Broadcom(US:AVGO)2025-06-05 22:00Financial Data and Key Metrics Changes - Total revenue for Q2 2025 was a record $15 billion, up 20% year on year, driven by strength in AI semiconductors and VMware momentum [5][14] - Consolidated adjusted EBITDA was $10 billion, up 35% year on year, reflecting excellent operating leverage [5][14] - Gross margin was 79.4%, better than guidance, with operating income of $9.8 billion, up 37% year on year [14][15] Business Line Data and Key Metrics Changes - Semiconductor revenue was $8.4 billion, growing 17% year on year, with AI semiconductor revenue exceeding $4.4 billion, up 46% year on year [6][16] - Infrastructure software revenue was $6.6 billion, up 25% year on year, driven by the transition to the full VCF software stack subscription [11][17] - Non-AI semiconductor revenue was $4 billion, down 5% year on year, but with sequential growth in broadband, enterprise networking, and service storage [10][12] Market Data and Key Metrics Changes - AI networking revenue grew over 170% year on year, representing 40% of total AI revenue, driven by robust demand from hyperscale customers [6][10] - The company expects AI semiconductor revenue to reach $5.1 billion in Q3 2025, up 60% year on year, marking the tenth consecutive quarter of growth [9][22] Company Strategy and Development Direction - The company is focused on expanding its AI semiconductor capabilities, with expectations of significant deployments of custom AI accelerators by customers [8][9] - The strategy includes leveraging Ethernet as the preferred choice for hyperscale customers, with new product launches like the Tomahawk six switch [7][8] - The company aims to maintain a disciplined approach to capital allocation, prioritizing debt reduction and opportunistic share repurchases [21][100] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in sustaining the growth rate of AI semiconductor revenue into fiscal 2026, driven by increased demand for inference alongside training [9][91] - The operating environment remains dynamic, with management acknowledging uncertainty regarding export controls on AI technology [105] Other Important Information - Free cash flow for the quarter was $6.4 billion, representing 43% of revenue, impacted by increased interest expenses and cash taxes [18][20] - The company repaid $1.6 billion of debt post-quarter, reducing gross principal debt to $67.8 billion [20] Q&A Session Summary Question: Can you elaborate on the inference commentary and its impact on growth? - Management indicated increased deployment of XPUs and networking, contributing to confidence in growth rates for the upcoming year [26][27] Question: How do you see the AI business sustaining its growth trajectory? - Management confirmed that the AI business is expected to sustain a 60% year-over-year growth rate into fiscal 2026 based on improved visibility and demand [30][91] Question: What drove the strong performance in AI networking? - The growth in AI networking is closely tied to the deployment of AI accelerated clusters, with increased density in scale-up scenarios exceeding expectations [35][38] Question: How is the integration of VMware progressing? - Management noted that the conversion to subscription models is ongoing, with about two-thirds of renewals completed, expecting another year to finalize the process [108]