(Bloomberg) – Broadcom Inc.’s CEO, Hock Tan, said customers are increasing semiconductor orders at an unprecedented pace and tried to quell concerns that this would create an excess in the future.
“We see customers accelerating reservations for early deliveries and trying to build buffers and creating the imbalance between demand and supply that you all hear,” Tan told analysts during a earnings conference call on Thursday.
About 90% of Broadcom’s supply for 2021 has already been ordered by customers. Typically, chip makers have about a quarter of their supply locked up like this. Since mid-2020, the company has revised its order book to make sure it is in line with actual consumption of end products, such as smartphones and network equipment. Although some industries have complained about the lack of chips, Tan said that Broadcom has enough production from its third-party suppliers to meet the needs of its customers who have predicted order levels.
“We believe this to be real,” said Tan. “Our revenue reflects what is being consumed by end users.”
Across the industry, delivery times – how long it takes to get a chip after ordering – have exceeded 14 weeks. This has raised concerns about customers who are purposely ordering many semiconductors to avoid future drops in supply. This double order usually leads to order cancellations and a drop in revenue for chip makers later.
Chip stocks have plummeted in recent days due to concerns that industry profits are peaking. Tan’s assurances that the current expansion is sustainable were questioned during Thursday’s conference call. Broadcom’s shares fell about 2.5% in the trading period.
Almost a year ago, Tan was one of the first chip CEOs to warn customers to place orders well in advance to ensure delivery.
Despite a seasonal decline in smartphone chip orders, Tan expects second-quarter chip tax revenue to grow by about 17% and sees growth persisting throughout the year. Still, he acknowledged that this growth rate is exceptionally high. He also noted that Broadcom customers cannot cancel orders.
The company predicted that revenue in the three months ending in April will be around $ 6.5 billion, compared with an average analyst estimate of $ 6.33 billion.
Broadcom is one of the world’s largest chip makers, with businesses spanning smartphone parts, key components of network equipment and semiconductors that run home Wi-Fi equipment and set-top boxes. That reach, which also includes mainframe and security software, makes its projections an indicator of future demand for major technology companies, such as Apple Inc., Samsung Electronics Co. and Google.
In the first fiscal quarter, Broadcom reported that its main chip division, semiconductor solutions, generated $ 4.91 billion in sales. Analysts had expected $ 4.93 billion, according to data compiled by Bloomberg.
(Updates with quarterly earnings performance starting in the ninth paragraph.)
For more articles like this, visit us at bloomberg.com
Sign up now to stay up to date with the most trusted business news source.
© 2021 Bloomberg LP