Broadcom Inc. (AVGO) - Get Report shares traded sharply lower Friday after the chipmaker warned that a prolonged U.S.-China trade war, and the extended blacklisting of Huawei Technologies, would disrupt global chip demand.
Broadcom posted stronger-than-expected second quarter earnings of $5.21 per share, but narrowly missed analysts' forecasts with a topline of $5.517 billion. The group's biggest business unit, semiconductor solutions, however, saw sales fall 10% to $4.09 billion.
Looking into 2019, Broadcom said it expects to see full-year revenues of $22.5 billion, well shy of the Refinitiv forecast of $24.31 billion, with around $17.5 billion of the coming from the semiconductor solutions business, a figure that would represent a year-on-year decline.
"We have, as I indicated, performed very much to plan in the first half of fiscal 2019. And in the second half, we had expected a recover," Broadcom CEO Hock Tan told investors on a conference call late Thursday. "However, while enterprise and mainframe software demand remained stable, particularly in North America and Europe, with respect to semiconductors, it is clear that the U.S./China trade conflict, including the Huawei export ban, is creating economic and political uncertainty and reducing visibility for our global OEM customers."
"As a result, demand volatility has increased and our customers are actively reducing inventory levels to manage risks," he added. "This leads us to believe the second half of 2019 will be more in line with the first half as opposed to the previously expected recovery."
Broadcom shares were marked 6.7% lower Friday to change hands at $263.20 each, a move that nearly wipes out all the stock's year-to-date gains.
"While most of the industry's more cautious posturing looks to be driven by continued inventory contraction, Broadcom is factoring in an element of end customer slowdown across most of its markets, even though there is little evidence that softening sell-through is currently driving the weaker activity at its OEM and distributor partners," said Loop Capital analyst Cody Acree, who cut his price target on the stock to $310 from $315 per share but held onto his "buy" rating for the chipmaker.