SAN FRANCISCO -- Broadcom ( BRCM) grew its bottom line nearly six-fold in the third quarter, soundly beating Wall Street expectations. And while Broadcom joined the parade of chipmakers warning of a drop in fourth-quarter sales, the projected slowdown was not as sharp as recent forecasts from some of Broadcom's peer companies. Shares of Broadcom were up 8.7%, or $1.20, at $15 in extended trading Tuesday. Broadcom said that sales in the current quarter will decline between 5% and 10% sequentially, for a range of $1.17 billon and $1.23 billion. That's below the $1.28 billion expected by analysts. And it would represent only the second time in the past seven years that the Irvine, Calif.-based chipmaker has experienced a sequential decrease in revenue during the fourth quarter. But the guidance wasn't as ugly as some investors may have feared in the wake of recent reports by other large chipmakers, said Lazard Capital analyst Daniel Amir. "I think people were expecting even worse than that," Amir said. The midpoint of Broadcom's fourth-quarter revenue range calls for sales to decline 7.5%, vs. a 13% decline at the midpoint projected by Texas Instruments ( TXN) and a 15% midpoint sales decline by Linear Technology ( LLTC). Meanwhile, with Broadcom's share price having fallen 44% since the beginning of September, the relative outperformance seemed to relieve investors. In a post-earnings conference call Tuesday, Broadcom executives said the company was entering a period of global economic uncertainty in its best financial health ever.
"We believe Broadcom is very well positioned in this economic downturn," said CEO Scott McGregor, citing the company's broad menu of products and markets and its ability to cut costs. In the first nine months of 2008, Broadcom said its operating expenses have grown only 12% while its revenue has growing 30%. The company had spooked investors in July when it said that operating expenses would rise by at least $15 million in the third quarter. As it turns out, Broadcom's operating expenses were actually down sequentially (although the company said it had delayed $7 million to $8 million of its planned spending until the fourth quarter). Broadcom posted net income of $164.9 million, or 31 cents a share, in the third quarter compared with net income of $27.7 million, or 5 cents a share, at this time last year. Excluding about $133 million in stock compensation expenses, Broadcom's EPS would have been 56 cents, above the average analyst expectation of 44 cents on a comparable basis. Sales for the three months ended Sept. 30 totaled $1.3 billion, up roughly 37% year over year, and ahead of the average analyst expectation of $1.27 billion in revenue. Broadcom said it experienced strong demand for wireless networking and Bluetooth chips used in PCs and cell phones, as well as in networking chips used in communications gear. The company said it expects both of those businesses to decline in the current quarter in keeping with normal seasonal patterns.
One area of heavy investment for Broadcom in recent years has been the development of a baseband processor for cell phones. The company plans to release its first product next year, with handset makers Nokia ( NOK) and Samsung already signed on as major customers. On Monday, Texas Instruments announced it would sell its business providing off-the-shelf baseband processors, following a similar announcement by Freescale earlier this month. McGregor said the company remained committed to its plan to enter the market for cell phone baseband chips. "What we're seeing now is a long overdue shakeout of the players who were just primarily doing baseband," said McGregor, noting that Broadcom will offer chips that integrate various functions in addition to the baseband. Of course, Texas Instruments integrated many features in its LoCosto and eCosto cell phone chips, yet still opted to exit the business.