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    AVGO
    Earnings call· Aug 2025(Q3 FY25)

    Broadcom Inc. AVGO

    Sep 4, 2025 Source

    Executive summary

    Broadcom Q3 FY25 — Record AI Semiconductor and Software Revenue, Record Backlog

    Broadcom delivered a strong Q3 FY25, driven by record AI semiconductor revenue and robust infrastructure software performance, leading to record overall revenue and adjusted EBITDA. The company secured a record $110 billion backlog, significantly boosting its FY26 AI revenue outlook with the addition of a fourth major XPU customer. While non-AI semiconductor demand remains slow, the company is focused on driving value through its integrated cloud platform and continued AI innovation.

    Highlights

    5

    • Total revenue reached a record $16 billion, up 22% year-on-year.

    • Consolidated adjusted EBITDA was a record $10.7 billion, up 30% year-on-year.

    • AI semiconductor revenue grew 63% year-on-year to $5.2 billion, marking 10 consecutive quarters of robust growth.

    • Consolidated backlog hit a record $110 billion, driven by strong AI bookings.

    • Infrastructure software revenue of $6.8 billion was up 17% year-on-year, exceeding outlook.

    Concerns

    3

    • Non-AI semiconductor revenue of $4 billion was flat sequentially, with demand slow to recover.

    • Enterprise networking and server storage segments within non-AI semiconductors were down sequentially.

    • Consolidated gross margin was down 100 basis points sequentially due to revenue mix.

    Guidance & targets

    9
    CategoryTargetConfidence
    Consolidated Revenue
    $17.4 billion
    high materiality
    High
    Semiconductor Revenue
    $10.7 billion
    medium materiality
    High
    AI Semiconductor Revenue
    $6.2 billion
    high materiality
    High
    Infrastructure Software Revenue
    $6.7 billion
    medium materiality
    High
    Adjusted EBITDA Margin
    67% of revenue
    high materiality
    High
    Non-GAAP Diluted Share Count
    4.97 billion shares
    low materiality
    High
    Non-GAAP Tax Rate
    14%
    low materiality
    High
    FY26 AI Revenue Growth
    accelerate more than the growth rate we see in '25
    high materiality
    Medium
    CEO Tenure
    through 2030, at least
    high materiality
    High

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Semiconductor Solutions
    Revenue growth accelerated, driven by AI. Operating margin was up 130 bps year-on-year and flat sequentially. Operating expenses increased 9% year-on-year due to increased R&D investment for leading-edge AI semiconductors.
    Gross margin: 67%Operating expenses: $951 million
    		$9.2 billion26%—57% operating margin
    Infrastructure Software
    Revenue was above outlook. Operating margin improved compared to 67% a year ago, reflecting the completion of the VMware integration.
    Gross margin: 93%Operating expenses: $1.1 billion
    		$6.8 billion17%—77% operating margin

    Operational metrics

    19
    Non-GAAP operating margin
    65.5%up 20 bps sequentially
    Q3 FY25

    Increased sequentially on operating leverage.

    Non-GAAP gross margin
    78.4%down 100 bps sequentially
    Q3 FY25

    Impacted by higher software revenues and product mix within semiconductors.

    Cash and investments balance
    $10.7 billion
    Q3 FY25

    Balance at the end of the third quarter.

    Free cash flow margin
    44%
    Q3 FY25

    Free cash flow was $7 billion, representing 44% of revenue.

    Adjusted EBITDA
    $10.7 billionup 30% year-on-year
    Q3 FY25

    Represented 67% of revenue, above guidance of 66%.

    Days sales outstanding
    37 daysvs 32 days a year ago
    Q3 FY25

    Compared to the prior year.

    Inventory days on hand
    66 daysvs 69 days in Q2
    Q3 FY25

    Company remains disciplined on inventory management.

    Gross principal debt
    $66.3 billion
    Q3 FY25

    Balance at the end of the third quarter.

    Weighted average coupon rate (fixed rate debt)
    3.9%
    Q3 FY25

    For $65.8 billion in fixed rate debt.

    Years to maturity (fixed rate debt)
    6.9 years
    Q3 FY25

    For $65.8 billion in fixed rate debt.

    Weighted average interest rate (floating rate debt)
    4.7%
    Q3 FY25

    For $500 million in floating rate debt.

    Years to maturity (floating rate debt)
    0.2 years
    Q3 FY25

    For $500 million in floating rate debt.

    Cash dividends paid
    $2.8 billion
    Q3 FY25

    Paid to stockholders in Q3.

    Quarterly common stock cash dividend
    $0.59
    Q3 FY25

    Per share dividend.

    Total contract value booked
    over $8.4 billion
    Q3 FY25

    Booked during Q3.

    XPU business share of AI revenue
    65%
    Q3 FY25

    The XPU business accelerated to 65% of AI revenue this quarter.

    Non-GAAP tax rate
    14%
    Q4 FY25 and FY25

    Expected to remain at 14% for Q4 and fiscal year 2025.

    Diluted share count (non-GAAP)
    4.97 billion
    Q4 FY25

    Expected for Q4, excluding potential impact of share repurchases.

    Non-AI bookings growth
    in excess of 20%YoY
    Q3 FY25

    Bookings are up year-on-year, but management remains cautious about recovery.

    Industry KPIs

    8
    MetricValueDetails
    Lead times30-40 weeksweeks
    Backlog order book$110 billionUSD
    Ai data center revenue$5.2 billionUSD
    Bookings net order intakeNon-AI bookings: in excess of 20%; Infrastructure software TCV: over $8.4 billion%; USD
    Design wins socket pipeline4 customers; 3 prospectscount
    Inventory channel inventoryInventory: $2.2 billion; Days of inventory: 66 daysUSD; days
    Node platform ramp scheduleTomahawk 5; Tomahawk 6; Jericho4
    End market segment revenue mixAI: $5.2 billion; Non-AI: $4 billionUSD

    Orderbook & backlog

    2
    Consolidated backlog$110 billionQ3 FY25 end

    record

    Largely driven by AI in terms of growth; fully 50% at least is semiconductors, with much more AI than non-AI.

    AI rack orders (new customer)over $10 billionQ3 FY25

    Secured from a new qualified XPU customer, expected to ship primarily in Q3 FY26.

    Product announcements

    3
    ProductTypeDetails
    VMware Cloud Foundation version 9.0launch
    Tomahawk 6launch
    Jericho4 Ethernet fabric routerlaunch

    Risks & headwinds

    4
    Slow recovery in non-AI semiconductor demandNear-term (Q4 FY25) to mid-to-late FY26

    Q3 revenue of $4 billion was flat sequentially; Q4 non-AI revenue expected to grow low double digits sequentially to $4.6 billion, but year-on-year growth is low single digits.

    Mitigation: Focus on seasonality in Q4 for some segments; management expects a U-shaped recovery, with meaningful recovery not clear until mid-to-late FY26.

    Sequential decline in enterprise networking and server storageQ3 FY25

    Enterprise networking and server storage were down sequentially in Q3.

    Mitigation: Broadband showed strong sequential growth, offsetting some weakness; wireless and industrial were flat QoQ.

    Gross margin pressure from product mixQ3 FY25, Q4 FY25

    Consolidated gross margin down 100 basis points sequentially to 78.4% in Q3.

    Mitigation: Q4 consolidated gross margin expected to be down approximately 70 basis points sequentially, primarily reflecting a higher mix of XPUs and wireless revenue, which typically have lower margins. Higher software revenues partially offset this in Q3.

    Uncertainty in XPU prospect conversionOngoing

    3 prospects remain, conversion to customer status can be unexpected or delayed.

    Mitigation: Broadcom is very closely engaged with prospects, but management is cautious about providing subjective qualifications or timelines due to potential for unexpected production or delays.

    What to watch in Q4 FY25

    5

    FY26 AI Revenue Growth

    FY26
    CurrentFY25 growth rate (50-60% YoY)
    TargetAccelerated growth rate beyond FY25

    Why it matters

    This will indicate the impact of the new XPU customer and continued share gains, crucial for overall company growth and investment thesis.

    We are expecting and seeing 2026 to accelerate more than the growth rate we see in '25.

    Q&A highlights

    6

    What's driving the significantly improved FY26 AI revenue outlook? Is it the new customer or stronger demand from existing ones?

    The improved FY26 AI outlook is due to both increasing volumes from the existing three customers and the addition of a fourth significant customer with immediate and substantial demand, particularly for early FY26.

    “a combination of increasing volumes from our existing 3 customers, and we move through that very progressively and steadily. And the addition of a fourth customer with immediate and fairly substantial demand really put up our -- really changes our thinking of what '26 would be starting to look like.”

    asked by Ross Seymore · answered by Hock Tan

    2 min read5 chapters

    Detailed Narrative

    01

    AI Semiconductor Momentum

    Broadcom's AI semiconductor revenue reached $5.2 billion in Q3 FY25, growing 63% year-on-year and marking its tenth consecutive quarter of robust growth. The XPU business, now comprising 65% of AI revenue, saw continued demand from its three existing customers, with the company progressively gaining market share. A new fourth qualified customer contributed over $10 billion in AI rack orders, significantly improving the FY26 AI revenue outlook, which is now expected to accelerate beyond the 50-60% growth rate seen in FY25.

    02

    Advanced AI Networking Solutions

    The company highlighted its leadership in AI networking, introducing new solutions to address the challenges of large-scale generative AI clusters. This includes Tomahawk 6, a 102 Tbps Ethernet switch designed to flatten the network to two tiers for scaling out across racks, resulting in lower latency and power. Additionally, the new Jericho4 Ethernet fabric router, with 51.2 Tbps capacity, deep buffering, and intelligent congestion control, is designed to handle clusters beyond 200,000 compute nodes spanning multiple data centers, building on the success of Jericho3.

    03

    Non-AI Semiconductor Recovery Dynamics

    Non-AI semiconductor revenue was flat sequentially at $4 billion in Q3 FY25. While broadband showed strong sequential growth, enterprise networking and server storage experienced sequential declines. Wireless and industrial segments remained flat quarter-on-quarter. For Q4, non-AI semiconductor revenue is projected to grow low double digits sequentially to $4.6 billion due to seasonality. However, management characterized the overall non-AI recovery as slow and U-shaped, with meaningful improvement not anticipated until mid-to-late FY26, despite order bookings being up over 20% year-on-year.

    04

    VMware Cloud Foundation (VCF) Progress

    Infrastructure software revenue exceeded expectations at $6.8 billion, up 17% year-on-year, with total contract value booked over $8.4 billion in Q3. Broadcom successfully launched VMware Cloud Foundation version 9.0, a fully integrated cloud platform enabling enterprise customers to deploy on-prem or in the cloud, supporting AI workloads on virtual machines and modern containers. Over 90% of the top 10,000 accounts have purchased VCF licenses, with the current focus shifting to assisting customers with successful deployment and operation to expand across their IT footprints.

    05

    Record Backlog and Capital Allocation

    Broadcom achieved a record consolidated backlog of $110 billion at the end of Q3 FY25, primarily driven by robust AI semiconductor demand. The company generated $7 billion in free cash flow, representing 44% of revenue. Capital allocation included $2.8 billion in cash dividends paid to stockholders. Broadcom ended the quarter with $10.7 billion in cash and $66.3 billion in gross principal debt, while inventory increased 8% sequentially to $2.2 billion in anticipation of Q4 revenue growth.

    AI-generated summary of the company’s earnings call. Not investment advice.