Broadcom Pricing Spineometer: 1 of 5 Vertebrae
Broadcom, a computer and telecommunications networking company, had a positive Q3 2023. Revenue rose 4.9% to $8.9 billion and earnings before interest and taxes rose 3.2% to $3.9 billion over the same period last year.
A review of Broadcom’s August 31st earnings call and financial report provided no insight regarding the importance of pricing on performance.
Hock Tan, CEO of Broadcom stated: “What drives gross margin largely for us as a company is, frankly, a product mix, it’s a product mix.” Neither he nor Kirsten Spears, his CFO, spoke once about pricing in the earnings call.
Since, avoiding pricing discussions is not uncommon for executives, the best gauge of Broadcom’s pricing capability will be that of the alignment between expected need and expressed action.
Pricing at Broadcom would be challenging to manage well. Academic research has well demonstrated that companies working in fast evolving fields, such as Broadcom, benefit from having a robust pricing team. Given its size, we would expect to see 65 to 330 professionals engaged in pricing at Broadcom. Some would focus on product line pricing, others on commercial negotiations, and still others on product lifecycle pricing. Some would engage more in strategy while others on price management and analytics.
Unfortunately, research into the investment by Broadcom in pricing did not yield results aligned with expectations. Pricing does not appear to be an important functional team at Broadcom. Instead, pricing decisions appear to be made by product, marketing, sales, and finance managers and directors themselves.
It is a choice to rely on engineering prowess and technological megatrends to deliver a profitable business. For now, it is paying off. Tomorrow is a different question.
Given the importance and capability of pricing at Broadcom as indicated in financial reports, management statements, and our pricing team research, and given their performance, we have come to the following conclusion as of September ‘23.
Broadcom Pricing Spineometer: 1 out of 5 Vertebrae.
AVGO (Broadcom Inc.) fell from 892 the day prior to their earnings call to 857 one week later. FY 2022 revenue of $33 billion with a 42.8% operating margin and P/E ratio near 27.
For FY 2022, a 1% improvement in price would yield 2.3% improvement in operating profits holding all else constant at Broadcom.