Why Broadcom (BRCM) Stock Is Down Today (Update)

Update (2:26 p.m.): Updated with analysts' mobile and wireless opinions and updated stock price information.

NEW YORK (TheStreet) -- Broadcom  (BRCM) fell Friday after the company issued second-quarter revenue guidance that came up just short of analysts' expectations.

The semiconductor company said it in its first-quarter earnings report that it expects second-quarter revenue in the range of $2 billion to $2.1 billion. The midpoint of that guidance range fell just short of the $2.072 billion expected by analysts polled by Thomson Reuters I/B/E/S

For the first quarter, Broadcom posted net profit of $165 million, or 28 cents a share, down from $191 million, or 33 cents a share, in the same period one year earlier. Non-GAAP earnings per share were 51 cents. Revenue declined 1% year over year to $1.98 billion.

Analysts polled by Thomson Reuters expected adjusted earnings of 46 cents a share on revenue of $1.958 billion.

The company's high-end chips for smartphones also faced increasingly tough competition in China, which led to the reduced profits and revenue in the first quarter.

Some analysts also suggested Broadcom could sell its struggling mobile and wireless business, which posted an operating loss for the first time since 2009 in the first quarter.

"Over the past 12 months, [Broadcom's mobile and wireless] revenues declined by 4%, and its operating margins declined by 1,600 basis points to 6%," Jefferies said in a research note. "Management is conceding connectivity share loss in midrange smartphones, and new cellular LTE products won't ramp until the second half of 2014...In the event Broadcom fails in cellular, we would expect them to either divest the business or shut it down."

The stock was down 5.14% to $29.54 at 2:26 p.m. on Friday.

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Separately, TheStreet Ratings team rates BROADCOM CORP as a "hold" with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

"We rate BROADCOM CORP (BRCM) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • BRCM's debt-to-equity ratio is very low at 0.17 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, BRCM has a quick ratio of 2.16, which demonstrates the ability of the company to cover short-term liquidity needs.
  • The gross profit margin for BROADCOM CORP is rather high; currently it is at 54.80%. Regardless of BRCM's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 8.13% trails the industry average.
  • BRCM, with its decline in revenue, slightly underperformed the industry average of 1.5%. Since the same quarter one year prior, revenues slightly dropped by 0.8%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Semiconductors & Semiconductor Equipment industry. The net income has significantly decreased by 33.1% when compared to the same quarter one year ago, falling from $251.00 million to $168.00 million.
  • The share price of BROADCOM CORP has not done very well: it is down 12.07% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. Looking ahead, we do not see anything in this company's numbers that would change the one-year trend. It was down over the last twelve months; and it could be down again in the next twelve. Naturally, a bull or bear market could sway the movement of this stock.
  • You can view the full analysis from the report here: BRCM Ratings Report

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Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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