Earnings Preview: Broadcom Corp.

Broadcom Corp. (BRCM) is expected to report Q3 earnings after the market close on Thursday, October 22 with a conference call scheduled for 4:45 pm ET.

Guidance

The consensus estimate is 33c for EPS and $1.16B for revenue, according to First Call. Management provided Q3 guidance on its last earnings call of revenue $1.11B-$1.18B, and gross margin up 1.25% over Q2 levels.

Analyst Views

Jefferies believes Broadcom's Q3 revenue was in-line with its recently raised estimate of $1.189B, up 14% quarter-over-quarter, driven largely by stronger Mobile & Wireless (WLAN, Bluetooth, cellular) revenue with Broadband Communications (DTV + STB) and Enterprise Networking (Ethernet switching) both up 10% Q/Q. Jefferies believes Mobile & Wireless revenue was likely $500M, WLAN business $180M, Broadband Communications revenue $4OOM, and Enterprise Networking $230M. Jefferies believes Broadcom's Q3 gross margin and EPS will come in at their estimates of 50.9% and 34c, respectively. Jefferies believes Broadcom will likely guide to Q4 revenue of $1.21B-$1.28B, up 2%-8% Q/Q, above their estimate $1.24B and Street of $1.19B. The firms believes Broadcom's Q4 gross margin will be up 20-30bps sequentially with implied EPS in the range of 36c-42c, above its estimate of 37c and consensus of 35c, largely due to the higher revenue. Jefferies continues to believe Broadcom should be a core holding as it's well positioned for a return to revenue growth in 2010. That will drive improving profitability given its comprehensive communications and integrated connectivity portfolio, as well as potential opportunities with cellular base band. Broadcom was earlier involved in a hostile takeover battle with Emulex Corp. (ELX) since May 2009 which the latter turned down after a series of revisions in the offer price. Most analysts think management should now concentrate on improving operating performance given signs of economic recovery in later half of this year/early next year.