Broadcom Limited: Mega Merger Is The Beginning Of A New Era In The Semiconductor Space
SevenSeas Investment Research • 82 Comments
SevenSeas Investment Research • 82 Comments
Will Avago Be A Rock In A Turbulent Semiconductor Sea?
Stephen Simpson, CFA • 10 Comments
Stephen Simpson, CFA • 10 Comments
Broadcom Still Undervalued, And With Cards To Play
Stephen Simpson, CFA
Stephen Simpson, CFA
Thu, Jun. 2, 4:31 PM
- Helping Broadcom (NASDAQ:AVGO) deliver a healthy FQ2 EPS beat in spite of just a slight revenue beat: Non-GAAP gross margin was 60%, down 100 bps Q/Q and Y/Y, but above a guidance midpoint of 59%. FQ3 GM guidance is at 60% (+/- 1%).
- Wired infrastructure products (optical components, networking/telecom chips, set-top and modem chips) were 58% of revenue, wireless communications (RF components and Wi-Fi/Bluetooth combo chips) was 22%, enterprise storage (storage adapter cards and controller chips) was 15%, and industrial/other 5%. Reported Q/Q and Y/Y growth rates are skewed by the Broadcom/Avago merger, which closed at the start of FQ2.
- Non-GAAP operating expenses were $809M (22% of revenue), and (with the help of post-merger cost cuts) are expected to remain at $809M in FQ3. Due to the debt taken on to pay for the merger, Broadcom ended FQ2 with $2B in cash and $15B in debt.
- The company has declared a $0.50/share quarterly dividend. The next dividend is patable on June 30 to shareholders on record as of the June 17 close.
- AVGO +6.5% after hours to $165.01, making new post-merger highs along the way. Pre-earnings expectations were low due to worries about weak iPhone sales.
- Broadcom's results/guidance, earnings release
Thu, Jun. 2, 4:05 PM
Wed, Jun. 1, 5:35 PM
Thu, Apr. 28, 11:28 AM
- Along with its Q1 results, Cypress Semi (CY +2.7%) announces it's buying Broadcom/Avago's (AVGO +1.1%) wireless IoT chip unit, which sells, Wi-Fi, Bluetooth, and Zigbee chips, for $550M in cash. Cypress is also acquiring Broadcom's WICED IoT brand and related SDK/developer ecosystem.
- With the Broadcom unit having revenue of $189M during the last 12 months, Cypress is paying 2.9x trailing sales. The deal is expected to close in Q3.
- Cypress: "The acquisition strengthens Cypress's position in key embedded systems markets, such as automotive and industrial, and establishes it as a leader in the high-growth consumer IoT market, a segment that includes wearable electronics and home automation solutions."
- Broadcom notes the deal doesn't cover its wireless connectivity offerings for phones, notebooks, set-tops, and Wi-Fi access points. The company has said it's looking to divest some assets in the wake of the Broadcom/Avago merger, as it tries to streamline its offerings and pay off some of the debt taken on to help finance the merger.
- Separately, Cypress states long-time CEO T.J. Rodgers will step down this week. While the board searches for Rodgers' successor, daily operations will be handled by an Office of the CEO featuring several senior execs.
- Rodgers: "This March, Valeta and I celebrated my 68th birthday in Mexico. Upon reflection, while I am still passionately interested in Element 14, silicon, I have always planned not to be spending most of my time in the last decade of my career immersed in the details of the operations ... And, to be completely candid, the board and even the executive staff have urged me to bring new blood into operations." He'll continue to work on some projects for Cypress.
- Cypress is guiding for Q2 revenue of $440M-$470M and EPS of $0.10-$0.14, in-line with a consensus of $454.8M and $0.11. Both Cypress and Broadcom are higher.
Tue, Apr. 26, 5:19 PM
- Apple (down 7.8% after hours) missed FQ2 estimates and guided for FQ3 revenue of $41B-$43B, below a $47.32B consensus. iPhone unit shipments fell 16% Y/Y to 51.2M, and iPad shipments 19% to 10.3M. Both figures were a little better than expectations. However, guidance points to another large Y/Y iPhone decline in FQ3.
- Cirrus Logic (down 4.2%) beat FQ4 estimates, but guided for FQ1 revenue of $220M-$250M, below a $257.5M consensus. Apple accounted for 62% of FQ4 revenue, and another customer (believed to be Samsung) 17%.
- Skyworks (NASDAQ:SWKS) is down 5.2% after hours. Qorvo (NASDAQ:QRVO) is down 5%. Broadcom (NASDAQ:AVGO) is down 3.8%. Qualcomm (NASDAQ:QCOM) is down 2.4%. NXP (NASDAQ:NXPI), which rallied earlier today thanks to a Q1 beat and solid Q2 guidance is down 2.5%. Nasdaq futures are down 0.9%.
Fri, Mar. 4, 12:21 PM
- Skyworks (SWKS +6.3%) and Qorvo (QRVO +3.2%) are rallying after Broadcom (AVGO +6.9%) - known as Avago before closing its merger with Broadcom last month - beat FQ1 estimates and issued solid FQ2 guidance in spite of ongoing worries about weak iPhone sales in particular, and soft high-end smartphone demand in general. The guidance excludes businesses from classic Broadcom that the new Broadcom plans to sell, and which produced an estimated $295M in FY15 revenue.
- Possibly helping: Broadcom stated on the earnings call (transcript) it expects FQ2 to be "the trough for our wireless businesses for the rest of the fiscal year," and says it has already begun "pre-building in significant quantities" FBAR filters to support a 2H16 product cycle ramp with its North American customers (i.e. the iPhone 7).
- Broadcom added it expects "a substantial increase in our content" with the iPhone 7, and that also increased RF content with new flagship phones launched by its top Korean client (i.e. the Galaxy S7/S7 Edge). Wireless sales are expected to make up 23% of FQ2 revenue.
- The company also offered an upbeat outlook for its wired infrastructure ops, which (thanks to the addition of the old Broadcom) are expected to account for 55% of FQ2 sales. Growing ASIC sales for base stations and data center switches, higher ASSP sales for enterprise networking applications, last-mile fiber and DSL deployments, and a seasonal set-top refresh are expected to provide a lift.
- Enterprise storage, by contrast, is expected to be hurt by "seasonal declines" in hard drive and storage demand. Industrial chip sales are expected to rise slightly following an FQ1 shipment drop blamed on "lingering uncertainty in industrial end-markets." Storage and industrial are respectively expected to make up 17% and 5% of FQ2 sales.
- Canaccord's Mike Walkley (Buy, target hiked by $10 to $185) is pleased with Avago's implied earnings guidance, which benefits from M&A synergies and the planned asset sales. "We believe management will continue to execute on the recently closed Broadcom acquisition and achieve synergy targets given management’s strong track record in integrating acquisitions."
- Update: Along with its earnings/guidance, Broadcom has disclosed (through an 8-K filing) it plans to cut 1,900 jobs, and record $650M in related charges through FY18. Major post-merger job cuts were generally expected.
Thu, Mar. 3, 4:57 PM
- Broadcom's (NASDAQ:AVGO) FQ1 beat is accompanied by guidance for FQ2 revenue of $3.55B (+/- $75M), nearly matching a $3.57B consensus and well-received given the outlooks provided by other firms with strong iPhone exposure.
- Top-line performance: FQ1 results don't account for the Broadcom merger, which closed at the start of FQ2. Wireless communications revenue (32% of total revenue, hurt by iPhone weakness) fell 15% Q/Q and 13% Y/Y. Enterprise storage (38% of total, boosted by the Emulex acquisition) rose 6% Q/Q and 40% Y/Y. Wired infrastructure (22% of total) rose 2% Q/Q and 11% of Y/Y. Industrial/other revenue (8% of total, hurt by semi inventory correction) fell 10% Q/Q and 13% Y/Y.
- Financials: Non-GAAP gross margin was 61% vs. 52% in FQ4 and 59% a year ago, and in-line with guidance. FQ2 GM guidance is at 59% (+/- 1%). Boosting EPS: Operating expenses totaled $306M, down $32M Q/Q (M&A synergies) and up $13M Y/Y. Avago ended FQ1 with $2.2B in cash and $3.9B in debt.
- The chipmaker formerly known as Avago is up 7.6% after hours to $147.80.
- Broadcom's FQ1 results, earnings release
- Update: SA commenter Philip Marlowe states Broadcom's guidance is above consensus after factoring the impact of assets from the old Broadcom that are now recognized as held for sale. "During the call the CFO suggested that the quarterly run rate on those "held for sale" assets is about 80 mln. Therefore, on a comparable basis the forward guidance looks like a solid beat."
Thu, Mar. 3, 4:06 PM
Wed, Mar. 2, 5:35 PM
Fri, Jan. 29, 3:27 PM
- Several Apple suppliers are seeing major gains after iPhone power amplifier supplier Skyworks (SWKS +5.5%) and iPhone LCD driver IC supplier Synaptics (SYNA +10.6%) delivered their calendar Q4 reports yesterday afternoon - Skyworks beat estimates, while Synaptics (initially lower) missed on sales and beat on EPS.
- Both companies provided soft Q1 guidance (I, II) - Synaptics also suggested it's seeing weakness at multiple top smartphone OEMs . But with nearly every other iPhone supplier to have reported (not to mention Apple itself) having also guided light, shares are rallying nonetheless.
- Big gainers include mobile DRAM supplier Micron (MU +11.1%), microphone supplier Knowles (KN +11.2%), motion sensor supplier InvenSense (INVN +7.5%), audio codec chip supplier Cirrus Logic (CRUS +6.6%), NFC chip/motion co-processor supplier NXP (NXPI +5.9%), and RF chip suppliers/Skyworks rivals Qorvo (QRVO +6.8%) and Avago (AVGO +5.6%). The Nasdaq is up 1.8%.
- Micron could also be getting a lift from the market-pleasing reports delivered by hard drive giants Seagate and Western Digital, given Micron is exposed to many of the same end-markets as Seagate/Western.
Cirrus Logic is adding to the big Thursday gains seen after the company provided encouraging FY17 comments in its FQ3 earnings call. InvenSense has more than recovered the Thursday losses seen after the company provided soft FQ4 guidance and suggested it had lost share at Samsung.
- Possibly helping Synaptics out: When asked about M&A reports on the earnings call, CEO Rick Bergman didn't quite shoot them down. "[W]e're not going to comment on rumors or market speculation ... at the end of the day it is our job to maximize shareholder value so we'll listen to any great ideas that can do that and evaluate them appropriately."
Meanwhile, Bergman asserted Synaptics' TDDI (integrated touch controller/display driver) sales are due to ramp strongly thanks to numerous design wins at top LCD panel makers, and that its ClearForce pressure-response tech will be "a significant differentiator" for Synaptics' TDDI offerings.
Thu, Jan. 28, 5:21 PM
- Skyworks (NASDAQ:SWKS) FQ1 beat is accompanied by guidance for FQ2 revenue of $775M and EPS of $1.24, below a consensus of $817.8M and $1.33. However, with Apple having issued light calendar Q1 guidance and many fellow iPhone suppliers (including rival Qorvo) having warned and/or issued soft guidance, the outlook is being taken in stride.
FQ1 details: Margin gains continue boosting EPS: Non-GAAP gross margin rose 470 bps Y/Y to 51.4%. FQ2 GM guidance is at 50.5%-51%. GAAP operating expenses rose 12% Y/Y to $141.6M. Skyworks ended FQ1 with over $1.2B in cash and no debt.
New non-mobile design wins included Volkswagen telematics systems, GM vehicle-to-vehicle communications sockets, Google's Chromecast HDMI stick and Nest security cameras, and Roku set-tops.
- Qorvo (NASDAQ:QRVO) is up 2.3% after hours. Avago (NASDAQ:AVGO) is up 1.3%.
- Skyworks' FQ1 results, earnings release
Dec. 2, 2015, 5:02 PM
- Avago (NASDAQ:AVGO) has jumped to $142.24 after hours after beating FQ4 EPS estimates, posting in-line revenue, and issuing FQ1 sales guidance that was below consensus but better than feared in light of soft guidance from other chipmakers and reports of Apple component order cuts. Merger partner Broadcom (NASDAQ:BRCM) has risen to $57.47.
- Financials: Lifting FQ4 EPS: Gross margin (non-GAAP) was 62%, up from 61% in FQ3 and 58% a year ago, and above a guidance midpoint of 60.5%. FQ1 GM guidance is at 61% (+/- 1%). Operating expenses rose 12% Y/Y to $338M, slightly topping guidance of $336M. Avago ended FQ4 with $1.82B in cash, and $3.9B in debt.
- Top-line performance: Wireless communications chip sales (37% of revenue, driven in FQ4 by iPhone orders) rose 10% Q/Q and 8% Y/Y. Enterprise storage (LSI/Emulex, 35% of revenue) rose 9% Q/Q and 38% Y/Y; the Emulex purchase boosted Y/Y growth. Wired infrastructure (optical components, 20% of revenue) rose 2% Q/Q and 7% Y/Y. Industrial/other (8% of revenue, hurt by inventory correction) fell 10% Q/Q and 7% Y/Y.
- Avago's results/guidance, PR
Dec. 2, 2015, 4:05 PM
- Avago Technologies (NASDAQ:AVGO): FQ4 EPS of $2.51 beats by $0.13.
- Revenue of $1.85B (+14.9% Y/Y) in-line.
- Expects FQ1 revenue of $1.78B (+/- $25M), below a $1.82B consensus.
- Shares +3.2% after hours.
Dec. 1, 2015, 5:35 PM
Oct. 29, 2015, 12:29 PM
- Down on Monday following Dialog Semi's Q3 report and up yesterday in the wake of Apple's results/guidance, chip stocks are selling off again (SOXX -2.5%) after leading microcontroller vendor NXP (NXPI -18.2%) posted mixed Q3 results and (more importantly) guided for Q4 revenue to be down by a "low to upper-teens" % Q/Q. The Nasdaq is down 0.3%.
- Also: 1) NXP rival and fellow European chipmaker STMicroelectronics (STM -5.8%) slightly missed Q3 revenue estimates and has guided for Q4 revenue to be down 6% (+/- 3.5%) Q/Q. 2) Network processor vendor Cavium (CAVM -5%) issued light Q4 guidance, while blaming a distribution model change at its biggest data center customer. 3) Microcontroller maker Atmel (ATML -2.4%, set to be acquired by Dialog) missed Q3 revenue estimates and guided for Q4 revenue of $266M-$286M, below a $296.1M consensus.
- On the bright side, Apple-dependent Cirrus Logic (CRUS -5.7%) beat FQ2 EPS estimates (revenue was in-line) and provided solid FQ3 guidance, and fellow Apple/Samsung supplier InvenSense (INVN +14.3%) beat FQ2 estimates and issued in-line FQ3 guidance. Cirrus is nonetheless selling off; the earnings call (transcript) was generally upbeat, with management talking up FY16/FY17 growth opportunities related to smart codec and boosted amplifier sales.
- NXP merger partner Freescale (FSL -15.4%) is naturally seeing big losses. Other decliners include RF chipmakers Skyworks (SWKS -3.1%), Avago (AVGO -6%), and Qorvo (QRVO -2.6%), analog/mixed-signal chipmakers Texas Instruments (TXN -3%), ON Semi (ON -5.9%), MagnaChip (MX -6.8%), Fairchild (FCS -4.3%), Maxim (MXIM -3.1%), and IDT (IDTI -5.2%), and smart TV SoC vendor/STMicro rival Sigma Designs (SIGM -3.2%).
- Like NXP, Cirrus, and InvenSense, Skyworks, Avago, Qorvo, TI, and Fairchild are Apple suppliers. Fairchild and Maxim have recently benefited from M&A reports (I, II).
- Both NXP and STMicro reported seeing conditions deteriorate as Q3 progressed. NXP added lower-than-expected chip sell-through led to higher channel inventories, and STMicro stated "lower consumer spending in China is impacting the dynamics of the distribution channel in the region and the industry more globally, particularly in automotive." NXP has added 20M shares to its buyback in an attempt to soften the blow.
- Chip ETFs: SMH, XSD, PSI, SOXL, USD, SOXS, SSG
Broadcom Ltd. designs, develops and supplier of a broad range of analog and digital semiconductor connectivity solutions. It serves four primary end markets: wired infrastructure, wireless communications, enterprise storage and industrial & other. The company product's includes data center... More
Industry: Semiconductor - Broad Line
Country: United States
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