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Broadcom 2Q Adj. Earnings Beat Comfortably

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Leading semiconductor manufacturer Broadcom Corp. reported GAAP net loss of $251 million or 43 cents per share in second quarter 2013 versus net income of $160 million or 28 cents in the year-ago quarter. The year-over-year slump in earnings was primarily attributable to an impairment charge of $501 million or 87 cents per share related to the acquisition of NetLogic Microsystems, Inc.

Non-GAAP net income stood at $436 million or 70 cents per share in the reported quarter compared with $435 million or 72 cents in the year-earlier quarter. Despite a year-over-year decrease, the adjusted earnings comprehensively beat the Zacks Consensus Estimate of 49 cents.


Revenues for second quarter 2013 were $2.09 billion, up 6.0% year over year and slightly below the Zacks Consensus Estimate of $2.11 billion. In terms of revenue composition, product revenues came in at $2.035 billion in the reported quarter, while income from the QUALCOMM Incorporated (QCOM - Free Report) agreement came in at $43 million and license revenues stood at $12 million.

In terms of end markets, Broadband Communications revenues were $568 million, up 5% year over year, driven by growth in set-top boxes and broadband modems. Mobile & Wireless segment revenues increased 7% year over year to $967 million due to product innovations, led by technology leadership and new standards like 5G Wi-Fi and Bluetooth Low Energy. Revenues from Infrastructure & Networking segment climbed 7% year over year to $512 million, driven by a growth in large-scale cloud data center build-outs and optical transport networking market.


Non-GAAP product gross margin declined to 51.8% in the reported quarter from 52.2% in the prior-year period. GAAP product margin came in at 49.4%, up from 46.7% in the year-ago quarter. The improvement in gross margin was due to a stronger-than-expected mix in infrastructure networking business, partially offset by increases in non-standard cost, including obsolete inventory.

GAAP research and development and selling, general and administrative expenses were $793 million in second quarter 2013 compared with $753 million in the prior-year quarter.

Balance Sheet/Cash Flow

Broadcom generated $334 million in cash from operations in second quarter 2013. The company ended the quarter with cash and cash equivalents of $1.6 billion and with long-term debt of $1.4 billion.


Concurrent with the earnings release, management provided its guidance for second quarter 2013. Total revenue is expected to be within $2.05 billion and $2.20 billion. Product gross margins on a GAAP as well as on non-GAAP basis are expected to be up 50 basis points sequentially in the third quarter of 2013. Research & development and selling, general, and administrative expenses (non-GAAP) are expected to be flat to up to $20 million sequentially.

Broadcom expects a steady momentum in broadband in the coming quarters, driven by more market penetration in emerging markets and new technology adoption in developed markets. As for the Infrastructure & Networking segment, the company is bullish about the data center market and expects the strength in connectivity solutions in Mobile & Wireless segment to remain intact as well.

Broadcom presently has a Zacks Rank #4 (Sell). Other notable companies in the sector that are worth mentioning include Cypress Semiconductor Corporation (CY - Free Report) and TriQuint Semiconductor, Inc. , both carrying a Zacks Rank #2 (Buy).

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