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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 ).

Can IBD 50’s Broadcom Drive Chip Stocks As Earnings Approach?

Loading the player… With the rising Internet of Things, connected cars and cloud computing all fostering chipmaker growth, Nvidia ( NVDA ) and Broadcom ( AVGO ) make the IBD 50 list of top-ranked growth stocks. Broadcom is set to report quarterly earnings Thursday after the market close, and it could serve as a bellwether for several other chip stocks that have moved up to or past their 50-day lines in the past couple weeks as the stock market has improved. Broadcom and Nvidia are top-ranked, with IBD Composite Ratings of 98 and a best-possible 99, respectively. Broadcom, which merged with Avago Technologies in February and kept the latter’s stock symbol “AVGO,” moved up for five straight days before pulling back 1% in the stock market today . After the market rout last month, Nvidia has risen 30% since Feb. 11, and Avago has added 18%, compared to the S&P 500 index’s 9% gain. Broadcom is still down 6% for the year, and Nvidia is flat, while the S&P has declined 3%. Analysts are looking for earnings per share of $2.30 for Broadcom’s fiscal 2016 first quarter, on revenue up 6% to $1.75 billion. Nvidia’s latest quarter, reported in February, brought 12% revenue growth with gains across all market platforms that the company serves: gaming, professional visualization, data center and automotive. Chips Go In Cars, Cloud And Consumer Electronics Both Broadcom and Nvidia serve a variety of industries, and they’re both Apple ( AAPL ) suppliers. One growing field for both is connected cars, as automakers add more entertainment and information technology, and as vehicles move closer to self-driving. At the Geneva International Motor Show underway this week, Daimler ( DDAIF ) showed off a self-braking and self-parking Mercedes E-Class. Tesla Motors ( TSLA ) is also there, and its Autopilot technology recently made an MIT Technology Review list of the top 10 technology developments for 2016. Several other chipmakers playing in car tech, among other fields, have recovered to or above their key 50-day lines in the past couple weeks. Though not as highly rated by IBD as are Nvidia and Broadcom, they include Skyworks Solutions ( SWKS ) with an 81 Composite Rating, Ambarella ( AMBA ) with a 74, Qorvo ( QRVO ) with a 63, and NXP Semiconductors ( NXPI ) with a 67. In all, Broadcom supplies analog and digital chips for uses such as data center networking, home connectivity, broadband access, telecom equipment, smartphones and base stations, data center servers and storage, factory automation, power generation and alternative energy systems, and displays. Apple’s varying iPhone sales will be a factor for Broadcom. “Given an uncertain demand environment within storage and the recent iPhone inventory correction,” Pacific Crest Securities analyst John Vinh wrote in a research note, “we see limited revenue upside opportunities. However, we expect investors to look through to the ramp of the iPhone 7, where we anticipate over 20% content gains.” Sterne Agee analyst Doug Freedman said in a research note that Broadcom is his 2016 top-pick idea, “as we believe the smartphone weakness is well reflected in estimates and will likely be more than offset by the consolidated business outlook going forward.”

Marvell Catches Activist Starboard Investment; Upgraded To Buy

Beleaguered Marvell Technology Group ( MRVL ) stock pocketed a major upgrade Monday on activist investor Starboard Value’s nearly 7% stake in the Bermuda-based chipmaker. Marvell stock flew almost 7% on Feb. 3, the day Starboard’s investment was announced. Starboard has built its investment since December, B. Riley analyst Craig Ellis wrote in a research report. Ellis upgraded Marvell stock to buy from a sell rating. Yet, in the stock market today , shares were down 1.5%, trading near 8.80. Starboard’s 6.7% stake in Marvell “casts significant doubt on our ‘sell’ rating which was predicated on financial inquiry completion risks and post-review financial execution concerns,” Ellis wrote. In October, Marvell revealed an accounting error may have shifted 7%-8% of sales to Q2, rather than Q3. Marvell’s PricewaterhouseCoopers auditor resigned amid the probe. The resulting internal investigation questioned senior management’s operating style. The SEC and U.S. Attorney’s Office joined the investigation in December. Marvell noted it’s “common for governmental agencies to open investigations in these circumstances.” Starboard’s investment isn’t a panacea, but could come with several Marvell board seats, “a tier-1 auditor and marque CFO,” Ellis wrote. Starboard also was an investor in TriQuint before it became Apple ( AAPL ) supplier Qorvo ( QRVO ) and Integrated Device Technology ( IDTI ). “We believe (Starboard) knows semiconductors well, with a record of agitating for increased shareholder interest,” he wrote. Starboard consultants include Tessera Technologies ( TSRA ) Chairman Rick Hill, Viavi Solutions ( VIAV ) CEO Oleg Khaykin and former Integrated Devices interim CEO Jeff McCreary. It’s also possible Starboard could help Marvell wrangle R&D capabilities, Ellis wrote. “Past checks show undisciplined and at times ineffectual field sales and engineering,” he wrote. At least two analysts rate Marvell stock a sell, and 21 others rate the stock as a hold. Ellis is among at least five analysts to rate Marvell stock a buy. Ellis boosted his price target on Marvell stock to 12 from 7.