Broadcom Earnings Come in Higher, CEO Says VMware ‘Making Good Progress’

Broadcom earnings on Thursday beat analyst expectations as the company looks forward to the $61 billion acquisition of VMware.

The San Jose, California-based company said it earned $9.73 per share on sales of $8.46 billion in the quarter ended July 31. Analysts were predicting $9.56 a share on sales of $8.41 billion. Looking at Broadcom earnings on a year-over-year basis, the numbers rose 40%. Sales also increased, by 25%.

Those better-than-expected results for the chipmaker came despite ongoing backlogs and a 50-week lead time. As such, Broadcom stock was trading up more than 2% on Friday, surpassing the $500 mark. (Of interest is that the number reached more than $519 earlier in the day.)  Among investment bank analysts, Broadcom earnings seemed to earn confidence, with one even raising the company’s price target to $775.

Notably, VMware last week reported earnings that also came out stronger than financial experts had forecast. (There is some question of whether prolonged sales cycle times, meant to “preserve value” for Broadcom, might have played a role in those numbers.) That outcome, combined with Broadcom earnings, appears to have investors feeling assuaged about the pending acquisition of the virtualization software behemoth. Indeed, VMware’s stock has steadily traded upward since releasing its numbers. On Friday a little before 1:30 p.m. ET, shares were going for $116.36, an increase of 1.34%.

But most observers want to know more on Broadcom’s intentions for the VMware takeover. Indeed, as Debra Korol, senior business development manager for VMware partner ClearBridge Technology Group, told Channel Futures at this week’s VMware Explore, “It’s a weird environment right now. There are a lot of changes, but nobody knows what the changes are going to be, even though some things are communicated and some things are not.”

On Thursday, Hock Tan, Broadcom president and CEO, delivered some insight.

‘Making Good Progress’

Broadcom’s Hock Tan

“We’re making good progress with our various regulatory filings around the world,” Tan said on the Sept. 1 Broadcom earnings call.

Contrary to some media reports, Hock did not indicate those filings have come under any abnormal scrutiny. Rather, he said, “we are moving forward as very much as expected in this regard.”

Broadcom still expects to close the VMware purchase in its 2023 fiscal year, which starts in November.

“We remain excited about our acquisition of VMware and continue to be impressed by the world-class engineering talent, as well as strong customer and channel partnerships. We have tremendous respect for what VMware has built,” Tan said.

Most of the analyst questions Tan fielded had to do with the semiconductor sector. Oddly, only one analyst inquired about Broadcom’s pending VMware buy; that person wanted to know about regulatory approvals. Here was Tan’s response: “We’re moving — it’s making good progress. And just to reiterate, we fully expect to close on this within fiscal ’23.”

‘We’ll See What It Brings and We’ll Adjust’

To be sure, the pending Broadcom-VMware combination continues to raise eyebrows within the indirect channel. There are a lot of unanswered questions about how a semiconductor manufacturer will absorb VMware, which continues its evolution from a transactional hardware to a cloud-focused, subscription software business model. Both companies, however, run channel programs, and VMware’s senior vice president of strategic ecosystem and industry solutions, for one, is anticipating the best.

“I think our success will continue to depend on a profitable, growing, passionate ecosystem of partners of various types,” Zia Yusuf told Channel Futures this week at VMware Explore.

“Many of our partners have their own relationship with Broadcom,” Yusuf added. “We’re driving our business, as is VMware in general. And as stones turn over the future, we’ll see what it brings and we’ll adjust. But we’re confident in our strategy. We’re confident in our engagement with our partners. We have a perspective on what it takes to be successful in a software ecosystem, and that’s what we’re architecting and trying to do.”