Broadcom logo outside company offices in San Jose, California Justin Sullivan/Getty Images
Broadcom logo outside company offices in San Jose, California

Broadcom Gives Upbeat Sales Forecast on Data Center Growth

Cloud data center demand is driving growth in products responsible for more than half of Broadcom's revenue, CEO Hock Tan said • The company makes network switching chips and chips that control storage devices for the data center market • Its shares remain down this year after a drop that followed the announcement that Broadcom will buy CA Technologies, which puzzled the market • Tan said he's buying CA to give his sales teams more access to the software maker's customers

Ian King (Bloomberg) -- Chipmaker Broadcom Inc. gave a quarterly sales forecast that topped analysts’ estimates on strong demand for data center semiconductors. The stock rallied in extended trading, following an earlier sell-off in chip industry shares.

Revenue will be about $5.4 billion, plus or minus $75 million, in the fiscal fourth quarter, which ends in October, the San Jose-based company said Thursday in a statement. Analysts had projected sales of $5.36 billion, according to the average of estimates compiled by Bloomberg.

Cloud providers such as Alphabet Inc.’s Google and Amazon.com Inc. are continuing to pour investment into their data centers and companies are building up their in-house computer networks, Chief Executive Officer Hock Tan said on a conference call with analysts. That demand is driving growth in products that account for more than half of Broadcom’s revenue, he said.

Tan has built a company that’s nearly three times the size it was in 2015 through acquisitions that have transformed a big chunk of the semiconductor industry. After his attempt to purchase Qualcomm Inc. was blocked by the U.S. government earlier this year, Tan surprised analysts in July by announcing he will buy software maker CA Technologies for about $18.9 billion. The deal takes the company into an unrelated business and indicates more purchases in that area may follow.

CA gives Broadcom access to a new set of customers for its technology, Tan said. Retail companies, telecommunications service providers and financial service firms will all become more accessible to his sales teams because of the acquisition.

“We’re buying CA because of their customers and their importance to these customers,” he said.

Shares rose as much as 4.2 percent in extended trading after the results were released. Earlier, the stock closed at $215.97 in New York, leaving them down 16 percent this year. The shares plummeted on July 12 after the company announced its CA purchase.

The benchmark Philadelphia Stock Exchange Semiconductor Index fell 2.7 percent Thursday on concern that a years-long surge in demand for chip equipment and memory chips is coming to an end, following company comments and analysts’ downgrades.

Broadcom’s main semiconductor business is used by analysts and investors as an indicator of the confidence major smartphone makers have in current demand and future products. The company’s Wi-Fi chips are part of leading models by Samsung Electronics Co. and Apple Inc. Sales in 2020 will return to double-digit percentage growth, after a dip in 2019, as the industry moves to new wireless technology that will give Broadcom the opportunity to regain market share, Tan said. For the current period, weaker demand from Samsung, which he referred to indirectly, was partially made up for by demand for new iPhone parts. Tan doesn’t use Apple’s name. Instead, he calls the iPhone maker his “large North American smartphone customer.”

Meanwhile, the company’s products used in cloud computing data centers are in high demand as that industry continues a massive expansion of its capacity. Broadcom makes chips that control storage devices and also manufactures switch chips, the key component in machinery that directs traffic between server computers.

Broadcom’s net income was $1.2 billion, or $2.71 a share, in the fiscal third quarter, compared with $507 million, or $1.14 a share, a year earlier.

Revenue rose 13 percent to $5.06 billion. By division, wired infrastructure had sales of $2.3 billion, up 4 percent from a year earlier. Wireless communications revenue was little changed at $1.3 billion. The enterprise storage unit reported sales of $1.25 billion, a jump of 70 percent helped by an acquisition.

Adjusted profit was $4.98 a share, compared with the average analyst estimate of $4.83.

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