Broadcom Inc. (AVGO, Financial) recently held its third quarter fiscal year 2023 financial results conference call. The company reported consolidated net revenue of $8.9 billion, a 5% increase year on year. The Semiconductor Solutions revenue rose by 5% year on year to $6.9 billion, while Infrastructure Software grew by 5% year on year to $1.9 billion. The company's wireless business remained stable, and the growth in hyperscale spending was driven by investments in generative AI. Broadcom's networking revenue was $2.8 billion, up 20% year on year, representing 40% of the semiconductor revenue. The company expects its networking revenue to accelerate in excess of 20% year on year in Q4.
Strong Performance in Semiconductor Solutions and Infrastructure Software
Broadcom's Semiconductor Solutions segment saw a 5% year-on-year increase in revenue, reaching $6.9 billion and accounting for 78% of the total revenue in Q3. The Infrastructure Software segment also performed well, with revenue growing by 5% year on year to $1.9 billion, representing 22% of the total revenue. The company's consolidated renewal rates averaged 117% over expiring contracts, and in strategic accounts, the average was 127%. The company's Annual Recurring Revenue (ARR) at the end of Q3 was $5.3 billion.
Financial Performance and Capital Allocation
Broadcom's gross margins were 75.1% of revenue in Q3, in line with expectations. Operating income for the quarter was $5.5 billion, up 6% from a year ago, with an operating margin of 62% of revenue. The company's free cash flow in Q3 was $4.6 billion, representing 52% of revenues. Broadcom paid stockholders $1.9 billion of cash dividends in Q3 and repurchased $1.7 billion of its common stock. The company ended Q3 with $12.1 billion of cash and $39.3 billion of gross debt.
Outlook for Q4 2023
Looking ahead, Broadcom expects its Q4 revenue to be $9.27 billion, up 4% year on year. The company expects its gross margins to be down 80 basis points sequentially on product mix. The company's guidance for Q4 does not include any contribution from VMware. Broadcom is confident that the combination with VMware will enhance competition in the cloud and benefit enterprise customers by giving them more choice and control where they locate their workloads.
In conclusion, Broadcom's Q3 2023 financial results show a strong performance with positive growth in key areas. The company's outlook for Q4 is also positive, indicating continued growth and strong financial performance.
