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Home / Business / Broadcom expects a recovery in the second half – The Motley Fool

Broadcom expects a recovery in the second half – The Motley Fool



Semiconductor Supplier Broadcom (NASDAQ: AVGO) reported its first quarter results after the market closed on March 14. The company posted a strong decline in mobile communications, which led to a double-digit percentage decline in semiconductor revenues.

The strength in other semiconductor markets despite weak demand in China and the acquisition of CA Technologies drove up sales and earnings. Broadcom left its guidance for the full year unchanged, a sign that the company is confident in moving forward in the harsh waters.

Broadcom results: The raw numbers

Metric

Q1

2019

Q1 2018

Year New Year

Sales

$ 5.79 billion

$ 5.33 billion Dollars

8.7%

Net Income from Ordinary Shares

$ 471 million

$ 6.93 billion *

Non-GAAP earnings per share

5.55 USD

5,12 USD

8,4%

Data Source: Broadcom. GAAP first quarter 2018 net income includes a $ 5.79 billion tax break. GAAP = generally accepted accounting principles.

What happened to Broadcom this quarter?

  • The decrease in GAAP net income compared to the prior year is due to a high tax benefit in the prior year period.
  • Broadcom switched to new reporting segments from the first quarter. There are now two main segments: semiconductor solutions and infrastructure software as well as a small intellectual property license segment.
  • Semiconductor revenue was $ 4.37 billion, down 12% from a year ago. The strong sales decline in the mobile communications sector was partially offset by strong results in the network business.
  • Infrastructure software revenue increased 328% to $ 1.4 billion year over year, driven by the acquisition of mainframe software company CA Technologies.
  • Intellectual Property Licensing Revenue was $ 12 million, a 73% decrease from a year ago.
  • GAAP gross margin was 55.4%, an increase of 6.1 percentage points over the previous year. Non-GAAP gross margin increased 64.8% year-on-year to 71.4%. This was mainly due to the addition of CA Technologies.
  • Cash flow from operating activities was $ 2.13 billion, compared to $ 1.69 billion a year earlier. Free cash flow was $ 2.03 billion.
  • Broadcom bought back 14.2 million shares in the quarter and spent $ 3.5 billion.
  • The Company Announced a Quarterly Dividend of $ 2.65 per Share to Pay to Shareholders Registered on March 21, 2001 The dividend remains unchanged from the previous quarterly dividend.
  A board

Source: Getty Images.

What management had to say

Broadcom boss Hock Tan discussed weak demand in China and the outlook for the year during the earnings call:

Many of our colleagues have said they are seeing a waning demand environment, especially outside of China. While experiencing the same demand momentum, we largely reflected this macroeconomic backdrop when we delivered a forecast for the 2019 fiscal year last quarter. So, after a solid start to the year, we reiterate our revenue guidance for fiscal year 2019 of $ 24.5 billion.

This forecast depends on the semiconductor business having a strong second quarter. Tan expects strong wireless and networking product cycles and broadband recovery to drive growth later this year. Another Poor iPhone Launch of Apple could bring these plans to their knees.

Tan also commented on the storage business he referred to as "mixed bag":

And as you know, hard drive is nothing to shout these days. And we see that there is no difference to the others. Our mitigating factor here is that most of our hard drives are actually sold. In fact, all sales of hard drive components to nearline, all, and data centers are handled. We do relatively little on PCs, desktops or mobile devices. So we see that the impact is weak, but not as extreme as the industry obviously says.

Looking to the Future

Broadcom provided the following guidance for the financial year 2019:

  • Revenue of $ 24.5 billion from $ 20.85 billion in fiscal year 2018. In fiscal year 2018 No revenue from CA Technologies included. As a standalone company, CA generated $ 4.2 billion in revenue in the last full fiscal year.
  • GAAP operating margin of 17.6% and non-GAAP operating margin of 51%.
  • Net interest expense and others totaled $ 1.25 billion
  • GAAP income tax rate of 3% and non-GAAP income tax rate of 11%.
  • Guidance implies non-GAAP net income of $ 10 billion, or $ 23.87 per share, using the current number of shares. Broadcom plans to repay $ 12 billion to shareholders in fiscal year 2019, including significant buybacks that will reduce the number of shares.

Broadcom maintained full-year sales guidance despite weak demand in China. The company pointed out that the semiconductor business has actually grown from year to year when the decline in mobile business is ruled out. This is probably a better result than expected by investors.

Broadcom will have to maintain its recovery in the second half of the year, which is uncertain given the uncertainty in China and the smartphone market. However, the acquisition of CA will help drive sales and profits this year.


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