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Broadcom Inc. CEO Hock Tan said customers are increasing orders for semiconductors at an unprecedented rate and tried to quell concerns that this will lead to overshoot later on.
“We see customers accelerating bookings for early deliveries and trying to create bookings and create the imbalance between supply and demand that everyone hears,” Tan told analysts during an earnings conference call Thursday.
About 90 percent of Broadcom’s supply for 2021 has already been ordered by customers. Typically, chipmakers have about a quarter of their supply locked in this way. Since mid-2020, the company has reviewed its order book to ensure that it aligns with the actual consumption of end products such as smartphones and network equipment. While some industries have complained of a chip shortage, Tan said Broadcom has enough production from its outsourced suppliers to meet the needs of its customers who have pre-order levels.
“We think this is real,” Tan said. “Our revenue reflects what end users consume.”
Industry-wide lead times (the time it takes to get a chip after ordering) have exceeded 14 weeks. That has raised concerns that customers are deliberately ordering too many semiconductors to avoid future supply shortfalls. This double ordering often leads to order cancellations and decreased revenue for chipmakers later on.
Chip stocks have plummeted in recent days on concerns that industry earnings are peaking. Tan’s assurances that the current expansion is sustainable were questioned during Thursday’s call. Broadcom shares fell 2.5 percent in extended trading.
Nearly a year ago, Tan was one of the first chip CEOs to warn customers to order well in advance to guarantee supply.
Despite a seasonal decline in smartphone chip orders, Tan expects second-quarter chip tax revenue to grow about 17 percent and forecasts growth to persist throughout the year. Still, he acknowledged that this growth rate 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 businesses spanning smartphone parts, key network equipment components, and semiconductors powered by home Wi-Fi equipment and set-top boxes. That scope, which also includes mainframe and security software, makes their projections an indicator of future demand from major tech companies like Apple Inc., Samsung Electronics Co. and Google.
In the first fiscal quarter, Broadcom reported 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.
