Broadcom forecasts quarterly sales below estimates amid rising custom AI chip competition

Broadcom has forecast quarterly revenue below Wall Street estimates, indicating that increased competition may hinder its progress in custom processors. The company's shares dropped over three percent in extended trading, down from a year-over-year gain of about six percent. Despite being a major player in the chip industry, Broadcom trails behind AI leader Nvidia, whose graphics processors dominate the AI market.

Broadcom anticipates fourth-quarter revenue of around US$34.8 billion, slightly below the analysts' average estimate of US$35.03 billion. Finance chief Amie Thuener revealed that the company aims to maintain an adjusted operating margin of 66 percent for the quarter, unchanged from the previous year. The firm also expects AI chip sales of US$21.7 billion for the fourth quarter, marginally higher than the estimated US$21.33 billion.

Customers of Broadcom are reportedly signing agreements with competing firms, including a recent custom chip deal between Marvell and Google, potentially making Google an investor in Broadcom with a potential stake of up to US$12.2 billion. In April, Broadcom signed a long-term agreement to supply Google with future generations of custom AI chips through 2031.

Broadcom's capacity to meet the soaring AI demand has been challenged by a difficult supply chain. To lessen its dependence on a single manufacturer, the company signed a multi-year memorandum of understanding with Samsung Electronics in July, worth over US$200 billion. AI chip sales surged more than threefold to US$16.7 billion in the third quarter, resulting in a total revenue of US$29.59 billion, surpassing analysts' predictions of US$29.36 billion. Adjusted profit reached US$3.32 per share, in contrast to the estimated US$3.24.