Broadcom Inc. (NASDAQ: AVGO) Q2 2025 Earnings Call | 06/06/2025

Here's a summary of Broadcom Inc.'s Second Quarter Fiscal Year 2025 Financial Results Conference Call:

Q2 Fiscal Year 2025 Financial Highlights (Non-GAAP):

• Record Total Revenue: $15 billion, up 20% year-on-year (all organic growth, as Q2 last year was the first full quarter with VMware).
• Consolidated Adjusted EBITDA: $10 billion, up 35% year-on-year, representing 67% of revenue.
• Semiconductor Revenue: $8.4 billion, accelerating to 17% year-on-year growth.
  • AI Semiconductor Revenue: Over $4.4 billion, up 46% year-on-year, marking nine consecutive quarters of strong growth.
    • Custom AI accelerators: Grew double digits year-on-year.
    • AI Networking (Ethernet-based): Grew over 170% year-on-year, representing 40% of AI revenue.
  • Non-AI Semiconductor Revenue: $4 billion, down 5% year-on-year, but saw sequential growth in broadband, enterprise networking, and server storage.
• Infrastructure Software Revenue: $6.6 billion, up 25% year-on-year, driven by successful conversion of enterprise customers to the full VCF software stack subscription.
• Gross Margin: 79.4% of revenue.
• Operating Margin: 65% of revenue.
• Free Cash Flow: $6.4 billion, representing 43% of revenue.
• Debt & Cash: Ended Q2 with $9.5 billion cash and $69.4 billion gross principal debt. Subsequent to quarter end, repaid $1.6 billion debt.
• Capital Allocation: Paid $2.8 billion in dividends and repurchased $4.2 billion (approx. 25 million shares) of common stock.

Strategic and Operational Highlights:

• AI Dominance: Continued strong demand for AI semiconductors, particularly custom AI accelerators and AI networking solutions (Ethernet).
  • New Tomahawk 6 switch (102.4 terabits per second) announced, enabling flatter AI clusters for better performance.
  • Anticipate acceleration of XPU demand into back half of 2026 due to increased focus on inference.
  • Fiscal 2025 AI semiconductor revenue growth rate expected to sustain into fiscal 2026.
• VMware Integration Success: Strong momentum in VCF (VMware Cloud Foundation) sales, with over 87% of 10,000 largest customers adopting it. This is driving double-digit ARR growth in core infrastructure software. Conversion to subscription model is over halfway through, with at least another 1.5 years to go.
• Non-AI Semiconductor Recovery: Although still down year-on-year, some segments (broadband, enterprise networking, server storage) are showing sequential recovery.
• Capital Allocation Strategy: Primary focus after dividends is debt reduction, but opportunistic share repurchases will also occur. M&A for substantial deals remains a consideration.

Q3 Fiscal Year 2025 Outlook (Non-GAAP):

• Consolidated Revenue: Approximately $15.8 billion, up 21% year-on-year.
• Semiconductor Revenue: Approximately $9.1 billion, up 25% year-on-year.
  • AI Semiconductor Revenue: $5.1 billion, up 60% year-on-year (10th consecutive quarter of growth).
• Infrastructure Software Revenue: Approximately $6.7 billion, up 16% year-on-year.
• Adjusted EBITDA Margin: At least 66%.
• Non-GAAP Tax Rate: Expected to remain at 14% for Q3 and FY2025.

Broadcom continues to demonstrate robust performance driven by its strong position in AI semiconductors and successful integration of VMware, leading to significant revenue growth and profitability.