Jul. 23, 2014, 10:44 AM
- After "testing the market" to find a buyer for its money-losing baseband chip unit (previous), Broadcom (BRCM +0.8%) has decided to simply wind it down, CEO Scott McGregor stated on the Q2 CC (transcript).
- The chipmaker plans to cut 2.5K jobs (~1/5 of its workforce), and record $230M in charges (mostly cash-based) over the next 12 months. $164M worth of impairment/inventory charges were recorded in Q2.
- Broadcom's baseband ops are only expected to account for $50M-$60M of expected Q3 revenue of $2.1B-$2.25B. In Q2, they accounted for $84M of the company's $781M in mobile/wireless chip sales (combo chip-dominated).
- While mobile/wireless sales fell 8% Q/Q due to baseband weakness, infrastructure/networking sales grew 10% to $635M, aided by healthy Ethernet switching chip demand for data center and carrier hardware - heavy spending by Internet giants has bolstered the former market - and the displacement of internally-developed ASICs at switch OEMs.
- Broadband chip sales rose 12% Q/Q to $625M, thanks to healthy modem and set-top IC sales. Broadcom says it's gaining emerging markets set-top share, and also benefiting from the adoption of advanced features (multi-stream transcoding, extra tuners, the adoption of MoCA home networking).
- Prior Broadcom earnings coverage
Jul. 22, 2014, 5:26 PM
- Broadcom (NASDAQ:BRCM) expects Q3 revenue of $2.1B-$2.25B, in-line with a $2.19B consensus.
- Q2 product gross margin was 55%, +280 bps Q/Q and +290 bps Y/Y, and above guidance of 53.95%-54.95%.
- Q3 product GM is expected to be at 55% (+/- 75 bps), and opex is expected to decline $40M-$60M Q/Q (job cuts related to the baseband exit?).
- Q2 results, PR
Jul. 22, 2014, 4:10 PM| Comment!
Jul. 21, 2014, 5:35 PM
Jul. 9, 2014, 11:48 AM
- Citing the margin and cash flow benefits that will come from its planned baseband processor exit, Oppeheimer has upgraded Broadcom (BRCM +1.5%) to Outperform, and set a $45 PT.
- Broadcom is up 20% since announcing on June 2 it's exploring a sale or wind-down for its money-losing baseband ops, which had only a 4% share in 2013 thanks to tough competition from Qualcomm/MediaTek.
- Street commentary on the move has generally been positive, though some concerns exist about its impact on Broadcom's Wi-Fi/Bluetooth combo chip sales. Digitimes has reported the Chinese government could acquire in Broadcom's baseband unit in an attempt to lower the dependence of local OEMs on Qualcomm and other foreign suppliers.
Jul. 8, 2014, 4:40 AM
- Samsung (SSNLF), Intel (INTC) and Dell have teamed up to create a standard by which household gadgets communicate with each other, called the Open Interconnect Consortium. The partnership also includes chipmakers Broadcom (BRCM) and Atmel (ATML).
- The new consortium will rival the AllSeen Alliance, a similar framework supported by Qualcomm (QCOM), LG (LGEIY), Microsoft (MSFT) and other companies.
Jun. 17, 2014, 6:58 PM
- The consolidation wave that has hit the semi industry could soon yield tax inversion deals for foreign firms similar to deals seen in the healthcare industry, says FBR's Christopher Rolland.
- Inversion deals allow U.S. companies buying foreign firms to see lower tax rates if less than 80% of the equity in the new company is owned by legacy U.S. shareholders, and the post-merger company has substantial foreign ops.
- Rolland thinks ARM (ARMH), NXP (NXPI), Mellanox (MLNX), and Taiwan's MediaTek could be among the foreign companies targeted by U.S. chipmakers. Worth noting: Mellanox sells more than just chips, and ARM's business model depends on the company maintaining a neutral status within the industry.
- Meanwhile, Nomura's Romit Shah names 15 potential M&A candidates, and divides them into 3 groups: "Sub-scale companies" with high margins and strong IP; "strategic companies" with compelling product lines; and "undervalued companies."
- Shah's "sub-scale companies:" IDTI, ISIL, MTSI, MCRL, SMTC, SLAB.
- "Strategic companies:" ALTR, AMCC, ATML, CAVM, MPWR, BRCM ($22.5B market cap could make it tough to digest).
- "Undervalued companies:" DIOD, IRF, MSCC.
Jun. 17, 2014, 11:08 AM
- Benchmark's Gary Mobley has cut Broadcom (BRCM -0.5%) to Hold, albeit while keeping his $40 PT.
- Like others on the Street, Mobley is worried about low-end/mid-range combo chip share loss as Broadcom exits the baseband market - as it is, Qualcomm's Atheros unit has been pressuring Broadcom in this space. Nonetheless, he sees the baseband exit providing a $0.40 2015 EPS boost.
- The downgrade comes a day after Broadcom made new 52-week highs.
Jun. 6, 2014, 2:27 PM
- Broadcom (BRCM +0.6%) has bought a unit of India's Ittiam Systems that specialized in improving Wi-Fi transfer speeds, the Economic Times reports.
- The purchase comes as Broadcom faces tougher competition in its Wi-Fi/Bluetooth/GPS combo chip business from Qualcomm and others, particularly in the low-end/mid-range smartphone market.
- The company still dominates the less cost-sensitive high-end segment, thanks in large part to major design wins with Apple and Samsung. Broadcom had an estimated 39% of the 2013 mobile connectivity market.
- Shares +19% on the week due to enthusiasm about Broadcom's planned baseband exit.
Jun. 4, 2014, 1:40 PM
- Drexel Hamilton's Richard Whittington has joined the list of analysts praising Broadcom's (BRCM +2%) plans to exit the baseband chip market, upgrading shares to Buy and lifting its PT by $15 to $45.
- Whittington has upped his 2014 EPS estimate by $0.18 to $2.58 (above a $2.54 consensus). He also sees Broadcom benefiting from Apple, Google, and Samsung's home/auto connectivity initiatives - the company was one of many partners mentioned by Apple when the company unveiled its HomeKit automation platform on Monday.
- Stifel downgraded Broadcom to Hold yesterday; like Wells Fargo, it's worried a baseband exit could lead to combo chip share losses.
- Separately, Taiwan's Economic Daily News states MediaTek is "likely" to buy Broadcom's baseband unit, which many think will be shut down rather than sold. It's worth noting MediaTek already has an extensive lineup of 3G basebands, and is getting ready to ramp shipments of a 4G part.
Jun. 2, 2014, 12:50 PM
Jun. 2, 2014, 12:23 PM
- After opening up 13% on news it's weighing a sale or wind-down of its baseband chip unit, Broadcom (BRCM) has pared its gains a bit.
- One concern: Broadcom might little to nothing in a sale, given the baseband unit has been hemorrhaging cash and (as recently noted by CLSA) companies not named Qualcomm (QCOM +0.3%) or MediaTek have had a rough time turning a profit in the R&D-intensive business.
- Broadcom is only 9 months removed from paying $164M for Renesas' 4G baseband unit. Since then, the company has reportedly scored 4G design wins, but has also warned of top-line pressures caused by 3G weakness.
- Goldman notes Broadcom had only 4% of the 2013 baseband market (per Gartner), a tiny fraction of Qualcomm's 62%, and is set to lose share in 2014. The firm estimates Qualcomm gets a $0.02 EPS benefit for each percentage point it gains.
- Goldman adds Broadcom has noted its low-end/mid-range combo chip sales could be pressured as more functionality gets integrated with baseband ICs; the company had 39% of the 2013 mobile connectivity market to Qualcomm's 20%. Likewise, Wells Fargo sees a baseband exit hurting Broadcom's combo chip position.
- Texas Instruments, Freescale, and ST-Ericsson each wound up shutting down their baseband ops rather than selling them.
Jun. 2, 2014, 9:16 AM
Jun. 2, 2014, 7:38 AM
- The company has hired JPMorgan to help explore strategic alternatives for its cellular baseband business, including a sale or wind-down.
- Either action could be expected to save about $600M in annualized R&D and SG&A expenses, says Broadcom (BRCM), after filtering out reductions in stock-based compensation.
- Along with the news, Broadcom updates its outlook for the quarter ending this month, continuing to expect revenue of $2-$2.1B, but now seeing product gross margin to be at or above the high end of previous guidance.
- Source: Press Release
- Shares +10.7% premarket
May. 19, 2014, 10:26 AM
- In a bullish call on chip stocks, RBC's Doug Freedman has upgraded Nvidia (NVDA +2.9%), Broadcom (BRCM +1.8%), Micron (MU +3.3%), Texas Instruments (TXN +1.3%), and Altera (ALTR +1.8%) to Outperform.
- Freedman sees the industry's free cash flow profile improving as it transitions "into a more mature era," and companies embrace more "shareholder-friendly capital-allocation strategies."
- Nvidia, TI, and Altera have already announced major cash-return efforts in recent years. TI has promised to return all of its FCF to shareholders, save for funds needed to pay down debt.
- Micron (just digested Elpida) and Broadcom have been more cautious, though the latter did hike its dividend in January.
- Freedman downgraded Micron on Jan. 3, when shares were at $21.66. He was bullish during the company's big 2012/2013 rally.
- Chip ETFs: SOXX, SMH, XSD, PSI, SOXL, USD, SOXS, SSG
May. 13, 2014, 1:26 PM
BRCM vs. ETF Alternatives
Broadcom Corp is provider of semiconductors for wired and wireless communications. It provides a portfolio of SoCs that seamlessly deliver voice, video, data and multimedia connectivity in the home, office and mobile environments.
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