Weekend Slowly Reading: AI “Shovel Seller” - Broadcom

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In this “cooked food” era, articles only read titles and abstracts, and short videos are just a passing of the norm. We hope to go through this small topic over the weekend to bring you some articles that you will need to take time to read. We don't give advice on whether to buy or sell? We just display all the information and data as much and comprehensively as possible in front of our readers, making our own judgments about being bullish or bearish.

Broadcom Inc. The origin can be traced back to its predecessor, Avago Technologies Limited (Avago Technologies Limited), which was founded in 1961 and acquired Broadcom (Broadcom) for 37 billion US dollars in 2016, then changed its name to Broadcom Limited. As the world's leading supplier of analog semiconductor equipment, this company is committed to providing various semiconductor products for various fields such as wireless communication, wired infrastructure, enterprise storage, and industry. Its products are widely used in mobile phones, data networks, storage and telecommunications equipment, industrial automation, etc.

The roots of Anwar Hi-Tech lie in Agilent Technologies (Agilent Technologies), a branch of Hewlett-Packard (Hewlett-Packard), whose semiconductor business division later became Anwar Hi-Tech. Anwar Hi-Tech's business scope covers fields such as wireless and wired communications, industrial, automotive, consumer electronics, and storage and computing. It has long maintained its position as a market leader in optoelectronic couplers, infrared transceivers, and optical communication devices.

In 1999, Hewlett-Packard decided to divest its chip manufacturing business and establish Agilent Technologies. In 2005, private equity firm KKR and Silver Lake Partners acquired Agilent Technologies' semiconductor business for $2.66 billion, making it an independent Anwar Hi-Tech. Subsequently, the company further strengthened its leading position in the semiconductor sector through a series of strategic acquisitions, such as the acquisition of Nemicon and Infineon's body sound wave (BAW) business in 2008, Cyoptics and Javelin Semiconductor in 2013, and the acquisitions of PLX Technology and Emulex in 2014 and 2015.

In 2016, through the acquisition of the original Broadcom company, New Broadcom became the fifth largest semiconductor company in the world. In 2017, Broadcom also announced the completion of the acquisition of network equipment manufacturer Brocade (Brocade) and an attempt to acquire mobile chip manufacturer Qualcomm, although this merger was ultimately unsuccessful. In 2018, Broadcom acquired the American commercial software company CA Technologies for $19 billion, marking the diversification of its technical services into fields other than semiconductors.

Broadcom's series of acquisitions not only expanded its product line, added computer communication chips, network processors, wireless connectivity products, and enterprise-grade storage solutions, but also increased the company's share of the BAW market and improved its product layout. In recent years, with the semiconductor industry shifting to emerging fields such as the mobile product market, wearable devices, automotive electronics, and the Internet of Things, the concentration of the industry has continued to increase. After acquiring the original Broadcom company, Broadcom's market share has increased to 3.8%, rising to fifth place in the global ranking.

Broadcom showed impressive financial results in the first quarter of fiscal year 2024, with total revenue reaching US$11.96 billion, an increase of 34% year over year. This result not only reflects the company's strong competitiveness in the global market, but also surpassed analysts' general expectations for its performance (US$11.73 billion). It is worth noting, however, that despite the excellent growth in the company's overall revenue, its semiconductor business unit's revenue was US$7.39 billion, an increase of only 4% year over year, falling short of market expectations of US$7.7 billion. This data reveals the challenges facing the semiconductor business, particularly the slowdown in sales in the smartphone and telecom infrastructure sectors.

Despite semiconductor business revenue falling short of expectations, Broadcom's overall financial health remains strong. The company announced cash flow from operating activities of US$4.815 billion, an increase compared with the same period of the previous fiscal year, reflecting Broadcom's good cash flow management and business operation efficiency. Furthermore, the adjusted EBITDA (profit before interest, tax, depreciation and amortization under non-US GAAP) reached $7.156 billion, further verifying Broadcom's ability to maintain profit margins.

It is worth mentioning that Broadcom's return policy for shareholders is extremely generous. The company announced that it will maintain a high dividend of $5.25 per share, reflecting confidence in the long-term commitment of shareholders. The move not only strengthened shareholders' trust, but also attracted more investor attention, despite the challenges of short-term performance fluctuations.

As the world's leading semiconductor company, Broadcom's business covers a wide range of market sectors, including wired communications, wireless communications, enterprise storage, industry, and others. Due to Broadcom's rich product line, the company's relationships with upstream and downstream enterprises and industries are complex, forming a huge supply chain network.

Raw material suppliers: Broadcom requires a variety of semiconductor materials to manufacture its products, including silicon wafers, chemicals, and gases. These materials are usually supplied by specialized chemical and material technology companies.

Semiconductor manufacturing equipment suppliers: Broadcom needs advanced semiconductor production equipment to manufacture its high-performance semiconductor products. This includes lithography machines, etching equipment, chemical mechanical polishing (CMP) equipment, etc., usually provided by companies such as ASML, Applied Materials (Applied Materials), and KLA Corporation (KLA Corporation).

Semiconductor Manufacturing Services (Foundry Services): Although Broadcom has its own manufacturing capabilities, it also uses external foundries (such as TSMC, GlobalFoundries, etc.) to produce certain products. These foundry service providers are a key part of Broadcom's upstream, helping Broadcom to flexibly adjust production capacity while taking advantage of the technical advantages of foundries.

Manufacturers of wired and wireless communication equipment: Broadcom provides a variety of chips and solutions for this field. Customers include Huawei, Cisco, Juniper, and Dell.

Consumer electronics manufacturers: Broadcom's wireless connectivity and RF solutions are widely used in consumer electronics products such as smartphones, tablets, and smartwatches. Apple is one of Broadcom's key customers.

Data centers and cloud service providers: With the rise of cloud computing and big data, the demand for high-performance network switches and storage solutions in data centers has increased dramatically. Broadcom has a strong market position in this field, providing key technical support to cloud service giants such as Google, Amazon, and Microsoft.

Automobile manufacturers and industrial automation: With the development of automotive electronics and industry 4.0, the application of Broadcom products in automotive infotainment systems and industrial automation equipment is also increasing.

Other: Includes manufacturers of enterprise networks, home networking equipment, and companies providing optical communication solutions.

In summary, Broadcom is at the core of the global semiconductor industry chain and is closely linked to many industries and fields. Its upstream depends on the supply of high-quality raw materials and advanced manufacturing technology, while the downstream market covers a wide range of electronics manufacturers and technical service providers. Broadcom's business development is directly affected by changes in global electronics market demand.

In the context of the rapid development of artificial intelligence (AI) technology, Broadcom CEO Hock Tan clearly stated that large-scale investment in AI technology by global companies will be a key factor driving Broadcom's performance growth in fiscal year 2024 and beyond. Although Broadcom's latest revenue report in the semiconductor business fell slightly short of expectations, Tan emphasized that as the company continues to invest in the AI field, Broadcom's performance is expected to accelerate across the board.

In particular, Broadcom expects that in the 2024 fiscal year, corporate spending on AI will significantly drive the company's revenue growth in AI-related fields. This increase is expected to account for about 35% of semiconductor business revenue, far exceeding Broadcom's previous forecast. This expectation not only shows Broadcom's deep insight into the AI market, but also reflects the company's important position in the global AI technology supply chain.

Broadcom's positioning in the field of AI highlights its strategic thinking as a leader in technology and innovation. By providing high-performance Ethernet switch chips and customized AI ASIC chips to key customers such as data centers, cloud computing service providers and technology giants, Broadcom is becoming a core force supporting the development of global AI infrastructure. Furthermore, with the widespread application of AI technology in various industries, Broadcom's deep involvement in the AI field has not only brought new growth impetus to the company