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Apple Chip Supplier Broadcom Nixes Further M&A After Avago Merger

Broadcom ( AVGO ) CEO Hock Tan satisfied querying minds Thursday, claiming that further M&A following the $37 billion merger with fellow Apple ( AAPL ) supplier Avago Technologies is “furthest from our minds at this point.” Top-line growth will slow to 5% in the long term as Broadcom digests Avago , MKM analyst Ian Ing wrote today in a research report. But the merged company’s diversification — which puts wired sales on top — will help offset a wireless trough in Q2, he said. Ing retained his buy rating and boosted his price target to 162 from 160 on Broadcom stock, which was up 7%, around 147, in afternoon trading on the stock market today , touching a 2016 high. For its fiscal Q1 ended Jan. 1 — before the completed Feb. 1 merger — Broadcom late Thursday reported non-GAAP figures of $2.41 earnings per share on $1.78 billion in sales, up 15% and 8%, respectively, vs. the year-earlier quarter. The consensus estimates of 30 analysts polled by Thomson Reuters were $2.30 and $1.75 billion. Current-quarter sales ex items guidance for $3.55 billion at the midpoint was slightly off the consensus model for $3.75 billion. Unlike Q1 figures, Q2 sales reflect the combined Avago-Broadcom company, Tan said on the company’s earnings conference call. Pacific Crest analyst John Vinh credited Broadcom’s 11-cent Q1 EPS beat to $30 million to $40 million in acquisition-related synergies. In total, Broadcom expects $750 million in synergies over 18 months. FBR analyst Christopher Rolland sees Broadcom exceeding that $750 million target. As Broadcom looks to shed smaller business units, the chipmaker expects to reduce quarterly operating expenses by $80 million. For the April quarter, Broadcom guided to $832 million in op-ex, below the consensus for $944 million, Ing wrote. Wired sales are expected to comprise 55% of Q2 revenue, leading wireless, enterprise storage and industrial sales at 23%, 17% and 5% of sales, respectively. The expectations flip Q1 results, where enterprise storage sales led with 38% of total revenue. Wireless, wired and industrial contributed 32%, 22% and 8%, respectively. During Q1, strong enterprise storage sales helped offset a 15% sequential decline in the wireless segment, Tan said. Wireless sales fell on wavering Apple iPhone demand, despite Samsung’s Galaxy 7S ramp-up, but Tan expects to increase Broadcom’s iPhone 7 content by 20%-plus after Q2. “Despite weaker-than-expected Q1 iPhone builds that have weighed on the entire Apple supply chain, Broadcom not only maintained its full-year RF (radio frequency) growth forecast, but raised it,” Rolland wrote. Rolland maintained his outperform rating and 185 price target on Broadcom stock. Vinh rates Broadcom stock as overweight and has a 170 price target. Shares of fellow Apple suppliers Skyworks Solutions ( SWKS ), NXP Semiconductors ( NXPI ), Qorvo ( QRVO ) and Cirrus Logic ( CRUS ) were up a respective 6%, 5%, 3% and 2% in afternoon trading Friday, after Broadcom’s Q1 earnings.

Apple Supplier Broadcom Rockets On Post-Merger Q1 Earnings Beat

Broadcom ( AVGO ) stock rocketed late Thursday after the Apple ( AAPL ) chip supplier topped Wall Street’s fiscal Q1 earnings-per-share expectations by 11 cents and issued Q2 guidance that edged analyst forecasts. Broadcom CEO Hock Tan hinted that Broadcom is already ramping for the likely September release of Apple’s iPhone 7. He acknowledged that wireless demand declined 15% sequentially in Q1 on typical seasonality haunting “our North American customer” (i.e. Apple). Tan isn’t alone. Last month, fellow Apple supplier Qorvo ( QRVO ) guided to weak Q4 sales, tugging Skyworks Solutions ( SWKS ), NXP Semiconductors ( NXPI ) and Cirrus Logic ( CRUS ) into a hole. But Tan expects Q1 to be the year’s “trough.” After-hours Thursday, Broadcom stock lifted 7% on the fiscal Q1 beat, which followed the finalized acquisition of Broadcom by the former Avago Technologies on Feb. 1. The Q1 results relate solely to the former Avago, according to the company release, as the quarter ended Jan. 31, just before the deal was finalized. Broadcom stock closed up a fraction during the regular session. Apple Seasonality Pains Ebb For fiscal Q1, Broadcom reported non-GAAP figures of $2.41 earnings per share on $1.78 billion in sales, up 15% and 8%, respectively, vs. the year-earlier quarter. Both measures topped the consensus of 30 analysts polled by Thomson Reuters for $2.30 and $1.75 billion. During Q1, wired and enterprise storage sales grew 2% and 6%, respectively, on a sequential basis. Industrial sales fell 10% sequentially, trailing the 15% decline in wireless sales, Tan told analysts on the conference call. “Last year, we had unusually high demand in Q1 from a North American customer which offset normal seasonality,” he said. “This year, however — as we all know — seasonality returned and there was a product life cycle demand decline from that specific customer.” This week IDC issued a smartphone forecast that sees iPhone shipments declining 0.1% this year as smartphones running Alphabet ‘s ( GOOGL ) Android operating system rise 7.6%. Tan said on Broadcom’s conference call that he expects weak smartphone demand to reverse in the second half of 2016. Enterprise storage comprises 38% of the former Avago’s total Q1 revenue — the largest segment and leading wireless sales which contributed 32% to the total pot. But, the wired segment is growing and during the April quarter will bring in 55% of sales, Tan said. Wired Sales To Grow The midpoint of current-quarter guidance for $3.55 billion in sales on a non-GAAP basis, plus or minus $75 million, nearly touched the consensus model for $3.57 billion. Current-quarter sales views reflect the combined Avago-Broadcom company. During Q2, wireless and enterprise storage sales will shrink as chunks of total sales to 23% and 17%, respectively, Tan said. Still, all eyes are on Broadcom’s “North American customer” which increased the chipmaker’s RF content in its upcoming flagship smartphone, he said. “We are already pre-building significant quantities of our RF chips” for the second-half of 2016 ramp, he said. “We increase our RF content by 20% year after year in this high-end smartphone market.” But Tan expects greater strength in the wired segment where Broadcom expects to add new products. The segment will also benefit from increased enterprise demand. In May 2015, the former Avago announced a $37 billion bid for fellow Apple supplier Broadcom, kicking off a record-busting year of consolidation in the semiconductor industry amid macro weakness, slowing growth and ramping costs. Post-merger, the company retained Broadcom’s name and Avago’s ticker symbol “AVGO.” Broadcom is one of two chipmakers on the IBD 50 list of top-rated growth stocks. The other is Tesla Motors ( TSLA ) partner  Nvidia ( NVDA ).

Apple Suppliers Cirrus Logic, Analog Devices Begin iPhone 7 Prep

Apple ( AAPL ) suppliers Cirrus Logic ( CRUS ) and Analog Devices ( ADI ) are lapping up foundry capacity in the back half of 2016 in anticipation of the iPhone 7, expected to be released in September, according to a report. The duo recently requested that foundry and back-end service providers reserve a significant portion of production capacity in Q2 and Q3, industry insiders told Digitimes.com. In afternoon trading on the stock market today , Cirrus Logic stock was up nearly 4%, and Analog Devices stock was up a fraction. Cirrus Logic and Analog Devices are expected to have a big impact on the design of Apple’s iPhone 7, which is widely expected to be the name of the next phone in Apple’s smartphone line. Audio chipmaker Cirrus Logic began touting its noise-canceling headphones in January. “There are definitely people considering putting that (noise-canceling headphones) in the (mobile) box,” Cirrus Logic CEO Jason Rhode said during the company’s earnings conference call. But Rhode didn’t specifically mention the iPhone. Apple generally encourages suppliers to refrain from any such comments. Apple’s iPhone 7 is expected to be thinner, ditching the headphone jack in favor of a Lightning cord connection. The iPhone 7 will also likely include Force Touch — a feature introduced in the iPhone 6S, which was released last September. Analog Devices is the rumored provider for the Force Touch technology, but tear-downs don’t make the supplier apparent. And it appears that Taiwan Semiconductor Manufacturing ( TSM ) will manufacture the lion’s share, if not all, of Apple’s A10 processors, insiders told Digitimes. Taiwan Semiconductor and Samsung both sourced the A9 inside the iPhone 6S series. That was the first time that the two companies shared this job. Previously, the pair had battled for Apple’s processor-supply manufacturing contract, leapfrogging each other from year to year. In December, Wall Street began whispering that Samsung wouldn’t pursue the A10.