How AVGO (Broadcom) Makes Money in 2025: A Deep-Dive With Income Statement

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Understanding how a semiconductor and infrastructure software leader like AVGO (formerly Broadcom Inc.) makes money is essential for investors and anyone interested in the business of technology and enterprise solutions. In this post, we break down AVGO's quarterly income statement (Q3 2025) using a Sankey chart to visualize the financial flows — what comes in, where it goes, and what's left as profit.

Quick AVGO Overview

AVGO operates as a global technology company specializing in semiconductor solutions and infrastructure software. Its business model centers on designing, developing, and supplying a broad range of semiconductor and software products for data centers, networking, broadband, wireless, storage, and industrial markets. Revenue comes primarily from two main segments: Semiconductor Solutions (chips and related hardware) and Infrastructure Software (enterprise software for security, storage, and mainframe environments). These segments serve a diversified customer base across cloud, telecom, and enterprise verticals.

Revenue Breakdown

• Total Revenue (Q3 2025): $16.0B (+22.0% YoY)
  • Semiconductor Solutions Revenue: $9.17B (57.5% of total, +26% YoY)
  • Infrastructure Software Revenue: $6.79B (42.5% of total, +17% YoY)
  • Growth is powered by robust demand for AI-enabled data center chips and continued expansion of enterprise software subscriptions.

Gross Profit and Margins

• Gross Profit: $10.7B (67.1% gross margin)
  • Cost of Revenue: $5.25B (+11.3% YoY)
  • AVGO maintains robust margins due to its scalable digital business model, high-value proprietary technology, and operational efficiencies in manufacturing and software delivery.
• Most costs come from manufacturing semiconductors, licensing fees, and support for software platforms.

Operating Income and Expenses

• Operating Income: $5.89B (+55.4% YoY, 36.9% margin)
• Operating Expenses: $4.82B (+5.4% YoY)
  • R&D: $3.05B (+29.6% YoY, 19.1% of revenue) — Focused on next-generation chip design, AI acceleration, and software platform innovation.
  • SG&A: $1.07B (-2.5% YoY, 6.7% of revenue) — Includes sales, marketing, and administrative functions, reflecting disciplined cost control.
  • AVGO continues to prioritize innovation and invest in R&D while maintaining efficiency in SG&A to support scalable growth.

Net Income

• Pre-Tax Income: $5.29B (+88.3% YoY, 33.1% margin)
• Income Tax: $1.15B (21.7% effective tax rate)
• Net Income: $4.14B (+0.0% YoY, 26.0% net margin)
• AVGO converts a significant portion of sales into profit due to its high-margin software business and efficient cost structure.

What Drives AVGO's Money Machine?

• Semiconductor Solutions: 57.5% of revenue, driven by demand for custom chips in AI, networking, and storage.
• AI and Data Center Growth: Accelerated adoption of AI workloads and cloud infrastructure boosts chip sales and software subscriptions.
• R&D Investment: $3.05B in Q3 2025, targeting advanced semiconductor technologies and integrated software solutions.
• Enterprise Software Expansion: Ongoing growth in subscription-based software, though some new segments are not yet profitable as AVGO invests for future scale.

Visualizing AVGO's Financial Flows

The Sankey chart below visualizes how each dollar flows from gross revenue, through costs and expenses, down to net income. This helps investors spot where value is created, what areas weigh on profits, and how efficiently the company operates.

• Most revenue flows into gross profit, with operating expenses (especially R&D) taking the largest chunk.
• Even after large investments in innovation, 26% of revenue drops to the bottom line.

Key Takeaways

• AVGO's money comes overwhelmingly from semiconductor solutions and infrastructure software.
• High gross and net margins illustrate the power of AVGO's scalable, high-value technology business model.
• Heavy investment in R&D, balanced by efficiency in operating costs.
• Ongoing growth is driven by AI, data center demand, and enterprise software expansion.

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FAQ About AVGO's Income Statement

1. What is the main source of AVGO's revenue in 2025?

AVGO generates over 57% of its revenue from Semiconductor Solutions, supplying chips for data centers, networking, and storage. The remainder comes from Infrastructure Software, which includes enterprise and mainframe software solutions.

2. How profitable is AVGO in Q3 2025?

AVGO reported net income of $4.14B in Q3 2025, with a net margin of approximately 26%, reflecting strong profitability driven by high-margin software and efficient operations.

3. What are the largest expense categories for AVGO?

The biggest expenses on AVGO's income statement are operating expenses, particularly Research & Development (R&D) at $3.05B in Q3 2025 (19.1% of revenue), as AVGO prioritizes innovation in semiconductors and software. SG&A costs were $1.07B (6.7% of revenue), reflecting disciplined administrative spending.

4. Why does Infrastructure Software operate at a loss?

Infrastructure Software, despite generating $6.79B in revenue, posted an operating loss in some sub-segments in Q3 2025. This is because AVGO aggressively invests in expanding its software platforms and integrating new acquisitions, believing these will drive long-term growth—even if the division is unprofitable today.

5. How does AVGO's effective tax rate compare to previous years?

AVGO's effective tax rate in Q3 2025 was 21.7%, consistent with previous years. This moderate rate is primarily due to international structuring and tax benefits from share-based compensation.