Broadcom Inc.

Welcome to Broadcom Inc.'s third quarter fiscal year 2026 financial results conference call. At this time, for opening remarks and introductions, I would like to turn the call over to Ji Yoo, head of investor relations of Broadcom Inc. Please go ahead.

Thank you, Cherie, and good afternoon, everyone. Joining me on today's call are Hock Tan, president and CEO, Amie Thuener, chief financial officer, and Charlie Kawwas, President Semiconductor Solutions Group. Broadcom distributed a press release and financial tables after the market closed describing our financial performance for the third quarter fiscal year 2026. If you did not receive a copy, you may obtain the information from the investor section of Broadcom's website at broadcom.com. This conference call is being webcast live and an audio replay of the call can be accessed for one year through the Investors section of Broadcom's website. During the prepared comments, Hock and Amie will be providing details of our third quarter fiscal year 2026 results, guidance for our fourth quarter of fiscal year 2026, as well as commentary regarding the business environment. We'll take questions after the end of our prepared comments. Please refer to our press release today and our recent filings with the SEC for information on risk factors that could cause our actual results to differ materially from the forward-looking statements made on this call. In addition to U.S. GAAP reporting, Broadcom reports certain financial measures on a non-GAAP basis. A reconciliation between GAAP and non-GAAP measures to the extent possible is included in the tables attached to today's press release. Comments made during today's call will primarily refer to our non-GAAP financial results. I will now turn the call over to Hock.

Well, thank you, Chi, and thank you everyone here for joining us today. We delivered an exceptional quarter with revenue, operating income, and free cash flow all exceeding prior records. And driving this was our Q3 AI semiconductor revenue, which grew 221% year-on-year and up 54% sequentially. This brought our consolidated revenue to $29.6 billion, which was up 86% year-on-year. Operating income grew even faster at 92% year-on-year with operating margin at a record 68% of revenue reflecting strong operating leverage. Q3 demand was simply hot and we're just getting started. Our six XPU customers are accelerating the adoption of custom accelerators. And AI semiconductor revenue more than tripled year over year to $16.7 billion. During the quarter, we delivered Ironwood TPU v7, version 7, in high volume to both Entropic and Google. At the same time, We began production shipments of the next generation TPU version 8i for Google. This new TPU generation has been designed with more memory and bandwidth compared to Ironwood and just like Ironwood is optimized for inference workloads and in performance it is comparable if not surpasses the Vera Rubin GPU. Just to reiterate the major technology challenges of developing these complex accelerators, Broadcom is now shipping the TPU version 8i ahead of the MediaTek version V8t, which in fact was initiated earlier. In Q3, We also ship Jalapeno, OpenAI's first generation custom accelerator which outperforms Grace Blackwell GPU for inference workloads. Overall, our XPU shipments for the third quarter were up over three and a half times year on year and represented 73% of AI revenue during the quarter. Our AI networking revenue was up over two and a half times year on year. And this strong momentum continues into Q4. During the quarter, we expect to accelerate shipments of Ironwood to Entropic. We also expect to ramp up high volume shipments of the TPU version 8i to Google. Shipments of Jalapeno for OpenAI will continue. And for Matter, we expect production shipments of their custom MTIA accelerator optimized for inference and recommendation at scale. In Q4, we expect both XPUs and AI networking revenue to triple year on year. And together, we expect these deployments to drive our Q4 AI revenue to $21.7 billion, which is up 236% year-on-year. Based on this Q4 guidance, we expect our fiscal 2026 AI revenue to be $58 billion for the year are 186% year upon year and above our prior guidance of 56 million. We are continuing to see exponential growth in demand from our XPU customers. We believe the vast majority of compute demand for AI workloads today originates from these concentrated group who develops state-of-the-art frontier models. And we expect their need for compute infrastructure to inflate even more in 2027 and 2028. And they are all growing with XPUs to achieve superior performance, cost, and power Let me now walk you through each of their journey, each of our customers' journey towards using XPUs at scale to run their frontier models worldwide. Our engagement with Google has never been stronger. This has been recently strengthened by a long-term agreement to develop and supply future generations of TPUs and AI Networking. Under this agreement, we're planning to deliver multi-tens of billions of dollars of TPUs annually over the next several years. We expect this growing demand in 28 and 29 to be fulfilled through successive generations of the increasingly complex TPUs we are developing today with Google. Our partnership with Google will continue to sustain because we have the strongest IP portfolio in semiconductor design, including industry-leading SerDes, chip-to-chip interconnect, leading-edge HPM and SRAM integration, and Simply Differentiated Advanced Packaging. Most of all, we have consistently delivered the fastest time to market for TPUs from product definition to production. We found the need for re-smiths. We believe these are very deep modes for any competitor to cross. Moving on to Entropic. Starting with the one gigawatt of iron wood we are deploying in 2026, we expect Entropic to deploy another five gigawatts of TPU V version 8i in 2027. And in 2028, we have clear line of sight to deliver an incremental 10 gigawatts Even as we expect Google to grow for us, Entropic is on track to become our largest XPU customer in 2027 and sustain that in 2028. For OpenAI, Jalapeno is on track for the planned deployment of 1.3 gigawatts in 2027. Together with OpenAI, we are deep in development of the next generation XPU beyond Jalapeno, which is approaching with KBAR. In 2028, we have line of sight for OpenAI to deploy over 5 gigawatts of Jalapeno and its successor generation of XPU, which would make OpenAI our second largest XPU customer. In addition, we are in development with OpenAI on their third generation XPU. As OpenAI announced last week, Jalapeno outperforms the Grace Blackwell Ultra in performance, but want latency, throughput, and power. And it's actually comparable. to Verirubin GPUs in running OpenAI workloads. The lesson here is when you co-develop a chip that is optimized for your particular LLM workloads, you will outperform any GPU. Like TPUs, Jalapeno demonstrates that it can also run other frontier models. and you can do all this at half the cost of a GPU. Our partnership with Meta to deliver multiple generations of MTIA XPUs remains on track. Between now and the end of 2027, we will be delivering three generations of MTIA accelerators to Meta. Across these three generations, we have line of sight to deploy 3 gigawatts through 28. Our content in AI, as you know, goes beyond XPUs. We're the leader in AI networking, and we continue to extend our lead. In internet switching, for scale up and scale out, we were first to market with our 100 terabit Tomahawk 6, and we just taped out Tomahawk 7, the industry's first 200 terabit per second Ethernet switch. For scaling in, we continue to be the leader in every generation of PCI Express switching. We're now the leader in leading-edge optical DSPs and are rapidly expanding our capacity and market position as a leader in EMLs, Vixels and CW lasers for optical interconnects. In sum, we continue to invest and invest heavily to provide the broadest and most leading edge AI portfolio. In fact, our AI networking revenue is expected to grow just as fast as XPUs over the next few years. Reflecting our excellent progress with this key group of LLM customers, here is our outlook for our AI semiconductor revenue. In 2027, we have secured the supply to gain double AI revenue to approximately $115 billion. Our demand actually exceeds this outlook and we will work to improve supply. In 2028, we expect the trajectory of growth to continue. We have line of sight for fiscal 2028 AI semiconductor revenue growth to again double to $230 billion. Here again, we have secured the supply to meet this outlook. This AI revenue guidance through 2028 is being provided to give you the trajectory of our growth. That demand for compute continues to be extremely strong. As a result, I got to say we are very much on target to exceed $30 in earnings per share in fiscal 2028. Now turning to non-AI semiconductors, Q3 revenue of $4.2 billion was up 5% year-on-year and flat sequentially. Broadband and server storage together were up, partially offset by a decline in wireless. In Q4, we forecast non-AI semiconductor revenue to be approximately $4.3 billion, again up 5% sequentially. Talking about infrastructure software, Q3 revenue of $8.8 billion was up 29% year-on-year and we sustained ARR growth of 15% year-on-year. For Q4, we forecast infrastructure software revenue to stabilize at approximately $8.7 billion. We announced VMware Private AI Cloud, giving enterprises a secure, cost-effective platform to build and run AI alongside their existing applications. It brings together AI infrastructure, security, and compliance, and the tools to build and operate trusted AI agents, all while protecting enterprise data. VCF. VMware Cloud, that is, is also making it easier for customers to repatriate workloads from public cloud to private cloud, where they can gain greater control and significantly improve infrastructure economics. Enterprise consumption of AI is, in fact, opening a new opportunity for our infrastructure software business. So to sum it all, For Q4 26, we expect consolidated revenue to grow to $34.8 billion, up 93% year-on-year. We expect Q4 AI revenue to be $21.7 billion, up 236% year-on-year. And we expect operating margin to be approximately 66% of revenue. And with that, let me turn it over to Amie.