. Broadcom continues to stay focused in the mainframe space on delivering value, as shown in the Beyond Code program.
Furthermore, Broadcom’s ongoing investments in innovation within this division have helped extend the vital role of mainframe technology. By integrating AI and automation tools into mainframe systems, Broadcom ensures that its solutions remain relevant for modern enterprises seeking to optimize their IT infrastructure. While the growth trajectory may be slower, the division’s stable profitability contributes meaningfully to overall financial health. Particular highlights of late have been WatchTower, which showcases open-source innovation on the mainframe.
Strategic Synergies and Future Implications
Broadcom’s leadership in AI, combined with VMware’s transformative acquisition and the steadying influence of the Mainframe Software Division, sets the stage for a promising future. The company’s strategic synergies across hardware enhance profitability and make it well-positioned to tackle new market challenges.
In the short term, Broadcom expects its AI-driven solutions to see accelerated adoption across key verticals, including healthcare, finance, and cloud computing. In the long term, the company’s ability to integrate AI into its broader portfolio, including VMware’s cloud solutions, will drive deeper customer engagement and higher retention rates.
Furthermore, the company is focused on continuing its expansion into cloud and virtualization through VMware, providing customers with hybrid cloud infrastructure solutions that are critical for the next wave of digital transformation. Broadcom’s approach of combining hardware expertise with software and services is expected to enable more tailored solutions, offering customers the flexibility to manage increasingly complex IT environments.
While Broadcom’s Mainframe Software Division is not a high-growth sector, it will continue to provide a steady revenue stream, allowing the company to invest in future-facing technologies like AI and cloud. Its contributions, combined with the accelerating growth in AI and VMware, underscore Broadcom’s balanced approach to development and stability.
Looking Forward
Broadcom’s Q3 2024 financial results reflect a well-rounded business model that leverages AI, cloud infrastructure, and mainframe software to generate sustained profitability. AI’s contribution to revenue is rapidly growing, driven by increased demand for data center and cloud solutions, while the VMware acquisition is reshaping Broadcom’s financial performance and profitability. The Mainframe Software Division, though less dynamic, continues to play a crucial role in providing a steady profitability base.
As Broadcom continues to evolve, it remains well-positioned to capitalize on AI and cloud growth while maintaining the steady cash flow provided by its legacy businesses. With a strategic focus on integrating its diverse business units, Broadcom is poised for sustained success in the years to come.
See the complete Broadcom Q3 FY2024 earnings release on the Broadcom website.
Daniel Newman and his co-host of The Six Five Webcast, Patrick Moorhead of Moor Insights and Strategy discusses Broadcom’s earnings in their latest episode. Check it out here and be sure to subscribe to The Six Five Webcast so you never miss an episode.
Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.
Other insights from The Futurum Group:
Innovative Mainframe Solutions: A Deep Dive into Broadcom’s Initiatives
Broadcom Inc. Reports Strong Q2 2024 Earnings with AI and VMware Boost
Broadcom Further Streamlines VMware, Omnissa is Born
Author Information
Regarded as a luminary at the intersection of technology and business transformation, Steven Dickens is the Vice President and Practice Leader for Hybrid Cloud, Infrastructure, and Operations at The Futurum Group. With a distinguished track record as a Forbes contributor and a ranking among the Top 10 Analysts by ARInsights, Steven's unique vantage point enables him to chart the nexus between emergent technologies and disruptive innovation, offering unparalleled insights for global enterprises.
Steven's expertise spans a broad spectrum of technologies that drive modern enterprises. Notable among these are open source, hybrid cloud, mission-critical infrastructure, cryptocurrencies, blockchain, and FinTech innovation. His work is foundational in aligning the strategic imperatives of C-suite executives with the practical needs of end users and technology practitioners, serving as a catalyst for optimizing the return on technology investments.
Over the years, Steven has been an integral part of industry behemoths including Broadcom, Hewlett Packard Enterprise (HPE), and IBM. His exceptional ability to pioneer multi-hundred-million-dollar products and to lead global sales teams with revenues in the same echelon has consistently demonstrated his capability for high-impact leadership.
Steven serves as a thought leader in various technology consortiums. He was a founding board member and former Chairperson of the Open Mainframe Project, under the aegis of the Linux Foundation. His role as a Board Advisor continues to shape the advocacy for open source implementations of mainframe technologies.
