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Broadcom Stock Gains As Q3 Earnings, Outlook Challenge Chip Sector Gloom

"While consumer IT hardware spending has been reported to be very weak, from our vantage point, infrastructure spend is still very much holding," said CEO Hock Tan.

Updated at 9:46 am EST

Broadcom  (AVGO) - Get Free Report shares jumped higher Friday after the chipmaker's stronger-than-expected third quarter earnings and robust near-term outlook as corporate spending on broadband and IT infrastructure continues to drive demand. 

Broadcom's adjusted earnings of $9.73 per share topped Street forecasts by around 16 cents, while revenues rose 25% to an analyst-topping $8.464 billion. Broadband revenues grew 20% to $1.1 billion while Apple  (AAPL) - Get Free Report helped wireless revenues rise 14% to $1.6 billion.

The group's semiconductor backlog grew 24% from the previous quarter, to $31 billion, and with a broader exposure to growing markets such as data centers and networking equipment used in hybrid work environments, Broadcom said it's seeing infrastructure demand that is "still very much holding" when compared to markets such as gaming and smartphones.

Looking into the current quarter, Broadcom said it sees revenues in the region of $8.9 billion, but noted that its smartphone segment, which includes Apple as its top customer, is starting to note "early signals of supply outpacing demand."

"As both cloud and enterprise data centers refresh, they continue to increase adoption of our Tomahawk, Trident, and Jericho switching silicon platforms. Importantly, we expect this trend to continue," CEO Hock Tan told investors on a conference call late Thursday. 

"Steady growth (in broadband) was driven by major service provider continuing to deploy next-generation broadband fiber to the home globally with high attach rates of WiFi 6 and 6E," he added. "We are the industry leader in investing in the next-generation WiFi 7 and unlocking amazing wireless experiences across home gateways, enterprise access points, and smartphones. And we expect first deployments to occur in the second half 2023."

Broadcom shares were marked 3.1% higher in early Friday trading to change hands at $507.24 each.

Tan said the group was making "good progress" with regulators on its $61 billion acquisition of VMWare  (VMW) - Get Free Report, the former cloud computing division of Dell Technologies  (DELL) - Get Free Report, and expects the deal to close in the coming fiscal year.

The chipmaker has said it it will maintain its current dividend policy of delivering 50% of its prior-year free cash flow to shareholders, despite the VMWare acquisition, which includes Broadcom's assumption of around $8 billion in VMware debt. Broadcom shareholders will own around 88% of the company when the deal is complete, with VMware holding the remaining 12%.

On the issue of U.S. restrictions on chip sales to China, Tan said Broadcom hasn't been notified on any change in license terms, adding "we do not expect to be".

Earlier this week, Nvidia Corp.  (NVDA) - Get Free Report said the U.S. government ordered the chipmaker to stop exporting artificial intelligence components to clients in China, a move that could wipe more than $400 million in current-quarter sales from the chipmaker's books.