Hock Tan, Chief Executive Officer of American chipmaker Broadcom Inc., said customers are beefing up semiconductor orders at an unprecedented pace and tried to put an end to concern that this will create an excessively abundant supply later on.
“We see customers accelerating the bookings for early deliveries and attempting to build buffers and creating the demand-supply imbalance you all hear out there,” Tan told analysts during an earnings conference call on Thursday, according to Bloomberg.
Customers have already ordered approximately 90% of the 2021 supply of Broadcom. During a normal year, chipmakers have about a quarter of their supply locked up like this. Since the middle of the pandemic-inflicted year of 2020, the company has reviewed its order backlog to make sure it appropriates with the actual consumption of end products such as smartphones and Wi-fi gear. While some industries have complained of a severe chip supply crunch, Tan said Broadcom has anticipated order levels and planned out enough production from its outsourced providers to meet its customers’ needs.
“We believe this is real,” Tan said. “Our revenue reflects what’s being consumed by end-users.”
Across the industry, lead times — the amount of time it takes to get a chip after you order it — have climbed upwards of 14 weeks. That has sparked concern among the chipmakers that customers purposely order too many semiconductors to head off future supply shortfalls. This double ordering often negatively impacts order cancellations and declining revenue for chipmakers later on.
Chip stocks have slumped in recent days including Broadcom, whose shares slipped about 2.5% in extended trading, on concern that industry earnings are peaking. Throughout Thursday’s call, Tan’s assurances that the current expansion is sustainable were questioned.
Almost a year ago, Tan was one of the first chipmaker CEOs to alert customers to order well before-hand to guarantee supply.
Despite smartphone chip orders facing a seasonal decline, Tan expects fiscal second-quarter chip revenue to grow at about 17% and throughout the year sees growth persisting. Still, he acknowledged that this growth rate is unusually high, also notifying that Broadcom customers can’t cancel orders.
Compared with an average analyst estimate of $6.33 billion, the company predicted revenue in the three months ending April will be about $6.5 billion.
Broadcom’s businesses span smartphone parts, semiconductors that run home Wi-Fi gear and set-top boxes, and key networking equipment components. That reach makes its projections an indicator of future demand for major technology companies such as Samsung, Google, and Apple.
According to data compiled by Bloomberg, in the fiscal first quarter, compared to analysts’ estimate of $4.93 billion, Broadcom reported its main chip division, semiconductor solutions, generated $4.91 billion in sales.