Broadcom Stock: Why is it falling today?

Broadcom (AVGO) did not perform well compared to its peers in the semiconductor industry this year.

Broadcom Course Movement

The stock posted a return of 6.3% in September and only 19.3% since the beginning of the year. In comparison, Advanced Micro Devices (AMD) recorded a return of about 63.7% as of Thursday. Other semiconductor values, including Micron (MU), Qualcomm (QCOM), NVIDIA (NVDA), and Intel (INTC), returned 58.9%, 41.9%, and 38.3%, respectively. , 2% and 15.1%. The S & P 500 and the VanEck Vectors Semiconductor (SMH) ETF have increased 20.1% and 39.8% since the beginning of the period.

The stock rose 0.86% on Thursday and closed at $ 300.58. At this price, Broadcom's market capitalization was $ 119.65 billion. The Broadcom stock lost more than 4% during Friday's trading session at 10:57 am.

Broadcom's position in the global semiconductor market

On Thursday, Broadcom reportedly maintained a conservative position in the global semiconductor market. The company thinks that the demand for microchips is already weak. Broadcom sees no improvement. The company is not sure of a short-term recovery. According to Gartner forecasts, global semiconductor revenue is forecast to decline 9.6 percent year-over-year to $ 429 billion this year.

The company believes that the threat of impending trade war has put the entire semiconductor industry under pressure. All chip makers are sensitive to the US-China trade war. China contributes the most to the revenue generation of chip manufacturers. The chip stocks, including Qualcomm, Micron and Broadcom, generated more than 50% of their revenue from China in 2018. Intel generated approximately 26.6% of its revenue from China in 2018. Broadcom provides roughly half of the chips used in China electronic devices and sold around the world.

Huawei is also one of the key customers of chip manufacturers. Huawei's trade restrictions have hurt chip sales. According to Reuters, Qualcomm, Micron and Intel have generated $ 11 billion in revenue from the sale of components to Huawei in 2018. Huawei has achieved about $ 900 million in sales of Broadcom in 2018. The escalation of the trade war forced President Trump to block Broadcom's acquisition of Qualcomm in March. -The largest technological acquisition of the company.

Broadcom wants to diversify in a sluggish sales environment

In an environment of hectic demand for chips, Broadcom wants to diversify its sales. Last year, the company bought CA Technologies for $ 19 billion. The company has generated steady revenue. Broadcom recently made an acquisition offer for the Symantec Enterprise Unit (SYMC). Previously, the company intended to acquire the entire Symantec cybersecurity company. However, Broadcom was unable to conclude the agreement. The acquisition of the Symantec business unit will likely add an additional annual growth rate of more than $ 2 billion. The agreement with the business unit is expected to generate $ 1 billion in cost synergies in the first year after the acquisition. The $ 10.7 billion deal is expected to be finalized by the end of January.

On Thursday, Broadcom posted better-than-expected third-quarter results for the quarter ending Aug. 4. Broadcom's adjusted third quarter EPS of $ 5.16 was higher than analysts' estimates: $ 5.13 per share. Although the company's profits increased 3.6% year-over-year in the third quarter, they dropped about 1% from the previous quarter. Higher gross margin and share buybacks drove earnings growth. Gross margin increased 370 basis points in the third quarter. The company also spent $ 977 million on share repurchases.

Broadcom's total revenue grew about 9% year-over-year to $ 5.52 billion in the third quarter. Revenues remained low compared to the previous two quarters. The company's revenues did not exceed the analysts' average estimate of $ 5.54 billion. Broadcom's semiconductor solutions segment revenue also declined 5% year-over-year to $ 4.35 billion in the third quarter.

Broadcom expects a turnover of $ 22.5 billion for fiscal 2019, which the company reduced in the second quarter. Analysts expect the company's 2019 sales to increase 8.1% year-over-year and FY2020 to 4.6% over the year.

Analysts' Recommendations on Broadcom Stock

On the whole, analysts are in favor of a "buy" ranking on Broadcom. Of the 31 analysts, 21 recommend a "buy" rating of the stock. As of Friday, only ten analysts recommend a "hold" rating. None of the analysts assigned Broadcom shares a sale rating.

Currently, analysts have a target price of $ 314.25 over 12 months. Thursday, the action amounted to 4.4% of the indicative 12-month analysts. The median target price for Broadcom is $ 317.50.

Technical levels

Broadcom's 14-day RSI (Relative Strength Index) score is 63.64, indicating that investors are about to "over-buy" the stock. Notably, an RSI value greater than 70 indicates that a stock is in "overbought" territory.

On Thursday, Broadcom shares closed close to $ 301.30 from the upper range of the Bollinger Band. The value indicates that the stock is overbought at the current level.

We believe investors should wait to monitor Broadcom and other semiconductor securities until a trade deal is reached. A delay in Chinese tariffs should benefit chip makers. Any truce of trade war would increase the hope that President Trump could lift the trade ban imposed on Huawei. However, these events will not happen quickly.