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Broadcom Q3 Adj. Earnings Beat Estimates

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Leading semiconductor manufacturer Broadcom Corp. reported GAAP net income of $316 million or 55 cents per share in third quarter 2013 versus $220 million or 38 cents in the year-ago quarter. The year-over-year jump in earnings was primarily attributable to a better-than-expected performance across the board.

Non-GAAP net income stood at $460 million or 76 cents per share in the reported quarter compared with $476 million or 79 cents in the year-earlier quarter. Despite a year-over-year decrease, the adjusted earnings comprehensively beat the Zacks Consensus Estimate of 48 cents.


Revenues for third quarter 2013 were $2,146 million, up 0.8% year over year and slightly above the Zacks Consensus Estimate of $2,128 million.

In terms of end markets, Broadband Communications revenues were flat sequentially at $567 million. Mobile & Wireless segment revenues increased 5% sequentially to $1.02 billion due to higher-than-anticipated sales of cellular system-on-chip (SOC) and touch controllers. Revenues from Infrastructure & Networking segment climbed 11% on a sequential basis to $564 million, driven by higher sales of Ethernet switches and physical layer devices (PHYs).


GAAP product margin came in at 51.4% compared with 49.0% in the prior-year quarter. Non-GAAP product gross margin was up 150 bps sequentially to 53.6% in the reported quarter. The improvement in gross margin was due to a stronger-than-expected mix in product sales.

In order to streamline its costs and better align its resources according to its strategic priorities, Broadcom initiated a global restructuring plan during the reported quarter. This includes retrenchment of up to 1,150 employees. Broadcom recorded restructuring costs of $12 million in the third quarter of 2013 in accordance with the plan and anticipates recording approximately $20 million in the next quarter.

Balance Sheet/Cash Flow

Broadcom generated $672 million in cash from operations in third quarter 2013. The company ended the quarter with cash and cash equivalents of $1.5 billion and with long-term debt of $1.4 billion.


Concurrent with the earnings release, management provided its guidance for fourth quarter 2013. Total revenue is expected to be around $1.975 billion. Product gross margins on a GAAP as well as on non-GAAP basis are expected to be down 50 basis points to 100 basis points sequentially in the fourth quarter of 2013. Research & development and selling, general, and administrative expenses (non-GAAP) are expected to be up $40 million to $60 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. The company intends to work diligently to deliver healthy LTE (Long Term Evolution) revenues in early 2014, while focusing on data center innovation and next generation home video products with HEVC (High Efficiency Video Coding).

Broadcom presently has a Zacks Rank #4 (Sell). Other notable companies in the sector that are worth mentioning include ARM Holdings plc , Avago Technologies Limited (AVGO - Free Report) and Entropic Communications, Inc. (ENTR - Free Report) , each carrying a Zacks Rank #2 (Buy).

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