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Broadcom (AVGO) Q1 Earnings Beat Estimates, Revenues Miss

Zacks

Broadcom Limited AVGO has reported mixed first-quarter fiscal 2019 results. Non-GAAP earnings of $5.55 per share beat the Zacks Consensus Estimate of $5.19. The figure improved 8.4% from the year-ago quarter.

Non-GAAP revenues from continuing operations were $5.789 billion, up 8.7% from the year-ago quarter and 6.3% sequentially. The figure missed the Zacks Consensus Estimate of $5.816.

Shares of the company declined 1.1% yesterday. Notably, the stock has returned 5.5% in the year-to-date period, underperforming the industry’s rally of 11.2%. The share price movement was affected by decline in its large wireless customers, semiconductor solutions and lower-than-expected demand in the China business.


Segmental Revenues

Semiconductor solutions’ revenues (76% of total revenues) totaled $4.374 billion, down 12% from the year-ago quarter.

Infrastructure software (24% of total revenues) was up 328% year over year to roughly $1.4 billion. Robust performance in SAN switching remains a tailwind.

Revenues for Intellectual property licensing were $12 million during the reported quarter compared to $1 million in the year-ago period.

Furthermore, we believe that the company is well positioned to benefit from synergies from the CA buyout. In fact, CA’s strength in enterprise software offerings and substantial customer base is anticipated to enable Broadcom to explore the infrastructure software market and expand its TAM.

Operating Details

Non-GAAP gross margin expanded 660 basis points (bps) on a year-over-year basis to 71.4%. The increase was buoyed by favorable product mix and higher revenues base.

Non-GAAP operating expenses increased 22.4% year over year to $1.08 billion. Operating margin expanded 450 bps from the year-ago quarter to 52.7%.

Liquidity

As of Feb 3, 2018, cash & cash equivalents were $5.1 billion compared with $4.3 billion in the previous quarter. Long-term debt was $34.1 billion at the end of the fiscal first quarter compared with $17.5 billion in the prior quarter.

Broadcom generated cash flow from operations of roughly $2.1 billion compared with $2.6 billion in the previous quarter. Capital expenditure totaled $99 million, down from the last reported quarter figure of $106 million. Free cash flow during the quarter under review was $2 billion.

During the reported quarter, the company repurchased approximately 14.2 million shares for $3.51 billion. Additionally, Broadcom returned $1.1 billion in forms of dividends to shareholders during the fiscal first quarter. The company also approved a quarterly cash dividend of $2.65 per ordinary share.

Guidance

The company retained its outlook for fiscal 2019. Broadcom continues to forecasts non-GAAP revenues of almost $24.5 billion. The Zacks Consensus Estimate for the same is pegged at $24.3 billion.

Non-GAAP operating margin is anticipated to be 51%.

The company projects capital expenditure of $550 million for fiscal 2019.

Zacks Rank & Stocks to Consider

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

Some better-ranked stocks in the broader technology sector are Cadence Design Systems, Inc CDNS, Synopsys, Inc. SNPS and Symantec Corporation SYMC, presently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Cadence Design, Synopsys and Symantec have long-term earnings growth rates of 12%, 10% and 7.9%, respectively.

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