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, Jan. 13, 10:09 AM
- Qualcomm (QCOM +1.9%) is forming a 51/49 JV with Japanese electronic component maker TDK (OTCPK:TTDKY) to be known as RF360 Holdings. The JV is declared to pair TDK's RF filter/module expertise with Qualcomm's RF front-end solutions, and will create filters and front-end modules for mobile devices, IoT hardware, drones, robots, and other end-markets.
- Deal terms: The deal is expected to close by early 2017, and is estimated to have an "aggregate transaction value" of $3B. Qualcomm says its up-front capital investment will total $1.2B, and forecasts the JV will be accretive to EPS in the 12 months following closing. It has the option to buy TDK's interest in the JV 30 months after closing. Qualcomm will also buy "certain assets" from TDK, and partner with the company in areas such as sensors and wireless charging.
- Qualcomm: "RF360 Holdings will have a comprehensive set of filters and filter technologies, including surface acoustic wave (SAW), temperature-compensated surface acoustic wave (TC-SAW) and bulk acoustic wave (BAW) to support the wide range of frequency bands being deployed in networks across the globe. Moreover, RF360 Holdings will enable the delivery of [RF front-end] modules that will include front-end components designed and developed by [Qualcomm]. These components include CMOS, SOI and GaAS Power Amplifiers, a broad portfolio of Switches enhanced via a recent acquisition, Antenna Tuning and the industry's leading Envelope Tracking solution."
- In presentation slides (.pdf), Qualcomm notes the RF front-end market is expected to see a 13% CAGR from 2015-2020 (per Mobile Experts), eventually reaching a size of $18B (aided by growing mobile RF complexity and filter needs). The company adds the businesses being transferred to the JV by Qualcomm and TDK have a revenue run rate approaching $1B/year.
- Qualcomm is higher following the news, while RF chip/module maker Qorvo (QRVO -7.8%) is off sharply. Qorvo rivals Skyworks (SWKS -2%) and Avago (AVGO -1%) are seeing moderate losses. The group also sold off when Qualcomm first unveiled its RF360 front-end module in 2013.
Thu, Jan. 7, 5:38 PM
Thu, Jan. 7, 4:22 PM
- Qorvo and Cirrus Logic have both issued calendar Q4 warnings after the bell, and indicated calendar Q1 sales will also be soft. The warnings come in the wake of reports indicating Apple has cut iPhone production and component orders.
- Fellow iPhone suppliers are selling off in response. Skyworks (NASDAQ:SWKS) -4% after hours. Avago (NASDAQ:AVGO) -4.3%. NXP (NASDAQ:NXPI) -1.6%. InvenSense (NYSE:INVN) -2.5%. Broadcom (BRCM - set to be acquired by Avago) -1.3%. Synaptics (NASDAQ:SYNA) -1.7%. Jabil (NYSE:JBL) -0.7%.
- Many of the aforementioned names had already seen steep losses in regular trading, as the Nasdaq fell 3% amid a broad market selloff.
Wed, Jan. 6, 5:52 PM
- Amazon's (NASDAQ:AMZN) Annapurna Labs chip unit, acquired a year ago for a reported $350M, has unveiled (amid CES) a set of 32-bit and 64-bit ARM-based (NASDAQ:ARMH) processors for home gateways, Wi-Fi routers, and NAS storage appliances, along with related subsystems.
- The chips, to be sold under the Alpine label, target a low-end networking/storage processor market in which Marvell (NASDAQ:MRVL), Cavium (NASDAQ:CAVM), Intel (NASDAQ:INTC), and Broadcom (NASDAQ:BRCM) are notable players. Annapurna suggests the Alpine line will be differentiated in part by offering superior general-purpose computing power, thus allowing it to support more higher-level services. It also promises Alpine will support 4K video streaming 10G Ethernet and PCIe Gen3 connectivity, low power consumption, and enterprise-class reliability.
- Asus and Netgear plan to use Alpine. To date, Amazon has been tight-lipped about its plans for Annapurna. There has been speculation the Israeli chipmaker will develop low-power ARM server CPUs that will go into AWS' data centers. For now, AWS continues relying on Intel's x86 server CPUs.
- Earlier: AWS cuts cloud computing prices; Rackspace sells off
Tue, Jan. 5, 12:32 PM
- Citing several parts suppliers, Japan's Nikkei reports Apple (AAPL -2.1%) is "expected to reduce output of the iPhone 6s and 6s Plus by around 30% in the January-March quarter compared with its original plans."
- The paper adds Apple initially told component suppliers to keep production even with that seen for the iPhone 6/6+ a year ago, but has seen 6S/6S+ inventories pile up "at retailers in markets ranging from China and Japan to Europe and the U.S."
- In December, Apple sold off after long-time bull Morgan Stanley forecast (in response to checks) iPhone unit sales will drop 6% in FY16 (ends in September), and added to its losses after Dialog Semi (gets over half its sales from Apple) issued a Q4 warning. In November, Credit Suisse reported of component order cuts.
- Apple is trading near $103 following the Nikkei's report. Suppliers Cirrus Logic (CRUS -4.6%), Skyworks (SWKS -5.2%), Qorvo (QRVO -4.8%), Avago (AVGO -1.9%), and InvenSense (INVN -2.7%) are also under pressure.
- Update: Morgan Stanley reacts to the Nikkei's report by noting a 30% production cut is more than the ~20% it was modeling. (source: Notable Calls)
Dec. 21, 2015, 9:37 AM
- Forecasting strong EPS growth following the closing of the Broadcom deal, RBC's Amit Daryanani has added Avago (AVGO +1.6) to his firm's Top Pick list, and hiked his target by $15 to $170.
- Daryanani: "Our bullish bias is predicated on our belief that AVGO will expand EPS from $9.24 in CY15E to [more than] $16.00 by CY18E driven by multiple levers – BRCM integration, asset divestures, RF ramp-up, cost containment and potential deleveraging ... we estimate [less than 30%] of future EPS growth is predicated on organic revenue dynamics and 70%+ is driven by AVGO’s ability to curtail costs, optimize the portfolio, and further deleveraging."
- He forecasts $6B/year in free cash flow by 2018, which in turn is expected to provide Avago with ample liquidity to deleverage or make more acquisitions. "While we are cognizant that the markets (and semiconductors specifically) are observing softer demand trends, in our view AVGO has the potential to offset soft demand trends via self-help levers at its disposal."
- Shares are three weeks removed from jumping in response to an FQ4 EPS beat (driven by margin strength) and better-than-feared FQ1 guidance.
Dec. 15, 2015, 8:17 AM
- Dialog Semiconductor (OTC:DLGNF) is lower by 6.8% in European action after cutting its Q4 revenue outlook to $390M-$400M vs. the previous $430M-$460M.
- Even with the market getting incrementally cautious on Apple (NASDAQ:AAPL) volumes, says Barclays (h/t Notable Calls), this warning is worse and earlier than any have so far forecast. Skyworks (NASDAQ:SWKS) and Avago (NASDAQ:AVGO) could be next.
- Deutsche weighs in as well, saying the warning confirms fears about iPhone 6S sell-through. Even lowered Street estimates for Q1 could prove optimistic.
- AAPL -1.1%, SWKS -1.9%, AVGO -1.1% premarket
Dec. 8, 2015, 10:08 AM
- Avago Technologies (NASDAQ:AVGO) declares $0.44/share quarterly dividend, 4.8% increase from prior dividend of $0.42.
- Forward yield 1.18%
- Payable Dec. 30; for shareholders of record Dec. 18; ex-div Dec. 16.
Dec. 3, 2015, 9:15 AM
Dec. 2, 2015, 5:40 PM
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
Nov. 17, 2015, 5:46 PM
- Broadcom (NASDAQ:BRCM) declares $0.14/share quarterly dividend, in line with previous.
- Forward yield 1.07%
- Payable Dec. 14; for shareholders of record Nov. 30; ex-div Nov. 25.
Nov. 10, 2015, 6:21 PM
- As expected, both Avago (NASDAQ:AVGO) and Broadcom (NASDAQ:BRCM) shareholders have approved the companies' planned merger. Avago states over 99% of shareholder votes were cast in favor of the deal. (PRs: Avago, Broadcom)
- The deal is expected to close in late 2015 or early 2016, following (expected) regulatory approvals; EU regulators are reportedly set to sign off. As previously announced, Broadcom shareholders can elect to receive either $54.50/share in cash or 0.4378 shares (current value of $52.47), with half the total payout in cash and half in stock.
- Avago fell 5.3% and Broadcom fell 3.3% in regular trading following a Credit Suisse report stating Apple has cut iPhone component orders by up to 10%.
Nov. 10, 2015, 8:32 AM| Nov. 10, 2015, 8:32 AM | 16 Comments
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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