By Arsheeya Bajwa and Chavi Mehta
(Reuters) -Chipmaker Broadcom (NASDAQ:AVGO) forecast annual revenue below Wall Street estimates on Thursday, as weak enterprise spending and stiff competition cast a shadow on its acquisition of VMware (NYSE:VMW).
Shares of San Jose, California-based Broadcom, which recently closed its acquisition of the cloud computing firm, fell more than 1% in extended trading.
In fiscal 2024, Broadcom expects revenue of about $50.0 billion including VMware's contribution. Analysts on average were expecting $52.50 billion, according to LSEG data.
"The outlook in part depends on how effectively Broadcom can weave the restructuring into its long-term AI strategy," said Jacob Bourne, an analyst at Insider Intelligence.
VMware's non-core end-user computing and Carbon Black businesses will be divested, CEO Hock Tan said on a post-earnings call, confirming earlier media reports.
The company also forecast annual adjusted EBITDA of about 60% of projected revenue, which comes out to be around $30 billion, an expected increase of nearly $7 billion from its 2023 EBITDA.
Broadcom's original goal was to improve VMware's EBITDA contribution to $8.5 billion within three years of closing.
The company also expects to incur about $1 billion in transition costs related to VMware, CFO Kristen Spears said on the call.
The company has seen revenue from telecom and enterprise clients moderate, and with major client Cisco Systems (NASDAQ:CSCO) flagging a slowdown in new orders, analysts worry Broadcom will see the impact as well.
"We continue to see a very mixed demand environment for Broadcom's service provider and enterprise businesses," said Summit Insights analyst Kinngai Chan.
Competition from Nvidia (NASDAQ:NVDA), whose InfiniBand is being used as an alternative to Broadcom’s core offerings for AI, is an added pain.
Broadcom's revenue in the fourth quarter was $9.30 billion, below estimates of $9.41 billion.
However, on an adjusted basis, the company's profit of $11.06 per share beat estimates of $10.98.