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
Wed, Mar. 23, 7:10 PM
- In the company's first 10-Q filing since the Avago/Broadcom merger closed, Broadcom (NASDAQ:AVGO) discloses it has entered into a 3-year supply deal with Apple to provide RF components and modules for "smartphones and [other] mobile devices."
- Pre-merger Avago and Broadcom were both widely known to be major Apple suppliers, with the former providing power amplifier modules and the latter Wi-Fi/Bluetooth combo chips. Avago believes Apple and its contract manufacturer clients accounted for over 20% of its sales in the (pre-merger) January quarter.
- Nonetheless, RBC's Amit Daryanani (Top Pick rating, $180 target) considers the contract disclosure noteworthy. "Fundamentally, we think this contract is a validation of AVGO’s FBAR [RF filter] IP and how critical it is to AAPL’s iPhone roadmap as AAPL has not entered into a similar contract with any of the other vendors (that we know of). We think FBAR revenues at AVGO should sustain 20%+ growth over the next 2-3 years agnostic to unit growth/decline."
- Following a talk with Avago, he thinks the deal has a series of implications. "1) Provides AVGO with a clear roadmap on their share within RF bands (takes away any noise around share loss until theoretical iPhone 8S), 2) gives them clarity to ramp production and commit manufacturing capacity for FBAR filters (perhaps more comfort to give allocations to other OEMs?), 3) Locks in certain pricing schedules that isn’t volume centric (odd), 4) we think makes it difficult for peers like QCOM/TDK, QRVO and SWKS to pick off AVGO’s allocation/filters." He cautions the lack of a link between pricing and volume brings with it some risk, as does the fact the deal lowers Broadcom's ability to "pivot" to other smartphone OEMs in the event Apple loses share.
Fri, Mar. 18, 8:18 AM
- Broadcom (NASDAQ:AVGO) is looking to phase out its Wi-Fi chip business in a move to streamline its workforce and product offerings following its acquisition by Avago Technologies, DigiTimes reports.
- Companies such as MediaTek, Realtek Semiconductor and RDA Microelectronics have already received a pull-in of short lead-time orders from the firm's customers in the Wi-Fi chip sector.
- In addition, Broadcom has almost halved the workforce stationed at its office in Taiwan.
Thu, Mar. 10, 6:44 PM
- "Marvell's (NASDAQ:MRVL) policy is not to comment on rumors or speculation, but because this particular rumor has the potential to be disruptive to Marvell's business, Marvell is confirming that it has not been and is not engaged in discussions with Avago with respect to any possible offer to acquire Marvell." (Press Release)
- Notably, Marvell doesn't go as far as to say it isn't looking to sell itself. The NY Post reported last weekend Marvell is now open to a sale, and speculated Avago, now known as Broadcom (NASDAQ:AVGO), could buy the company. Light Reading reported last summer Avago is looking to bid for Marvell once it's done acquiring Broadcom.
- MRVL -0.8% after hours to $9.92.
Mon, Mar. 7, 9:49 AM
- The NY Post reports Marvell (MRVL +2.5%) is now open to selling itself. Broadcom (AVGO -1%), the product of a giant recently-closed merger between Avago and (traditional) Broadcom, is mentioned by a source as a potential buyer.
- Light Reading reported last July Avago is looking to bid for Marvell after the Broadcom deal closes. In the event of a deal, there could be some antitrust scrutiny regarding Ethernet and Wi-Fi/Bluetooth combo chip overlap.
- The Post's report comes shortly after the end of Marvell's Audit Committee probe (no fraudulent activity was found), and a month after activist Starboard Value disclosed a 6.7% stake (followed a 2013 stake disclosure by KKR), while calling for fresh cost cuts. Marvell also recently settled Carnegie Mellon's infringement suit against the company for $750M.
- Marvell is higher on a morning the Nasdaq is down 0.3%.
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, 5:39 PM
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
Thu, Mar. 3, 10:33 AM
Wed, Mar. 2, 5:35 PM
Wed, Mar. 2, 10:06 AM| Wed, Mar. 2, 10:06 AM | 2 Comments
- February monthly performance was: +1.02%
- 52-week performance vs. the S&P 500 is: -2%
- No dividends were paid in February
- Top 10 Holdings as of 12/31/2015: Teva Pharmaceutical Industries Ltd ADR (TEVA): 2.13%, Sky PLC (OTCQX:BSYBF): 1.98%, Gilead Sciences Inc (GILD): 1.8%, Apple Inc (AAPL): 1.78%, Newell Rubbermaid Inc (NWL): 1.54%, Amcor Ltd (OTC:AMCRF): 1.48%, CGI Group Inc Class A (GIB): 1.47%, Avago Technologies Ltd (AVGO): 1.46%, CK Hutchison Holdings Ltd (OTCPK:CKHUF): 1.43%, RELX PLC (OTC:RLXXF): 1.43%
Tue, Feb. 16, 9:35 AM
- JPMorgan's Harlan Sur has resumed coverage on Broadcom Limited (AVGO +2.1%), known as Avago prior to the Broadcom merger, with an Overweight rating and $170 target. He cites the company's strong data center and broadband/connected home positions.
- Credit Suisse has reinstated coverage with an Outperform rating and $160 target. Topeka Capital has launched at Hold.
- Broadcom is following equity markets higher. FQ1 results are expected in the coming weeks.
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
Wed, Jan. 27, 10:24 AM
- Along with its Q4 results, Q1 guidance, and restructuring plans, STMicroelectronics (STM +4%) says it's cutting 1,400 jobs - 430 in France through a voluntary departure plan, 670 in Asia, and 120 in the U.S. The company expects $170M/year in savings and $170M in restructuring costs.
- Along with the job cuts, STMicro says it's discontinuing "the development of new platforms and standard products" for its set-top and home gateway IC lines. 600 employees will be redployed from the company's set-top chip ops to "support principally ST's growth ambitions in digital automotive and microcontrollers."
- STMicro: "The slower than expected market adoption of leading-edge products and increasing competition on low-end [set-top] boxes, combined with the required high level of R&D investment, has led this business to generate significant losses in the course of the last years." Broadcom (BRCM -0.1%), which is due to officially be acquired by Avago (AVGO -3.1%) on Feb. 1, has been STMicro's top rival in the set-top/home gateway IC space, and stands to benefit from STMicro's move.
- The French government has responded to the news by stating STMicro needs a new strategy. Spokesman Stephane Le Foll: "We want a new strategy put in place to allow this company to create value and recover."
- STMicro continues trading higher post-earnings. Avago is joining other iPhone/iPad suppliers in selling off following Apple's earnings/guidance. the Nasdaq is down 1.2%.
Wed, Jan. 13, 6:57 PM
- Avago's (NASDAQ:AVGO) selloff following news Qualcomm (NASDAQ:QCOM) is forming a major RF filter and front-end module JV with Japanese filter maker TDK spells a buying opportunity, argues MKM's Ian Ing. He reiterates a Buy and $163 target.
- Ing: "For RF incumbents, the silver linings are: (1) TDK Epcos has less filter design iterations and manufacturing experience, likely resulting in good but not great products; (2) barring superior products, big OEM customers will likely be reluctant to decrease supplier diversity and concentrate more content with QCOM; and (3) using QRVO as a proxy, the RF360 JV likely won’t be producing integrated, jointly developed products until 18-24 months from now."
- Likewise, though he calls the JV a "credible threat" in the future, Raymond James' Tavis McCourt doesn't see a major near-term threat to Avago, Skyworks (NASDAQ:SWKS), or Qorvo (NASDAQ:QRVO). "While TDK has been working on bolstering its product line of BAW and TC-SAW filters, their biggest market share is in the lower margin SAW filter market where they have ~30%-35% market share. Qorvo and Avago by comparison control around 90% of the BAW market with various other firms including TDK making up the difference. Given that companies such as Apple are working with RF companies on the architecture on models that are three years out, we do not see them being able to gain any meaningful share in the near-term..."
- Citi's Atif Malik views the JV as a "sentiment negative" for Skyworks and Qorvo. "While QCOM has had limited success with in-house RF360 [front-end module] initiative, JV with TDK would increase competition in the market. Filters are the highest growth area in RF components given increasing number of bands and growing carrier complexity. Recall, Skyworks acquired Panasonic's TC-SAW assets last year and we believe is working closely with Taiyo Yuden on high end BAW filters."
- Discussing Qualcomm, Bernstein's Stacy Rasgon argues the JV is a long-term positive, while cautioning growing the business will take time. "[A]s a mechanism to gain necessary expertise and table-stakes capability in RF (with less risk than an acquisition, and without needing to stress the balance sheet or issue tons of low-valuation stock to do one) the actions today seem a reasonable step to take."
- On a day the Nasdaq dropped 3.4%, Avago fell 5.1%, Skyworks fell 6.7%, and Qorvo fell 9.8%. Diminished hopes of a Qualcomm buyout offer may have contributed to the selloff in Qorvo, whose market cap ($5.7B) is easily the smallest of the three names.
- Qualcomm's calendar Q4 report arrives on Jan. 27. Skyworks reports on Jan. 28, and Qorvo (warned last week) on Feb. 4.
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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