Shares of the chipmaker Broadcom Inc., which recently closed on its multibillion-dollar acquisition of VMware Corp., traded lower late today after the company reported results that failed to satisfy investors and offered an annual revenue forecast that came in below expectations.

The company blamed weak enterprise spending and stiffer competition in the networking chips industry for the lower forecast. The stock was down more than 1% in extended trading, after gaining 2% during the regular trading session.

The company reported fourth-quarter earnings before certain costs such as stock compensation of $11.06 per share, ahead of Wall Street’s consensus estimate of $10.96 per share. Revenue rose 4% from a year earlier,x to $9.3 million, in line with forecasts.

In a statement, Broadcom President and Chief Executive Hock Tan (pictured) said the company delivered record revenue of $35.8 billion in fiscal 2023, with the results driven by “investments in accelerators and network connectivity” for artificial intelligence workloads.

The company said its semiconductor solutions business unit, which includes sales of computer chips, storage arrays and networking gear, delivered $7.3 billion in sales, while its infrastructure software segment, which is focused on mainframes, cybersecurity and data centers, added $2 billion.

The results come just weeks after Broadcom finally completed its long-awaited $61 billion acquisition of VMware, the virtualization software giant that sells the industry’s most popular hypervisor, as well as a range of other tools spanning use cases such as cybersecurity and cloud cost optimization. That deal had originally been slated to close in February, but was delayed because of close scrutiny by regulators in the U.S., the U.K. and China.

In fiscal 2024, Broadcom said it’s expecting to deliver around $50 billion in annual revenue, including a contribution from VMware. However, that was lower than expected, with analysts forecasting annual sales of $52.5 billion.

Insider Intelligence analyst Jacob Bourne told Reuters that the outlook for the company depends on how well it weaves the acquisition into its long-term AI strategy.

Broadcom’s computer chips are used in various industries, including networking, broadband, server storage, wireless networks and elsewhere. Some of its chips also play a role in powering AI applications, including generative AI, which has been the hottest trend in tech this year.

Lucas Keh, an analyst with Third Bridge Group, told SiliconANGLE that the combination of Broadcom and VMware will be able to offer AI solutions on both the hardware and software side. “This shows Broadcom’s strong position to cater to this AI demand and motivation to grow its software opportunity to rival the chip business,” he said.

Broadcom also forecast annual adjusted earnings before interest, taxes, depreciation and amortization of around 60% of its projected revenue, which works out at around $30 billion. That’s up by about $7 billion from its annual adjusted EBITDA in 2023.

The company originally said it hoped to improve VMware’s EBITDA contribution to $8.5 billion within three years of closing on the acquisition. However, it faces a number of challenges in the months ahead. On a conference call, Broadcom’s finance chief Kirsten Spears said most generative AI spending is coming from large cloud providers, but not from enterprises.

In addition, the company said, spending from telecom and enterprise clients has moderated in recent months. With one of its biggest clients, Cisco Systems Inc., recently flagging a slowdown in new orders, analysts fear Broadcom will also suffer. Finally, Broadcom faces stiff competition from Nvidia Corp., whose InfiniBand networking technology provides a compelling alternative to its AI networking technologies.

Holger Mueller of Constellation Research Inc. said Broadcom gets credit for once again delivering to guidance, something it has done with remarkable consistency over the last year despite difficult economic conditions. However, he said the pedestrian revenue growth demonstrates why Broadcom needs VMware — to spark a return to double-digit growth so it can fulfill Tan’s publicly-stated ambition of reaching $50 billion in annual revenue.

“It’s clear that Broadcom wants and needs more revenue differentiation, with semiconductor sales still accounting for more than 80% of the company’s overall revenue,” Mueller said. “That mix will change once VMware is fully integrated into the company, helping to spark badly-needed growth on the software side of its business.”

Prior to today’s movements, Broadcom’s stock was up 65% in the year to date, outperforming the 49% rise in the ICE Semiconductor Index that tracks the performance of semiconductor firms.

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