Broadcom's Q1 FY2025 results reveal a successful VMware acquisition, driven by upselling customers to comprehensive VCF stacks, alongside significant strides in custom AI silicon, engaging with major hyperscalers and achieving substantial revenue and income growth, despite market fluctuations and ongoing migrations.
Broadcom's strategic acquisition of VMware is paying dividends, evidenced by impressive Q1 FY2025 results. The company's focus on upselling to its VMware Cloud Foundation (VCF) stack and advancements in custom AI silicon are key drivers.
Broadcom's Q1 FY2025 showcased significant financial growth.
"We are upselling customers to a full stack VCF … and as of the end of Q1, approximately 70 percent of our largest 10,000 customers have adopted VCF.” - Hock Tan, Broadcom CEO
VMware's revenue is now integrated into Broadcom's infrastructure software unit, which reported $6.7 billion in revenue, up from $4.55 billion in the same quarter last year. This surge is largely attributed to Broadcom's strategy of selling bundled code and support subscriptions, with 70% of their top 10,000 customers adopting VCF.
While migrations away from VMware are still being reported, Broadcom's strategy seems to be effective.
Broadcom is making significant strides in the AI space, now collaborating with seven hyperscalers for custom AI silicon. They are actively working with four deeply engaged customers on "XPUs".
Broadcom is also taping out "the industry's first two nanometer AI XPU packaging as we drive towards a 10,000 teraflops XPU."
Broadcom is also focused on building massive accelerator clusters for its hyperscale customers:
Semiconductor revenue reached $8.2 billion, an 11% year-on-year increase. Of that, $4.1 billion came from AI-related products, representing 77% year-on-year growth.
Hock Tan has suggested the US government should build more VMware-powered on-prem private clouds, aligning with the potential second Trump Administration's objectives to reduce federal spending and modernize IT infrastructure. Broadcom has already consolidated 42 datacenters into seven facilities since acquiring VMware.
Broadcom's share price is down by about 25% for the calendar year, potentially due to market corrections in AI stocks and concerns over potential tariffs. However, after-hours trading following the earnings announcement saw a jump in share price.
When asked about future acquisitions, Tan stated, "No, I'm too busy... We're too busy doing AI and VMware. We're not thinking of it at this point.” This suggests that rumors of Broadcom acquiring parts of Intel are unfounded.