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Broadcom Corporation (BRCM - Analyst Report) reported adjusted earnings per share (excluding one-time items) of 57 cents per share in the third quarter of 2012, beating the Zacks Consensus Estimate by a penny.
 
On a reported basis, net income declined 18.5% year over year to $220 million and earnings per share came in at 38 cents compared with 48 cents in the year-ago quarter. 
 
Broadcom generated revenues of $2.13 billion in the third quarter of 2012, up 8.7% year over year and 8.0% sequentially, and within management’s projection of $2.0 billion – $2.15 billion. 
 
In terms of end markets, Broadband Communications revenue was up 2.6% sequentially, driven by growth in sales of set-top box platforms based on solid secular trends and Broadcom innovations. 
 
Mobile & Wireless segments were up 14% from the second quarter to a record $1.02 billion, fueled by strong demand for connectivity solutions. Broadcom, which competes with Qualcomm Incorporated (QCOM - Analyst Report), continues to benefit from increasing WiFi attach rates, exponential growth in network traffic and strong adoption of high-definition cable and satellite solutions in the emerging markets. 
 
In addition, 3G baseband business continues to grow with the ramp up of the company’s 40-nanometer platform. 3G baseband business continues to witness sequential growth based on highly integrated SoCs that cater to the growing global demand for affordable smartphones. 
 
Smartphones continue to be growth drivers and management continues to gain traction at T-Mobile and Samsung. 
 
Revenue from Infrastructure & Networking segment grew 5.2% sequentially, ahead of management’s expectation, driven by phenomenal growth in switching products. Ethernet switch, PHY and multicore processors continue to gain traction. Broadcom recently tied up with Hyundai, which will deploy Ethernet in advanced driver assist systems, telematics and infotainment. 
 
On a product basis, product revenue was up 9.2% year over year to $2.0 billion. Income from the Qualcomm agreement came in at $43 million, down from $52 million at the end of the year-ago quarter. License revenues more than doubled to $7 million. 
 
Margins
 
Product gross margin came in at 52.1%, marginally down from 52.2% in the previous quarter but up from 50.9% in the year-ago quarter. 
 
Balance Sheet
 
During the quarter, Broadcom generated $621 million in cash from operations and used $65 million for capital expenditures. The company paid dividends of $56 million in the quarter. Accounts receivable days sales outstanding were 37 days in the quarter, down from 38 days in the quarter. Inventory levels came in at $557 million, up from $528 million in the quarter. 
 
Broadcom ended the quarter with cash and equivalents of $1.4 billion, up from $1.3 billion at the end of the previous quarter. 
 
Guidance
 
For the fourth quarter of 2012, Broadcom projects revenues of around $1.95 billion - $2.10 billion. Broadband segment is expected to be roughly flat with the previous quarter as strength in set-top box is being offset by the impending rollout of the company’s legacy Blu-ray and DTV businesses. 
 
Infrastructure & Networking segment is expected to decline on a sequential basis due to weakness in data center and enterprise spending along with continued softness in service provider capital expenditures.
 
Mobile & Wireless segment is also expected to decline due to seasonality and better-than-expected sell-in as a result of customer product launches during the third quarter.
 
Product gross margin is expected to be flat to slightly up on a sequential basis. 
 
Investors were indifferent to the results as shares were up 0.33% in after hours trading to close at $33.47. 
 
We maintain a Neutral recommendation on Broadcom in the long-run. However, we currently have a Zacks #4 Rank on the stock, which translates to a short-term rating of Sell. 

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