Broadcom Seeking to Avert ‘Excess’ Inventory Builds in ‘Wrong Places’: CEO

Broadcom CEO Hock Tan stood somewhat apart from his peers in the semiconductor industry when he expressed guarded optimism on a call Thursday for fiscal Q3 ended Aug. 1 that his company’s chip supply will be sufficient to meet demand into 2022. Broadcom has “a pretty good supply availability lineup for 2022, and we feel pretty OK about that,” said Tan. “I won't say great, but in this environment, all things considered, we're feeling quite good.”

Tan wouldn’t bite when asked about industry speculation that Broadcom’s top wafer supplier, Taiwan Semiconductor Manufacturing Co., would soon impose substantial price increases. Would Broadcom pass those higher costs along to customers, the analyst wanted to know. “We try not to talk about customers specifically, and the same applies very much to strategic suppliers, too,” responded the CEO. TSMC didn't respond to questions Friday.

Broadcom, on the “supply side,” continues to keep its product lead times “stable,” said Tan. It ended fiscal Q3 with $1.2 billion in inventory, up 16% from the end Q2, “in preparation to meet customer demand in Q4,” said Chief Financial Officer Kirsten Spears. Broadcom is “trying very hard not to overshoot” demand to avoid “building pockets of excess inventory within our ecosystem,” said Tan. “So I think we're managing very much to what we see out there.”

Semiconductor supply “is always something that is very much an issue of constraint in this environment,” said Tan. He believes Broadcom is shipping in volumes that “exactly” meet “what demand requires” among its “end-user” customers, he said. “We put in careful discipline to manage supply to where demand is really needed, as opposed to where OEMs or even end users are just building up buffers -- a bucket of buffers everywhere.”

Tan can’t “necessarily say the same of many other semiconductor companies out there” that are shipping in “bigger numbers” than Broadcom, he said. “We can show bigger numbers. But that means we will build up inventory in the wrong places, and we need every one of those wafers in this environment, not just this quarter or next quarter and the quarter after that, to ensure that our strategic customers are able to get what they need.”

The company is “managing very well” through the “challenging” resurgence of COVID-19 infections in Malaysia, where it deploys “a large supply chain team,” said Tan. “Practically 99% of our people in Malaysia have been vaccinated. We made arrangements with the Malaysian government and ensured that this was done.” Management will “continue to keep our eye very closely on conditions over there, but for now, I think we are OK,” he said.

Broadcom’s broadband revenue of $910 million in fiscal Q3 grew 23% year on year, fueled mainly by the “2X growth” in Wi-Fi 6E deployments, plus double-digit increases in “next-generation fiber,” said Tan. "We see service providers like AT&T, British Telecom, and even Deutsche Telekom, deploying in increasing volumes next-generation last-mile fiber connectivity to homes in the U.S. and globally.” Q3 wireless revenue of $1.4 billion was up 35% year on year, “in line with expectations,” said Tan. “In Q4, we expect wireless revenue to ramp approximately 33% sequentially in support of the launch of next-generation smartphones, and to be up 25% year on year.”