Broadcom Q4 Profit Beats On Data Center Products Demand

by Ike Obudulu Posted on December 7th, 2018

San Jose, California, USA : Chipmaker Broadcom Inc (AVGO) which has not missed Wall Street’s earnings targets in five years, on Thursday reported quarterly revenue and profit above analysts’ estimates, driven by strong demand for its enterprise storage and networking products from data centers, sending its shares up 5 percent in extended trading. It also raised its sales guidance for fiscal 2019 and hiked its dividend, causing Broadcom stock to jump in extended trading.

The chipmaker also forecast better-than-expected full-year revenue and said it would not be giving quarterly guidance going forward.

The company raised its dividend by 51% to $2.65 per share per quarter for fiscal year 2019, which started Nov. 5. Broadcom made the move because its free cash flow from operations grew 50% in fiscal 2018 to $8.2 billion, Chief Financial Officer Tom Krause said in a news release.

Chief Executive Hock Tan cited strong demand for the company’s networking, enterprise storage, wireless and industrial products.

“Looking forward to fiscal year 2019, we expect another year of double-digit revenue growth,” Tan said. “Sustained demand within our semiconductor segment will be augmented by the newly acquired mainframe and enterprise software businesses to our infrastructure software segment.”

Chief Executive Officer Hock Tan said the first quarter of fiscal 2019 is expected to be “okay”, in response to an analyst’s question during the company’s post-earnings call.

Tan said he sees a seasonal “downtick” in its wireless business, which makes chips for smartphones including Apple Inc’s (AAPL.O) iPhones.

A handful of Apple suppliers have cut their forecasts for the December quarter, suggesting tepid demand for new iPhones.

Broadcom’s results beat was mainly driven by a better product mix and lower operating expenses, said Kinngai Chan, an analyst with Summit Insights Group.

The chipmaker acquired software maker CA Technologies for $19 billion earlier this year, aiming to diversify its revenue stream in the wake of a cooling semiconductor cycle. The move came after it failed to buy Qualcomm Inc (QCOM.O) in the biggest-ever technology deal.

Revenue from Broadcom’s wireless communications business, which makes RF filters and Wi-Fi chips for smartphones, contributed 31 percent to the sales, above Broadcom’s earlier expectations, but fell 5 percent to $1.70 billion from a year earlier.

“We benefited from upside volumes of legacy phone generations at our North American OEM customer,” Tan said.

Analysts say the North American customer is Apple.

The San Jose, California-based Broadcom also said going forward its two primary business segments will be semiconductor solutions and infrastructure software.

For the full year, Broadcom expects revenue of $24.50 billion, above analysts’ estimates of $22.40 billion, according to IBES data from Refinitiv.

Net income attributable to ordinary shares rose to $1.12 billion, or $2.64 per share, in the fourth quarter ended Nov. 4, from $532 million, or $1.25 per share, a year earlier.

Excluding items, the company earned $5.85 per share.

Net revenue rose 12.4 percent to $5.44 billion.

Analysts on average were expecting earnings of $5.58 per share on revenue of $5.39 billion.

Earlier Thursday, Nomura Instinet named Broadcom as one of its “best ideas” for investors in 2019.

“After a volatile 2018, we expect strong share performance for Broadcom in the coming year,” Instinet analyst Romit Shah said in a report. The company’s acquisition of CA Technologies should drive its outperformance, he said. Broadcom purchased the enterprise software company on Nov. 5.

Broadcom stock has been battered this year by its failed acquisition of Qualcomm (QCOM) and weak Apple (AAPL) iPhone sales. Investors also expressed doubts about the merits of its CA purchase.

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