Broadcom Falls After Posting 2nd-Quarter Results

The semiconductor beats forecasters on earnings

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Shares of Broadcom Inc. (AVGO) plunged 8.56% to $257.51 in after-hours trading on Thursday after beating consensus estimates on non-GAAP earnings by 3 cents per diluted share for the second quarter of fiscal 2019. The San Jose, California-based semiconductor company recorded non-GAAP earnings of $5.21 per diluted share, reflecting a 6.8% increase from the prior-year quarter.

GAAP earnings declined 80.3% year-over-year to $1.64 per diluted share, but they topped expectations by 7 cents.

Revenue increased 10% to $5.52 billion, but it fell $180 million short of projections.

The semiconductor solutions segment contributed 74.1% or $4.09 billion in revenue, the infrastructure software segment 25.6% or $1.41 billion and the intellectual property licensing segment 0.3% or $16 million. The semiconductor solutions segment decreased 10%, infrastructure software soared 216% and intellectual property fell 47%.

“We executed according to plan in the second quarter with tailwinds from networking offsetting the anticipated headwinds from wireless,” President and CEO Hock Tan said. “We currently see a broad-based slowdown in the demand environment, which we believe is driven by continued geopolitical uncertainties, as well as the effects of export restrictions on one of our largest customers. As a result, our customers are actively reducing their inventory levels, and we are taking a conservative stance for the rest of the year.”

Broadcom also recorded a 540 basis-point increase in the non-GAAP gross margin to 72% and a 4% jump in the non-GAAP net income to $2.33 billion. The operating cash flow grew 15.3% to $2.67 billion in the second quarter of fiscal 2019 from $2.31 billion in the second quarter of fiscal 2018. During the quarter the company allocated approximately $1.33 billion for the repurchase of shares of its own common stock.

The balance sheet had $5.33 billion in cash on hand and cash equivalents, and $37.55 billion in debt as of May 5.

For full fiscal year 2019, Broadcom guided for net revenue of $22.5 billion versus consensus estimates of $24.41 billion, and a non-GAAP operating margin of 52.5%. The company also anticipates that it will use $500 million as capital expenditures.

Additionally, on July 2, Broadcom will pay a $2.65 cash quarterly dividend per common share to its shareholders of record June 24. The ex-dividend date is scheduled for June 21. Based on the share price of $281.61 at close on Thursday, it has a forward dividend yield of 3.79% versus the industry median of 2.03%.

The stock has a market capitalization of about $111.47 billion. The share price at close on Thursday is clearly above the 200-day simple moving average line and below the 100- and 50-day SMA lines. The 52-week range is $197.46 to $323.20.

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Disclosure: I have no position in any securities mentioned.

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