Broadcom's Chips for Data Centers Offset Smartphone Weakness

Strength in chips that help run corporate networks, data centers keeps orders rolling in


June 8, 2018

3 Min Read
Broadcom logo outside company offices in San Jose, California
Broadcom logo outside company offices in San Jose, CaliforniaJustin Sullivan/Getty Images

Ian King (Bloomberg) -- Broadcom Inc. reaffirmed its revenue forecast for the current period and reported profit that beat estimates, indicating robust sales of chips used in data-center networks are helping to make up for lackluster demand in the smartphone business.

Revenue will be about $5.05 billion, plus or minus $75 million, in the quarter ending in July, the San Jose-based chipmaker said Thursday in a statement. Analysts had projected sales of $5.06 billion, according to the average of estimates compiled by Bloomberg.

Broadcom Chief Executive Officer Hock Tan has almost tripled the company’s revenue since 2015, mostly through acquisitions. On Thursday, he returned to discussing fluctuations of the electronics market after a failed attempt to expand further through the acquisition of Qualcomm Inc. As more companies use data to fuel their businesses, Broadcom’s strength in chips that help run corporate networks and data centers is keeping orders rolling in.

“Our overall business remains robust and stable,” Tan said on a conference call. In the current period, the company is expecting wireless revenue to be unchanged or “maybe even decline” while growth in wired infrastructure sales will continue, he said.

Companies and large cloud data-center providers are spending on infrastructure, Tan said. In wireless, the company’s large North American smartphone customer -- which analysts take as a reference to Apple Inc. -- sharply cut orders in the reported quarter, he said. Those orders will improve in the current period as that customer transitions to a new product and falls back into what would be a normal seasonal purchasing pattern, Tan said.

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Growth won’t return to wireless because Broadcom is expecting orders from a large Korean customer to tail off, he said. While he didn’t name the customer, that description usually is the way Tan refers to Samsung Electronics Co.

Broadcom’s net income was $3.73 billion, or $8.33 a share, in the quarter ended April 30, compared with $464 million, or $1.05 a share, a year earlier. Revenue rose 20 percent to $5.01 billion. Profit minus certain items was $4.88 a share. That compares with an average analyst estimate of $4.68 per share on sales of $5 billion.

The company had updated its predictions on April 30 to indicate sales of about $5 billion for the fiscal second quarter and projected $5.05 billion, plus or minus $75 million, for the current quarter.

Broadcom released its forecasts at that time to reassure investors that its customers are in a diverse enough set of markets that the company wouldn’t be vulnerable to weak sales in its wireless division. Apple is one of the company’s largest customers.

Shares were little changed in extended trading after results were released. Earlier, they closed at $264.68, leaving them up 3 percent this year. That compares with a 14 percent gain for the Philadelphia Stock Exchange Semiconductor Index. Broadcom’s stock has outpaced the chip industry benchmark four of the last five years.

Tan and his management have said that they don’t expect future acquisitions to weigh heavily on the company’s balance sheet, which suggests they don’t plan to pull off more large-scale deals. Their hostile attempt to acquire rival Qualcomm Inc., which would have been the biggest acquisition in the history of the technology industry, was blocked by the U.S. government on security grounds.

The company hasn’t abandoned the idea of future purchases and won’t settle for plowing cash into stock repurchases. Broadcom is still looking for acquisition targets, Tan said.

“Our cash flow generation is very, very strong,” he said. “That’s allowing a lot of flexibility to look at M&A as we do and to invest in a very strong returning asset, our own shares.”

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