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Is a Beat in the Cards for Broadcom (AVGO) in Q2 Earnings?

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Broadcom Limited (AVGO - Free Report) is slated to release second-quarter fiscal 2018 results after the closing bell on Jun 7. Last quarter, the company delivered a positive earnings surprise of 1.59%. Broadcom beat earnings estimates in the trailing four quarters, with an average positive surprise of 3.79%.

The company reported impressive first-quarter fiscal 2018 results. Earnings of $5.12 per share beat the Zacks Consensus Estimate by 8 cents. The figure improved 41% from the year-ago quarter and 11.5% sequentially.

Non-GAAP revenues from continuing operations were $5.33 billion, which increased 28% from the year-ago quarter and 10% on a sequential basis. The figure was slightly higher than the Zacks Consensus Estimate of $5.25 billion.

Guidance & Estimates

For second-quarter fiscal 2018, Broadcom forecasts non-GAAP revenues of almost $5 billion (+/- $75 million). The Zacks Consensus Estimates is pegged at $5 billon.

Broadcom is increasing traction in 10G technology to support broadband video delivery. We believe that increase in demand for networking products from cloud and data centers as well as broadband access products, will positively impact Wired Infrastructure revenues in the to-be-reported-quarter.

The company is also benefiting from strong demand for Wi-Fi chips and radio frequency solutions from smartphone original equipment manufacturers (OEMs). Going forward, Purley product cycle, robust demand from enterprise and datacenters along with recovery in HDD demand will aid Enterprise Storage segment. The segment will also include Brocade Fiber Channel SAN business that is expected to generate a partial quarter revenues contribution.

Broadcom believes that the storage business will benefit from strong adoption of All-Flash arrays in storage appliances infrastructure that utilizes the company’s PCI Express and NVMe technology.

Industrial shipments and resale are likely to grow, which will drive segmental revenues in the second quarter.

Factors to Consider

Segmental Details & Strong Product Portfolio

Broadcom is benefiting from strong demand for its wireless solutions. Last quarter, Wireless Communications (41% of total revenues) were up 88% year over year and 23% quarter over quarter to roughly $2.21 billion. Strong growth was driven by the ramp-up in shipments of next-generation platform from the company’s large North American smartphone customers. Higher dollar content in this platform also drove top-line growth.

The Zacks Consensus Estimate for the Wireless Communications segment revenues are pegged at $1.36 billion.

Coming to the Enterprise Storage (19% of total revenues) increased 40% from the year-ago quarter and 54% sequentially to $991 million. The increase was due to the contribution from the recently acquired Brocade Fibre Channel switch business.

The Zacks Consensus Estimate for the Enterprise Storage segment revenues are pegged at $1.12 Billion.

Moving forward, Broadcom recently announced the launch of the latest NVMe and automation know-hows as well as Brocade G630 switch and Brocade FC32-64 port blade for the Brocade X6 director.

Broadcom’s expanding product portfolio makes it well-positioned to address the needs of rapidly growing technologies like Internet of Things (IoT) and 5G.

We believe that the company’s extensive product portfolio, which serves multiple applications within four primary end markets (Wired Infrastructure, Wireless Communications, Enterprise Storage, and Industrial & Other), will positively impact the to-be-quarter’s results.

Other Positives

Early in the first quarter, Broadcom completed the long-delayed Brocade acquisition. It completed the divestiture of Brocade's campus WiFi and switch business to Arris for 800 million in cash. Moreover, it sold Brocade's headquarter building in Santa Clara for approximately 225 million in cash. The addition of Brocade will help the company further penetrate the FC SAN market and garner competitive prowess, going forward.

Broadcom recently concluded the redomiciliation procedure of the company from Singapore to the State of Delaware in the United States. The now U.S. company is headquartered in San Jose, CA.

Broadcom’s recent move will aid it to pursue the Qualcomm acquisition aggressively once more. The base-shift will also make the regulatory environment uncomplicated for Broadcom. Going forward, we believe that if the deal goes ahead Broadcom can reap the benefits of cost reduction as well as reduced competition.

Qualcomm’s investment in 5G wireless services as well as NXP purchase, which will offer significant exposure to self-driving cars and automotive market, will empower Broadcom’s growth prospects.

A possible merger of Broadcom and Qualcomm might create the world's third-largest semiconductor company, trailing Intel Corporation (INTC - Free Report) and Samsung.

Broadcom Limited Price, Consensus and EPS Surprise

Broadcom Limited Price, Consensus and EPS Surprise | Broadcom Limited Quote

What the Zacks Model Unveils?

Our proven model conclusively shows that Broadcomis likely to beat earnings estimates this quarter. Per our model, a stock with a positive Earnings ESPand a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold), has higher chance of beating estimates. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Broadcomcarries a Zacks Rank #3 and has an ESP of +0.03%.

Other Stocks to Consider

Here are some other companies you may want to consider as our model shows that these too have the right combination of elements to beat on earnings:

H&R Block, Inc. (HRB - Free Report) has an Earnings ESP of +0.71% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Dave & Buster's Entertainment, Inc. (PLAY - Free Report) has an Earnings ESP of +0.72% and a Zacks Rank #3.

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