Broadcom: demand for semiconductors in the second half

Broadcom shares (AVGO) fell 1.9% yesterday after crossing $ 300 during the regular trading session. It declined as Broadcom posted mixed results for the third quarter of its 2019 fiscal year. Its revenue slightly exceeded analysts' estimates, but its EPS exceeded estimates. He maintained his forecast of turnover and profit for the year as a whole, claiming that semiconductor demand had reached its lowest level in the third quarter, with no sign of of recovery before next year. Surprisingly, this statement did not cause panic among semiconductor investors, even though Broadcom is a leader in communication chips.

In April, investors were banking on a recovery in demand in the second half, which propelled semiconductor stocks to their highest level in 52 weeks. But the escalation of the US-China trade war in May eased those hopes. Semiconductor investors take account of trade war updates on stocks heavily exposed to China. Broadcom derives 50% of its revenue from China. As a result, its profits did not have much impact on other bullets.

About Broadcom

Over the years, Broadcom has created a broad, diversified semiconductor portfolio of connectivity and networking through acquisitions. It manufactures chips for wireless, broadband, network, enterprise and industrial storage applications. Over the past three years, he has focused on infrastructure software with the acquisition of Brocade, CA Technologies, and now Symantec (SYMC) Enterprise Security.

Broadcom has moved from communication chip provider to technology infrastructure provider. Broadcom builds its software license portfolio to generate recurring revenue. By adding business activities, Symantec seeks to expand its offering and generate more revenue from existing customers. His latest results show that his company in the enterprise software sector is proving better than expected.

Highlights of Broadcom results

In the third quarter of fiscal 2019, Broadcom's revenue was unchanged but increased 8.9% year-over-year to $ 5.52 billion. Its turnover has not been estimated by analysts at $ 5.55 billion. Year-over-year revenue growth reflects the addition of CA Technologies revenues in the current quarter. However, the growth of its sequential business revenue is stable, a 19% decline in infrastructure software business revenue offsetting a 6% increase in Semiconductor's business revenue solutions.

Under Broadcom's generally unsupported accounting principles, gross margin declined one basis point sequentially, but increased 370 basis points year-on-year to 71%. Its operating expenses decreased 1.5% sequentially to settle at $ 1.01 billion, as a result of cost synergies resulting from the acquisition of CA. Its operating margin was contracted 70 basis points sequentially, but rose 280 basis points year-on-year to 52.8%. Its lower margin reduced its 1% sequential EPS to $ 5.16, exceeding the analysts' estimate of $ 5.14.

Orientation for the 2019 financial year

Broadcom expects its fourth quarter to be a replica of its third quarter. He predicts that seasonal demand from wireless and network customers will increase Semiconductor Solutions revenue by 6% to 7% sequentially. It expects the turnover of its infrastructure software to decline to a medium level as it renews the contracts of large companies.

Broadcom has maintained its revenue target of $ 22.5 billion for the 2019 fiscal year and its operating margin target of 52.5% for the 2019 fiscal year. lowered this forecast in its prior quarter results to reflect the impact of the US-China trade war and the US ban on Huawei. Hock Tan, CEO of Broadcom, said that he did not expect a "further deterioration" in semiconductor demand in the fourth quarter of fiscal 2019, which will end on 4 November. This could be due to the fact that the next rate cycle is expected on December 15th.

Tan said that he assumed that Broadcom "will continue to operate in a macroeconomic environment of very uncertain and uncertain growth in the near future." No further deterioration is better than an increased deterioration. But investors and analysts did not like this because they expected a pickup in demand.

Analysts expect Broadcom's revenue for fiscal year 2019 to be $ 22.62 billion. They believe that Broadcom is reporting a cautious outlook in a climate of macroeconomic uncertainty.