--- title: "Broadcom: The AI serviceable market size will reach USD 60-90 billion in fiscal year 2027 (FY24Q4 minutes)" description: "Broadcom (AVGO.O) released its Q4 fiscal year 2024 financial report (for the period ending October 2024) after U.S. stock market hours on December 13, Beijing time: The following is the summary of Bro" type: "topic" locale: "en" url: "https://longbridge.com/en/topics/26053649.md" published_at: "2024-12-13T08:55:24.000Z" author: "[Dolphin Research](https://longbridge.com/en/news/dolphin.md)" --- # Broadcom: The AI serviceable market size will reach USD 60-90 billion in fiscal year 2027 (FY24Q4 minutes) **Broadcom (AVGO.O) released its Q4 fiscal year 2024 financial report (ending October 2024) after U.S. stock market hours on December 13, Beijing time:** **Below is the summary of Broadcom's Q4 fiscal year 2024 earnings call. For the financial report interpretation, please refer to the article:** [**ASIC to surpass GPU? Broadcom's good days are ahead**](https://longportapp.com/zh-CN/topics/26052530) **1.** $Broadcom(AVGO.US) **Core information review of the financial report:** **2\. Detailed content of Broadcom's earnings call** **2.1 Key information presented by executives:** Business progress **Overall situation for the year** \- Consolidated revenue for fiscal year 2024 **increased by 44% year-on-year**, reaching a record **$51.6 billion**. Excluding VMware, revenue growth exceeded **9%**. \- Operating profit (excluding transformation costs) **increased by 42% year-on-year**. \- Returned a record **$22 billion** in cash to shareholders through dividends, buybacks, and cancellations, an increase of **45%** year-on-year. **Two transformation drivers:** \- Completed the acquisition of VMware at the beginning of fiscal year 2024, leading to revenue growth and an operating profit margin of **70%**. \- Strong growth in AI revenue, increasing from $3.8 billion in the previous fiscal year to $12.2 billion, accounting for **41%** of semiconductor revenue. This drove semiconductor revenue to a record **$30.1 billion** within a year. **Fourth quarter situation** Overall data \- Consolidated net income was **$14.1 billion**, an increase of **51% year-on-year**. Excluding VMware, growth was **11%**. \- Operating profit was **$8.8 billion**, an increase of **53% year-on-year**. **Infrastructure software segment** \- Revenue was **$5.8 billion**, an increase of **196% year-on-year**, flat quarter-on-quarter. \- VMware's total CPU cost for the quarter was $21 million, with an annual booking value (ABV) of **$2.7 billion**, up from $2.5 billion in the third quarter Since the acquisition, Broadcom has signed **over 4,500 VMware Cloud Foundation (VCF)** contracts with its largest 10,000 customers. Software revenue is expected to grow to **$6.5 billion** in the first quarter of fiscal year 2025, with ABV exceeding **$3 billion**. **Semiconductor Segment** Revenue was **$8.2 billion**, an increase of **12%** year-over-year and a 13% increase quarter-over-quarter. **AI:** Fourth-quarter AI revenue increased by **150%** year-over-year, reaching **$3.7 billion**. Non-AI semiconductor revenue decreased by **23%** year-over-year, falling to **$4.5 billion**. **Networking Business:** Revenue was **$4.5 billion**, an increase of **45%** year-over-year. AI networking revenue grew by **158%** year-over-year, accounting for 76% of the networking business. Strong momentum in AI connectivity is expected in the first quarter of fiscal year 2025, with next-generation XPUs set to be shipped in bulk to hyperscale customers in the second half of fiscal year 2025. **Server Storage Business:** Revenue recovered approximately 20% from a six-month low, reaching **$992 million**, and is expected to continue growing in the fourth quarter. **Wireless Business:** Affected by seasonal launches from North American customers, revenue was **$2.2 billion**, a 30% increase quarter-over-quarter and a **7%** increase year-over-year. A quarter-over-quarter decline is expected in the first quarter of fiscal year 2025, but year-over-year will remain flat. **Broadband Business:** Revenue was **$465 million**, a **51%** year-over-year decline, with recovery expected to begin in the first quarter of fiscal year 2025. **Industrial Business:** Revenue was **$173 million**, a **27%** year-over-year decline, with recovery expected in the second half of fiscal year 2025. **Long-term Outlook and Business Strategy Adjustments** In the non-AI semiconductor business, a cyclical bottom is expected to be reached in fiscal year 2024, with recovery anticipated at historical industry growth rates. There are significant opportunities in the AI business, with specific hyperscale customers having established roadmaps for AI accelerators (XPUs), and large XPU clusters are expected to be deployed on a single architecture by 2027. The serviceable market (SAM) for AI-related markets (XPUs and networking) in fiscal year 2027 is expected to be between **$60 billion and $90 billion**. The company will guide its semiconductor business based on AI and non-AI revenue segments. **Financial Performance** **Overall Situation** Consolidated revenue for the quarter was **$14.1 billion**, a **51%** year-over-year increase. Excluding VMware, revenue grew **11%** year-over-year The gross margin is **76.9%** of revenue, an increase of 260 basis points year-on-year. R&D expenses are **$1.4 billion**, and total operating expenses are **$2 billion**, with year-on-year growth mainly due to the acquisition and integration of VMware. Operating income is **$8.8 billion**, a year-on-year increase of **53%**, with an operating profit margin of **63%** of revenue. Adjusted EBITDA is **$9.1 billion**, accounting for **65%** of revenue. **Segment Performance** Semiconductor Solutions Segment Revenue is **$8.2 billion**, accounting for 59% of total quarterly revenue, a year-on-year increase of **12%**. The gross margin is approximately **67%**, a **year-on-year decrease of 220 basis points**, mainly due to the increased proportion of AI XPUs. Operating expenses increased **11%** year-on-year to **$914 million**, with a semiconductor operating profit margin of **56%**. Infrastructure Software Segment Revenue is **$5.8 billion**, a year-on-year increase of **196%**, mainly due to VMware's contribution, accounting for **41%** of revenue. The gross margin is **91%**, with operating expenses of **$1.1 billion**, and an operating profit margin of **72%**, which is **73%** excluding transitional costs. **Cash Flow and Other Financial Metrics** Free cash flow for the quarter is **$5.5 billion**, accounting for 39% of revenue. Excluding the **$506 million** cash used for restructuring and integration, free cash flow is **$6 billion**, a year-on-year increase of **22%**, accounting for 43% of revenue. Accounts receivable turnover days are 29 days, with inventory at **$1.8 billion**, a quarter-on-quarter decrease of 7%. Cash at the end of the quarter is **$9.3 billion**, with total principal debt of **$69.8 billion**, having replaced **$5 billion** of floating-rate debt, and is expected to repay approximately **$495 million** of fixed-rate senior bonds in the first quarter of fiscal year 2025. **Fiscal Year 2024 Full-Year Financial Summary** Revenue reached a record **$51.6 billion**, including a **44%** year-on-year increase from VMware, and a **9%** increase excluding VMware. Semiconductor revenue is **$30.1 billion**, a year-on-year increase of **7%**. Infrastructure software revenue is **$21.5 billion**, including a **181%** year-on-year increase from VMware, and a **90%** year-on-year increase excluding VMware. Adjusted EBITDA is **$31.9 billion**, accounting for **62%** of revenue. Free cash flow grew **10%** to **$19.4 billion**, with a year-on-year increase of **22%** to **$21.9 billion** excluding restructuring and integration costs - In the fiscal year 2024, capital allocation expenditures are **$22.2 billion**, including $9.8 billion in cash dividends and $12.4 billion in stock repurchases and cancellations. In the first quarter of fiscal year 2025, the quarterly cash dividend for common stock will be increased to $0.59 per share (adjusted for the split), with an expected annual cash dividend for fiscal year 2025 of $2.36 per share (adjusted for the split). **Fiscal Year 2025 First Quarter Performance Outlook** \- Consolidated revenue is expected to be **$14.6 billion**, with semiconductor revenue of **$8.1 billion**, a year-on-year increase of approximately 10%, and infrastructure software revenue of **$6.5 billion**, a year-on-year increase of 41%. \- Adjusted EBITDA is expected to reach a record **66%**, with approximately **4.9 billion shares** diluted on a non-GAAP basis. \- The consolidated gross margin for the first quarter is expected to increase by 100 basis points quarter-on-quarter due to a higher revenue share from infrastructure software and semiconductor internal product mix. \- The expected non-GAAP tax rate for fiscal year 2025 is approximately **14.5%**. **2.2 Q&A Analyst Q&A** **Q: Does AI network revenue account for 76% of network revenue? How has the growth trend of ASIC and networking been from the AI low in April to the period from October to January?** A: Both are growing, with shipments of network AI connection components in the second half of the year exceeding those in the first half, and this trend may continue into the first half of next year, with a significant increase in next-generation 3nm XPUs in the second half of 2025. **Q: In the revenue range of $60 billion to $90 billion for AI in fiscal year 2027, what is the proportion of XPU and networking? Does it include all hyperscale and vertically integrated customers?** A: This is the serviceable available market (SAM) for three hyperscale customers, not the total addressable market (TAM), with the AI connection portion potentially accounting for 15% - 20%. **Q: What is the customer response to NVIDIA's rack scale products? How are multiple XPUs connected within a rack? What is the competitive impact on the company?** A: When connecting a large number of XPUs or GPUs, the architecture presents new challenges, and different customers have different methods. Our hyperscale customers have found ways, and this will develop along established routes over the next 3 to 4 years. **Q: From the perspective of data center Capex spending, what are the thoughts of customers on networking and custom accelerators? Does AI business growth align with Capex growth trends?** A: The Capex data provided by hyperscale customers does not distinguish between AI and non-AI; AI spending exceeds non-AI, and it cannot be simply assumed that AI business growth aligns with Capex growth trends **Q: The software has been delayed to Q1. Will there be any impact on Q2 and the second half of the fiscal year 2025? What is the impact on the overall software revenue and gross margin? Will Q2 be reduced due to the software delay to Q1? Can the software maintain or grow on a basis of $6.5 billion?** A: This is just a delay and will not have a significant impact on Q2 and the second half of fiscal year 2025. We do not provide guidance on the overall software situation and changes in gross margin for the year. **Q: Is the $60 billion to $90 billion the cumulative TAM? Does it include the two new customers? How does the TAM of these two new customers compare to the existing three customers?** A: This is the target for 2027 (possibly part of 2028), not the cumulative SAM or TAM, but the total of the three companies; at least one new customer may have a similar TAM, but it cannot be simply added together. **Q: In fiscal year 2025, besides increasing dividends, will the remaining 50% of cash be used to pay off debt or for stock buybacks? Will there be new acquisition opportunities?** A: It may be used to pay off debt to reduce interest expenses, and we will also pay attention to acquisition opportunities, but currently, the debt level is relatively high, and cash may not be sufficient for large acquisitions. **Q: What is the SAM for AI in 2024? What is the impact of AI growth on semiconductor gross margins?** A: The estimate for 2024 is $15 billion to $20 billion; while AI growth may dilute semiconductor gross margins, operating profit margins will improve. **Q: Is there a simple monetary measurement standard for the XPU-related network? Do sovereign data centers and VMware have XPU-related businesses?** A: Sovereign customers tend to use commercial chips and existing software ecosystems. The ratio of network to XPUs changes as clusters expand, with the network share increasing from 5-10% to 15-20% as the scale grows, especially when reaching 500,000 to 1 million XPU or GPU clusters. **Q: What is your view on the TAM corresponding to the $60 billion to $90 billion SAM for fiscal year 2027? Is the value that will not be captured due to internal value capture by customers, or is there a backup or second source? Are there low-margin businesses that will not be pursued?** A: We do not focus much on TAM; we determine market opportunities by understanding customer needs; we will strive for a reasonable market share but will not pursue 100%; we have a technological advantage, and some unacquired value may be due to internal digestion by customers or other arrangements. It is currently uncertain whether there are low-margin businesses that will not be pursued. **Q: Has the accelerated growth of the AI business changed interest in mergers and acquisitions and areas of focus?** A: It has not changed; the company remains open to acquisitions of assets that meet the criteria, whether in the semiconductor or infrastructure software sectors. **Q: The total potential market (TAM) of $17.5 billion for fiscal year 2024—this is the serviceable market (SAM), and you have about 70% market share. So assuming a 70% calculation, your custom chip AI revenue should reach around $50 billion in fiscal year 2027.** So does the company have a clear expectation for the fiscal year 2026, and is there a good growth trend to reach these numbers?\*\* A: We have built this market outlook, and the clarity we see is to some extent until 2027. Our collaboration process with each customer varies somewhat. It depends on their speed of adopting their own XPUs, and this will largely influence the process. However, considering there are only three customers and deployments are usually large-scale, we expect there may be fluctuations between quarters. **Q: Is there a good roadmap to achieve the goals by 2027? When will the other two CSPs be added?** A: A clear roadmap cannot be provided; it is uncertain when the other two CSPs will be added, as they need to enter the production phase first, while also preparing the software and conducting tests. The risk disclosure and statement of this article: [Dolphin Investment Research Disclaimer and General Disclosure](https://support.longbridge.global/topics/misc/dolphin-disclaimer) ### Related Stocks - [AVGO.US - Broadcom](https://longbridge.com/en/quote/AVGO.US.md) --- > **Disclaimer**: This article is for reference only and does not constitute any investment advice.