Broadcom Slumps to New 52-Week Lows After Withdrawing Full-Year Guidance

The chip developer and enterprise software vendor is at its lowest levels since July 2018 following its latest earnings report and call.
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With markets in a take-no-prisoners mood when it comes to bad news, Broadcom’s  (AVGO) - Get Report moderately light quarterly numbers and the withdrawal of its full-year guidance have led it to add to its big recent losses.

On Thursday afternoon, Broadcom reported January quarter (fiscal first quarter) revenue of $5.86 billion and non-GAAP EPS of $5.25. Revenue -- officially up 1%, but down about 6% when excluding $400 million in revenue stemming from the late-2019 acquisition of Symantec’s enterprise security operations -- missed a $6.00 billion consensus, while EPS missed a $5.33 consensus.

In addition, citing “uncertainties in the global business environment arising from the effects of COVID-19,” Broadcom is withdrawing prior fiscal 2020 (ends in Oct. 2020) guidance for revenue of $25 billion (plus or minus $500 million). Instead, the company shared April quarter revenue guidance of $5.7 billion (plus or minus $150 million), which is below a $5.94 billion consensus.

The numbers and commentary led Broadcom’s stock, which had already dropped 11.1% in regular trading as markets plunged, to add to the day’s losses. Shares finished after-hours trading down 9.5% to $198.00, hitting levels last seen in mid-2018 in the wake of Broadcom’s $18.9 billion deal to buy enterprise software vendor CA Technologies.

Broadcom’s after-hours losses steepened during its earnings call. The call saw CEO Hock Tan disclose that his company plans on “continuing to invest in and operate” its wireless chip businesses, while asserting that Broadcom is now “more closely and strategically aligned” with top wireless customer Apple  (AAPL) - Get Report, following the January signing of new multi-year supply deals declared to be worth up to $15 billion.

Tan’s comments come three months after Broadcom said it planned to treat its wireless and industrial chip businesses as “financial assets” going forward, rather than as core businesses. In the weeks following those remarks, media reports emerged that Broadcom is exploring a sale for its large mobile RF chip business (a Bloomberg report indicated that RF rivals Qorvo and Skyworks were weighing bids for it).

Tan also used the call to provide more color about the COVID-19 outbreak’s current and expected impact on Broadcom. Specifically, Tan:

  1. Said Broadcom’s Semiconductor Solutions segment -- it covers Broadcom’s various chip businesses -- hasn’t yet seen “a meaningful impact on bookings” from the outbreak.
  2. Admitted that there’s nonetheless “a high level of uncertainty” related to COVID-19, and expects it to impact Semiconductor Solutions, particularly during the second half of fiscal 2020.
  3. Said he thinks any uncertainty related to Broadcom’s “Infrastructure Software” operations -- these are businesses obtained via the CA, Symantec and Brocade Communications acquisitions -- is likely to be “much more muted” since Infrastructure Software depends heavily on recurring revenue from multi-year contracts.
  4. Noted that the COVID-19 outbreak in China didn’t significantly impact Broadcom’s supply chain during its January quarter, but did have an impact on Chinese demand. Tan added that “there has also been some level of [demand] recovery” in China since then.
  5. Indicated (without providing a formal outlook) that Broadcom’s fiscal 2020 revenue could be 5% to 10% below its original, $25 billion guidance.

In spite of COVID-19, Broadcom expects Semiconductor Solutions’ revenue to be roughly flat annually in the April quarter, following four quarters of annual declines that came amid a chip industry downturn and lower mixed-signal chip sales to Apple (the result of Apple phasing out 3D Touch on its latest iPhones and STMicroelectronics  (STM) - Get Report winning the wireless charging IC slots for the phones).

Broadcom’s wireless chip sales -- they cover mixed-signal, RF and Wi-Fi/Bluetooth chips, and largely involve Apple and Samsung -- were said to be “down sharply” on an annual basis in the January quarter. They should be much stronger later in 2020, as Apple rolls out new iPhones packing 5G radios that feature a healthy amount of Broadcom RF content.

While wireless sales fell, Broadcom’s networking, broadband and storage product sales rose 6% annually. Networking products, which among other things include Ethernet switching chips, packet processors and custom ASICs used to accelerate AI/deep learning workloads, have been getting a lift from a cloud capital spending rebound.

Overall, Semiconductor Solutions revenue fell 4% in the January quarter to $4.19 billion. Infrastructure Software revenue of $1.67 billion (up 19%, thanks largely to the Symantec deal) was declared to be in-line with expectations. CA revenue totaled $880 million (up 5%); the Symantec enterprise unit contributed $400 million; and Brocade (said to be recovering from 2019 sales declines) made up the rest.

Broadcom is a holding in Jim Cramer's Action Alerts PLUS member club.