BROADCOM, a supplier of chips to Apple and a broad swath of the tech industry, gave a disappointing forecast for the current period, signalling that demand remains sluggish for electronic components.

Revenue will be about US$9.27 billion in the fiscal fourth quarter, the company said on Thursday (Aug 31). That compares with an average Wall Street estimate of US$9.28 billion, with some analysts predicting as much as US$9.8 billion. The projected gain would be the slowest since 2020.

The outlook shows that Broadcom is mired in a broad spending slowdown – even as the artificial intelligence (AI) boom fuels demand in pockets of the industry. It’s a maker of key components for Apple’s iPhone, which has suffered a sales decline. And though Broadcom dominates the market for semiconductors that help direct traffic between computers in giant data centres, spending in that area has been uneven.

The stock fell more than 4 per cent in late trading after the quarterly report was released. Broadcom shares had gained 65 per cent this year through the close, part of a broader run-up in chip stocks.

AI is seen as a bright spot. chief executive officer Tan Hock told investors last quarter that he expects revenue related to the AI market to increase rapidly and account for more than a quarter of sales soon. On Thursday, he pointed to healthy demand for next-generation technology among large cloud computing providers.

Those businesses are expanding “AI clusters within data centres”, he said. For now, though, that growth is overshadowed by the wider slump.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

“People were hoping for more given the hype around AI,” Stacy Rasgon, an analyst at Sanford C Bernstein & Co, said on Bloomberg Television.

In addition to offering an arsenal of different chips, Broadcom has branched out into software used by large corporations. That reach makes its results a bellwether for spending on technology.

Though Broadcom growth has decelerated sharply from pandemic levels, sales still came in a bit better than expected last quarter. In the fiscal third quarter, which ended Jul 30, Broadcom’s profit was US$10.54 a share, excluding some items. Revenue rose 4.9 per cent to US$8.88 billion. Analysts had predicted earnings of US$10.43 a share and sales of US$8.87 billion.

Even with its headway in the AI market, Broadcom hasn’t matched the rapid sales gains of fellow chipmaker Nvidia. Insatiable demand for Nvidia’s AI accelerators, which help so-called large language models handle an enormous flow of data, has propelled that company to a US$1 trillion valuation.

In contrast, Broadcom still gets much of its revenue from markets that are growing more slowly or not at all. That includes the smartphone industry.

Broadcom’s chip business had sales of US$6.94 billion in the third quarter, compared with an average estimate of US$6.87 billion. Infrastructure software revenue was US$1.94 billion, versus a projection of US$1.91 billion.

Tan, the CEO, told analysts that all of the growth in his semiconductor unit was related to AI gear. Without that, the business would have been flat year over year.

“The AI piece that’s there is supporting things,” Rasgon said.

Overall, the chip market is experiencing a “soft landing”, with large companies and telecommunications providers buying less equipment, Tan said. In the current period, growth will be again driven by AI-related spending.

In the wireless unit, sales will improve this quarter compared with the previous three months, but will remain down from a year earlier. The trends are being driven by what Broadcom refers to its “large North American customer”, a veiled reference to Apple.

Broadcom, based in San Jose, California, also has expanded into enterprise software by acquiring security and mainframe capabilities. Its planned purchase of VMware has been delayed by regulatory scrutiny, but the company said on Thursday that it still expects to get the necessary approval by Oct 30. BLOOMBERG