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(Bloomberg) – Broadcom Inc. CEO Hock Tan said customers were increasing semiconductor orders at an unprecedented rate and tried to allay fears that this could create a glut later on.
“We are seeing customers speeding up bookings for early deliveries and trying to create buffers and create the demand-supply imbalance that you all hear out there,” Tan told analysts on an earnings conference call Thursday. .
About 90% of Broadcom’s 2021 offering has already been ordered by customers. Normally, chipmakers have about a quarter of their supply blocked like this. Since mid-2020, the company has been reviewing its order book to ensure it aligns with actual consumption of end products such as smartphones and network equipment. While some industries have complained about a shortage of chips, Tan said Broadcom has sufficient production from its outsourced suppliers to meet the needs of its customers with early order levels.
“We think it’s real,” Tan said. “Our revenues reflect what is consumed by end users.”
Across the industry, the lead times – how long it takes to get a chip after ordering it – has passed 14 weeks. This has raised concerns that customers are deliberately ordering too many semiconductors to avoid future supply shortages. This dual ordering often results in order cancellations and lower revenues for chipmakers afterwards.
Chip inventories have fallen in recent days amid fears that industry profits could peak. Tan’s assurances that the current expansion is sustainable were questioned throughout Thursday’s appeal. Broadcom shares slipped about 2.5% in extended trading.
Nearly a year ago, Tan was one of the first chip CEOs to warn customers to order well in advance to ensure supply.
Despite a seasonal decline in smartphone chip orders, Tan expects second-quarter chip sales to increase by around 17% and see growth continue throughout the year. Yet he acknowledged that this rate of growth is unusually high. He also noted that Broadcom customers cannot cancel orders.
The company forecast that revenue in the three months ending in April will be around $ 6.5 billion, compared to an average analyst estimate of $ 6.33 billion.
Broadcom is one of the world’s largest chipmakers with companies covering smartphone parts, key network equipment components, and the semiconductors that power home Wi-Fi equipment and set-top boxes. This reach, which also includes the mainframe and security software, makes its projections an indicator of future demand from big tech companies like Apple Inc., Samsung Electronics Co., and Google.
In the first fiscal quarter, Broadcom announced that its main chip division, Semiconductor Solutions, generated $ 4.91 billion in sales. Analysts were looking for $ 4.93 billion, according to data compiled by Bloomberg.
(Updates with quarterly earnings performance starting in the ninth paragraph.)
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