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Broadcom Beats, Outlook Disappoints

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Broadcom Corporation's net income came in at $88.0 million or $0.15 per diluted share in the first quarter of 2012 compared with a net income of $254 million or $0.45 per diluted share in the previous quarter and a net income of $228 million or $0.40 in the year-ago quarter. Excluding one-time items, EPS came in at $0.39, easily beating the Zacks Consensus Estimate of $0.31.

Broadcom generated revenues of $1.827 billion in the first quarter of 2012, down 0.6% year over year and down 0.4% sequentially, but which surpassed Zacks Consensus Estimate of $1.769 billion and management’s projection of $1.7 billion – $1.8 billion. Of the total revenues, NetLogic contributed $33 million.

Excluding contribution from NetLogic acquisition, revenue was $1.79 billion, down 1.4% sequentially and 1.2% from a year ago.

In terms of end-markets, the Broadband Communications revenue was down 3% sequentially. Mobile & Wireless segments was flat sequentially, as strength in 3G, basebands and WiFi combos were offset by anticipated softness in 2G baseband and  multi coprocessors.

The Infrastructure & Networking business was up 6% sequentially. Excluding the $33 million contribution from NetLogic, this segment was down 3% sequentially. The softness in the quarter was due to reduced demand for service providers’ products, which was partially offset by strength in data center solutions. The company has successfully integrated NetLogic’s operations into its own.

The Mobile and Wireless business was flat sequentially driven by growth performance in 3G basebands and WiFi combos. Strength in 3G basebands drove both 3G volume and revenue to crossover 2G in the first quarter, ahead of the company’s expectations.

On a product basis, product revenue declined 1.0% year over year to $1.7 billion. Income from the Qualcomm agreement was flat at 51.7 million. License revenues declined 58.3% year over year to $5 million.

Margins: Product gross margin came in at 52.0%, up from 50.5% in the year-ago quarter and 50.6% in the year-ago quarter.

Balance Sheet: During the quarter, Broadcom generated $368 million in cash from operations and used $74.0 million for capital expenditures. The company did not repurchase any shares in the quarter. Accounts receivable days sales outstanding were 38 days in the quarter, compared with 34 days in the previous quarter. Inventory levels increased $54 million from the previous quarter.

Broadcom ended the quarter with cash and equivalents of $1.3 billion, significantly down from $4.2 billion at the end of third quarter. This was primarily due to a net cash payment of $3.4 billion and quarterly dividend payment of $55 million.

Guidance: For the second quarter of 2012, Broadcom projects revenues around $1.9 billion - $2.0 billion. Management expects revenues from Broadband Communications and Infrastructure & Networking segment to be up in the first quarter. Mobile & Wireless segment sales are expected to be roughly flat. Product gross margin is expected to be flat sequentially.

Management expects that NetLogic acquisition will add approximately $0.07 – $0.08 to the bottom-line driven by improved cost synergies and favourable financing.

The outlook disappointed investors as shares were down 2.14% in after-hours trading to close at $35.92.

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