‘Fundamental Dynamics’ Unchanged in Chips Industry, Says Broadcom CEO

Broadcom’s semiconductor lead times “have now stabilized, but the volume of bookings we are experiencing today continues to grow,” said CEO Hock Tan on an earnings call Thursday for fiscal Q2 ended May 2. “We intend to meet such demand and in doing so maintain our disciplined process of carefully reviewing our backlog, identifying real end user demand and delivering products accordingly.”

Broadcom is “comfortable” with the current lead times, and so are its customers, said Tan. The industry is “in the midst of a very strong demand” surge, and a “severe imbalance” between demand and supply, “as supply works to catch up,” he said. But the “fundamental dynamics underlying the semiconductor industry” haven’t changed, he said.

There are “cycles we all have seen many times in the semiconductor industry,” said Tan. “Maybe this is a bit extreme in the context of the pandemic, over the course of 2020, now extending partly into 2021.” Supply will stabilize “at some point, and demand is always there, because people need technology,” he said.

“Cost inflation in this envrionment” is the inevitable result “where as we all know, the semiconductor supply chain is under severe constraints,” said Tan. “In this environment, we are very, very open to talking to our customers” about passing along the higher costs, he said. Customers “are in turn very open to being able to address costs,” he said.

Few can predict how the semiconductor industry “will behave” over the next 10 years, once the demand-supply imbalance passes, said Tan. Though semiconductors are a “relatively matured industry,” it's also “evolutionary,” he said. “Technology is still evolving, which is great for us, and it keeps getting better and better.”

Broadband “is going through somewhat of a renaissance,” said Tan. Broadcom’s revenue in the broadband sector grew 28% year-on-year in the quarter, to 18% of its semiconductor top line, he said. “The work, learn and play from home environment is driving global service providers to expand connectivity to the home.”

The chipmaker is seeing “a demand surge for the latest Wi-Fi 6 and 6E technology to enable the last 100 feet of connectivity in homes,” said Tan. The “onset” of 5G spurred service providers to compete for subscribers by deploying “technology upgrades globally in fiber, cable and Wi-Fi connectivity,” he said. “We're seeing this investment cycle in broadband extending into 2022, and so for Q3, we expect to sustain double-digit year-on-year revenue growth in this segment.” Overall revenue of $6.61 billion for fiscal Q2 was up 15% from a year earlier. Broadcom’s outlook is for 16% year-over-year revenue growth in Q3 to $6.75 billion.

Broadcom’s Q2 wireless revenue was down 16% sequentially from Q1, reflecting normal “seasonality” in the segment, he said. Wireless revenue was up 48% year over year on a “very favorable” comparison with Q2 a year earlier, plus from “content increases” in Wi-Fi, he said. “We were able to ship more than we had originally planned.” Apple and Samsung are major customers of Broadcom’s smartphone Wi-Fi chips.