Broadcom expects double-digit growth in networking

Broadcom (AVGO) slashed its full-year fiscal 2019 revenue guidance for its Semiconductor Solutions segment by 10%, or $2 billion, dampening hopes of a revival in the second half of the year. However, the company experienced strong demand in its networking business and expects revenue in this segment to grow in the double digits in fiscal 2019.

Broadcom’s networking segment supplies Ethernet switching and connectivity chips, packet processors, optical components, and ASICs (application-specific integrated circuits) used for accelerating AI, networking, video transcoding, and encryption workloads.

Broadcom CEO Hock Tan, during the fiscal 2019 second-quarter earnings call, stated that the company is focusing on executing its roadmap for next-generation network switching and routing in cloud and enterprises. The company recently announced its Trident 4 software-defined network switch and is implementing product cycles like Tomahawk 3, Jericho 2, and some ASICs. He expects these strong product cycles to drive double-digit growth in networking. He expects major cloud data centers to spend up to 25% of their computing spending on accelerators in the next three to five years.

Broadcom’s guidance brings good news for Intel and NVIDIA 

Broadcom’s guidance shows growth in networking, which bodes well for NVIDIA (NVDA) and Intel (INTC), as they offer accelerators for data center workloads. NVIDIA is acquiring end-to-end InfiniBand and Ethernet interconnect solutions provider Mellanox Technologies to offer a complete AI solution.

Both Intel and NVIDIA reported YoY declines in data center revenue as many data centers moved from purchasing more capacity to absorbing the capacity accumulated. In the first quarter, Intel’s Xeon server CPU (central processing unit) revenue from communications service providers fell 4% YoY. However, strong demand from network ASICs and silicon photonics drove its non-CPU data center revenue 2% YoY.

Intel is a small player in the networking space, whereas Broadcom is a bigger player. Thus, Intel’s stock fell 1% despite Broadcom’s strong guidance for the networking market.

Broadcom expects stable earnings from its wired infrastructure segment driven by the ramp-up of new-generation Wi-Fi 6 (802.11ax) in enterprise gateways and carrier access bonds. The wired segment will keep Broadcom’s cash flows stable even amid the US-China trade war.

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