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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.

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.”

Apple Chipmakers Skyworks, NXP, Avago Plunge On Qorvo Sales Outlook

Qorvo ( QRVO ) drew fellow  Apple ( AAPL ) suppliers Skyworks Solutions ( SWKS ), NXP Semiconductors ( NXPI ), Cirrus Logic ( CRUS ) and Avago Technologies ( AVGO ) into a hole Friday, after the company late Thursday guided current-quarter sales below Wall Street’s consensus by $20 million. IBD’s 41-company Electronic-Semiconductor Manufacturing industry group fell by as much as 3.7% Friday and was down more than 2% in afternoon trading on the stock market today . Qorvo was down nearly 4%. Avago and Cirrus Logic stocks were down 5.5% and 4%, respectively. Shares of Skyworks and NXP were both down about 6% Friday afternoon. Apple stock was down nearly 2.5%. For its fiscal Q3 ended Jan. 2, Qorvo reported $620.7 million in sales and $1.03 earnings per share ex items, down 16% and 20%, respectively, vs. the year-earlier quarter. Both measures topped the consensus of 21 analysts polled by Thomson Reuters for $620.34 million and 94 cents. Qorvo also topped its Jan. 7 sales pre-announcement of $620 million, but missed its earlier, unchanged guide for $1.25-$1.30 EPS ex items. For the current quarter, Qorvo guided to $600 million in sales minus items and 90-95 cents EPS ex items. The consensus saw $620.1 million and 92 cents. At least four analysts cut their price targets Friday on Qorvo stock. Citigroup downgraded shares. DA Davidson analyst Thomas Diffely blamed Apple iPhone weakness as a “key contributor” to Qorvo’s 15% sequential decline in mobile sales. During Q3, Apple sales comprised 42% of Qorvo’s total revenue, he estimated in a research report. The March quarter will largely depend on Samsung’s Galaxy S7 ramp-up, MKM analyst Ian Ing wrote in a report. Qorvo is approaching the quarter cautiously. “We perceived an abundance of caution and potential volatility to both the current quarter as well as the calendar year,” he wrote. “That said, Qorvo feels ‘very good’ on designs for marquee phones with a September quarter, December quarter ramp.” Qorvo expects dollar-content growth in “the most highly-anticipated marquee smartphones this year at our three largest mobile customers,” CEO Robert Bruggeworth told investors on the company’s earnings conference call late Thursday. Infrastructure/defense sales grew sequentially, analyst Diffely noted. “We expect growth (in infrastructure and defense products) to continue for several more quarters buoyed by a combination of stable markets and a number of new product introductions,” he wrote. Ing and Diffely slashed their price targets on Qorvo stock to 65 from 66, and to 65 from 70, respectively. Both rate Qorvo stock a buy.