Broadcom, one of the world's largest chipmakers, reported results on Thursday Eastern time. Despite strong demand from companies such as Apple, the company's main customers, Broadcom's revenue fell short of analysts' expectations last quarter due to chip capacity constraints.
Broadcom said that as the shortage of chips continues to plague many industries around the world, many downstream customers have placed a large number of orders in advance. Some people in the market are worried that such a large number of orders placed in advance may have an impact on the follow-up demand of the market. The company's shares fell more than 3% in after-hours trading.
Broadcom's financial results fell short of expectations.
Revenue from Broadcom chip solutions was $4.91 billion in the fiscal first quarter ended in January, slightly below analysts' expectations of $4.93 billion, according to the results. Broadcom fell 3.4% in after-hours trading.
Broadcom's first-quarter net revenue rose 14 per cent to $6.66 billion, with profit per share of $6.61, according to the results. Analysts expect profit per share of $6.57 and revenue of $6.62 billion.
The company also said it expected revenue of about $6.5 billion for the fiscal second quarter ending in April. By contrast, analysts had expected an average of $6.33 billion.
Headquartered in San Jose, California, Broadcom covers smartphone components, key components of network equipment, and semiconductors for household Wi-Fi devices and set-top boxes. So its forecast partly reflects the future needs of big technology companies such as Apple, Samsung Electronics and Google.
The company's customers are placing a large number of orders in advance.
With chip shortages already occurring in some markets around the world, particularly in the automotive industry, the company and its peers are doing their best to meet the growing demand. As a result, chip customers have issued a large number of orders in advance, creating buffer space for the imbalance between supply and demand as far as possible.
In a conference call after the announcement of the results, Broadcom CEO Hock Tan said that the company's customers are increasing semiconductor orders "at an unprecedented rate".
Hock Tan points out that the company has seen some customers place orders long in advance because the company's delivery time has been extended to up to eight months. But he said Broadcom is confident it can deliver the orders on time.
Broadcom says 90% of its 2021 supply has been booked by customers. In the past, chipmakers typically had bookings of about 25%.
Since mid-2020, the company has been closely reviewing its backlog of orders to ensure it is in line with actual consumption of end products such as smartphones and network equipment.
At present, Broadcom has outsourced the production of some of the largest and most complex chips to TSMC. Despite chip shortages in some industries around the world, Tan said Broadcom had received enough supply from outsourced suppliers to meet customers' expected order levels.
"We believe this is true," Tan said. "our income reflects end-user consumption."
Repeated orders cause market concern about follow-up demand
Broadcom shares fell more than 3% in after-hours trading, on the one hand, because of concerns about its supply capacity, and on the other hand, it also stems from doubts about the follow-up demand for chips.
Kinngai Chan, an analyst at Summit Insights Group, said the shortage of industry-wide substrates, the raw wafers used to make chips, hit Broadcom harder than other companies because some of its chips were larger. This means that while Apple's smartphone sales are strong, Broadcom's chip revenue is still constrained by production capacity.
On the other hand, although the global supply of chips is already in short supply, there are already concerns about the subsequent weakening of demand as a result of repeated orders.
Across the industry, the average lead time (the time it takes to get the chip after ordering the chip) has climbed to more than 14 weeks. This has raised concerns that customers deliberately order too many semiconductors to prevent future supply shortages. Such repeated orders often lead to subsequent cancellation of orders, subsequent weakening of demand, and subsequent decline in revenue for chipmakers.
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