Broadcom Limited (AVGO - Free Report) has put up modest third-quarter fiscal 2018 numbers. Earnings of $4.98 per share beat the Zacks Consensus Estimate by 15 cents. The figure improved 21.5% from the year-ago quarter and 2% sequentially.
Non-GAAP revenues from continuing operations were $5.066 billion, up 13.4% from the year-ago quarter and 0.9% sequentially. GAAP revenues came in at $5.063 billion. The figure was almost in line with management’s guidance and the Zacks Consensus Estimate of $5.060 billion.
Shares of the company went down 2.5% yesterday. Notably, the stock has yielded a negative return of 11.5% in a year’s time, substantially underperforming the 8% rally of its industry. The decline in its large wireless customers, cyclical headwinds in video access and an inline revenue outlook for the fourth quarter might have impacted the share price movement.
Wired Infrastructure revenues (45% of total revenues) totaled $2.3 billion, up 4% from the year-ago quarter. The upside was primarily driven by seasonal retrieval in demand for broadband access and robust demand for cloud data centers.
Broadcom also stated that robust growth in networking and compute offloading in cloud data centers, and solid growth spending by enterprise IT positively impacted the segmental revenues. However, management noted that sluggish spending on video access and in the China optical markets is a concern.
Wireless Communications (25% of total revenues) was flat year over year to roughly $1.29 billion. The company benefited from the seasonal rise in the North American smartphone OEM customers, which was partially offset by decline in its’ large wireless customers.
Enterprise Storage (25% of total revenues) increased 70% from the year-ago quarter to $1.25 billion. The improvement was largely backed by contribution from the recently-acquired Brocade Fibre Channel switch business coupled with strong enterprise IT spending.
Industrial & other (5% of total revenues) declined 5% year over year to $225 million. The year-over-year growth was primarily due to decrease in IP licensing revenues. However, excluding IP licensing revenues, Industrial business continued to grow, highlighting 10% increase year over year.
Non-GAAP gross margin expanded 400 basis points (bps) on a year-over-year basis to 67.3%. The increase was buoyed by favorable product mix, driven by higher revenues from wired segment.
Non-GAAP operating expenses increased 13.8% year over year to $874 million. Operating margin expanded 400 bps from the year-ago quarter to 50.1%.
As of Aug 5, 2018, cash & cash equivalents were $4.1 billion compared with $8.2 billion in the previous quarter. Long-term debt was $17.5 billion at the end of the third quarter, in line with the preceding quarter level.
Broadcom generated cash flow from operations of roughly $2.2 billion compared with $2.3 billion in the previous quarter. Capital expenditures totaled $120 million, down from $189 million last quarter.
During the quarter, the company repurchased approximately 24 million shares worth $5.38 billion. It currently has $6.3 billion remaining under the share repurchase authorization.
Additionally, Broadcom returned $754 million in the form of dividends to shareholders during the third quarter. The company also approved a quarterly cash dividend of $1.75 per ordinary share.
For fourth-quarter fiscal 2018, Broadcom forecasts non-GAAP revenues of almost $5.4 billion (+/- $75 million). The Zacks Consensus Estimate is pegged at $5.39 billion.
The company expects double digit year-on-year growth in networking and compute offloading on the back of robust demand from cloud and traditional enterprise. However, cyclical headwinds in video access are expected to negatively impact Wired Infrastructure revenues.
The company expects strong demand from large North American OEM customers to drive Wireless Communications more than 25% sequentially.
However, the launch of next generation WiFi products is expected to be a growth driver for the segment.
Management stated that Enterprise Storage segment will benefit from robust demand from enterprise, cloud storage, datacenters and recovery in HDD demand.
Broadcom expects double digit year-on-year growth in industrial resale. Also, strong demand environment for industrial product revenues are likely to grow, which will drive segmental revenues in the fourth quarter.
Non-GAAP gross margin is anticipated to be 67% (+/-1%), while non-GAAP operating expenses are expected at around $874 million.
The company projects capital expenditures of $110 million for the fourth quarter of fiscal 2018.
Zacks Rank & Key Picks
Currently, Broadcom carries a Zacks Rank #3 (Hold).
NetApp, Inc. (NTAP - Free Report) , Garmin Ltd. (GRMN - Free Report) and Salesforce.com Inc. (CRM - Free Report) are stocks worth considering in the broader technology sector. All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
NetApp, Garmin and Salesforce have a long-term EPS growth rate of 14.1%, 7.4% and 25%, respectively.
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