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Broadcom (AVGO) Q1 Earnings and Revenues Surpass Estimates

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Broadcom Inc. (AVGO - Free Report) reported first-quarter fiscal 2021 non-GAAP earnings of $6.61 per share, which beat the Zacks Consensus Estimate by 0.92%. Moreover, the bottom line improved 25.9% from the year-ago quarter and 4.1% sequentially.

Net revenues were $6.655 billion, up 14% from the prior-year quarter. Moreover, the top line surpassed the Zacks Consensus Estimate by 0.7%. On a quarter-over-quarter basis, revenues improved 2.9%.

Segmental Revenues

Beginning first-quarter fiscal 2020, the company clubbed reporting of revenues from Intellectual property licensing with Semiconductor solutions segment. The company now reports in two segments — Semiconductor solutions and Infrastructure software. Management noted that integration of Symantec’s enterprise security business is complete.

Semiconductor solutions’ revenues (74% of total net revenues) totaled $4.908 billion, up 17% from the year-ago quarter. The upside can be attributed to higher demand for wireless solutions and continued momentum in networking and broadband solutions.

The company witnessed strength in networking end market with revenues up 15% year over year and contributed 29% to Semiconductor Solution revenues. The improvement in networking revenues came on the back of increased spending by telecommunication companies in modernizing infrastructure and enhancing Edge and core networks, and higher cloud spending by data centers. Bookings surged 80% on a year-on-year basis and 62%, sequentially.

Broadcom Inc. Price, Consensus and EPS Surprise

Broadcom Inc. Price, Consensus and EPS Surprise

Broadcom Inc. price-consensus-eps-surprise-chart | Broadcom Inc. Quote

In broadband end-market, revenues were up 8% year over year and contributed 15% to Semiconductor Solution revenues, courtesy of robust adoption of Wi-Fi 6 in next-generation access gateway with solid demand from telcos and other service providers for PON and cable DOCSIS products. Telecom and consumer end-markets from retail home routers, continue to benefit from favorable work-from-home trends. However, softness in enterprise domain limited growth.

Revenues from wireless vertical surged 52% year over year and contributed 40% to Semiconductor Solution revenues, driven primarily by increasing RF content and higher volume Wi-Fi 6 and Wi-Fi 6E, the next generation of Wi-Fi 6.

In server storage connectivity domain, revenues were down 22% year over year, on soft demand from enterprise customers. The end-market contributed 12% to Semiconductor Solution revenues.

Meanwhile, industrial and resales revenues were both up 13% and contributed 4% to Semiconductor Solution revenues, on recovery of multiple economic sectors in China.

Infrastructure software revenues (26%) surged 5% year over year to $1.747 billion. The company is well-poised to gain from synergies from acquisitions of CA and Symantec’s enterprise security business.

Management noted that in dollar terms, bookings averaged 122% over expiring contracts, while core accounts averaged 137%. Moreover, over 90% of the bookings correspond to recurring subscription and maintenance.

Operating Details

Non-GAAP gross margin expanded 30 basis points (bps) on a year-over-year basis to 73.3%. The improvement can attributed to higher revenue base.

Total operating expenses on a non-GAAP basis decreased 8.1% year over year to $1.096 billion, reflecting the synergies from the completion of integration of Symantec. As a percentage of net revenues, the figure contracted 390 bps to 16.5%.

Non-GAAP operating margin expanded 420 bps from the year-ago quarter’s figure to 56.8%, which can be attributed to expansion in gross margin.

Adjusted EBITDA (excluding $139 million of depreciation) was $3.941 billion, accounting for 59.2% of net revenues in the fiscal first quarter.

Balance Sheet & Cash Flow

As of Jan 31, 2021, cash & cash equivalents were $9.552 billion compared with $7.618 billion reported as of Nov 1, 2020.

Broadcom stated that liability management endeavors undertaken in first-quarter fiscal 2021 in terms of refinancing and redeeming of existing debt by issuing new notes, helped the company to extend its weighted average debt maturity to nearly nine years, compared with six years earlier. The weighted average interest rate now stands at 3.8%, compared with prior-quarter’s figure of 3.5%.

As of Jan 31, 2021, long-term debt (including current portion of $843 million) was $41.932 billion compared with $41.062 billion as of Nov 1, 2020.

Broadcom generated cash flow from operations of $3.113 billion compared with $3.348 billion in the previous quarter. Capital expenditure totaled $114 million compared with the last reported quarter’s figure of $102 million. Free cash flow during the quarter was $2.999 billion compared with $3.246 billion in the prior quarter.

During the reported quarter, Broadcom returned $1.5 billion in form of dividends to shareholders during the fiscal first quarter. The company paid an additional $225 million for elimination of 521,000 of company’s shares.

On Mar 4, 2021, the company approved a quarterly cash dividend of $3.60 per share on its common stock, payable on Mar 31, 2021 to shareholders as on Mar 22, 2021.


For second-quarter fiscal 2021, the company anticipates revenues of $6.5 billion. The Zacks Consensus Estimate is currently pegged at $6.32 billion. Adjusted EBITDA is expected to be approximately 59% of projected revenues in the fiscal second quarter.

Management expects wireless revenues to decline 30-40% on a year-over-year basis, due to seasonality.

In broadband end-market, management projects double-digit year-over-year growth in revenues backed by gains from the roll out of new Wi-Fi6 enabled platforms in fiscal second quarter, with higher value content across North American and European telcos.

In networking domain, the company expects revenues to increase sequentially and on a year-over-year basis, driven by continued strength in demand for switch and routing platforms across cloud customers and telcos despite moderating enterprise campus spending.

Nevertheless, sluggishness in enterprise demand is likely to result in double-digit decline in server storage revenues compared with the year-ago quarter. Notably, the company is optimistic regarding the recovery witnessed in Japan and Europe and expects revenues from resales to register year-over-year growth similar to that of first-quarter fiscal 2021.

Management projects Semiconductor Solutions business to register a similar year-over-year growth as the fiscal first quarter, sustained by strong demand seen across networking and broadband verticals despite seasonal decline in wireless business.

For fiscal second quarter, revenues from Infrastructure software segment is expected to be up in mid-single digits on a year-over-year basis in second-quarter fiscal 2021.

Zacks Rank & Stocks to Consider

Currently, Broadcom carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are Shopify (SHOP - Free Report) , Skyworks (SWKS - Free Report) and MaxLinear (MXL - Free Report) . All the stocks sport a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Shopify, MaxLinear and Skyworks is currently pegged at 32.5%, 20%, and 18.98%, respectively.

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