Strong momentum drives Broadcom to earnings beat

Chipmaker Broadcom Inc. said it expects to see momentum in the semiconductor industry keep gaining pace until the end of the year, after publishing strong third-quarter financial results that beat expectations.

The company reported earnings today before certain costs such as stock compensation of $6.96 per share on revenue of $6.78 billion, up 16% from a year ago. Wall Street had been looking for earnings of $6.88 per share on revenue of $6.76 billion.

Broadcom Chief Executive Hock Tan said the company deliver record third-quarter revenues.

“The quarter reflected our product technology leadership across multiple secular growth markets in cloud, 5G infrastructure, broadband and wireless,” he said. “We are projecting the momentum to continue into the fourth quarter.”

Broadcom’s main business involves making wireless chips for smartphones such as Apple Inc.’s iPhones. It also makes chips for use in broadband communications, networking, storage and industrial applications. Besides that, it has a growing infrastructure software business for mainframes, cybersecurity and data centers.

Semiconductors deliver the bulk of Broadcom’s revenue at 74% of its total sales. The unit pulled in $5.021 billion in the quarter, up 19% from one year ago.

As for the software unit, it saw sales grow by 10% year-over-year to $1.76 billion. It accounts for 26% of the company’s overall revenue.

Broadcom Chief Financial Officer Kirsten Spears said the company’s board of directors has approved a quarterly cash dividend on its common stock of $3.60 per share.

Constellation Research Inc. analyst Holger Mueller told SiliconANGLE Broadcom is in a healthy state, growing both its traditional semiconductor business and its new industrial software segment. He said the company had pulled off a remarkable feat by tripling its operating profit in the first three quarters of the year, compared to the same period one year before, and that the management deserves kudos for its excellent cost management.

“The only negative today is that its core semiconductor business grew stronger than the industrial segment revenue, setting Broadcom’s diversification goals back a little,” Mueller said. “But semiconductor revenue will always be a roller coaster, and industrial software is supposed to be more stable.”

There were reports in the quarter just gone that Broadcom was looking to grow its enterprise software business with a possible acquisition of SAS Institute Inc. It was reported the chipmaker was willing to pay as much as $15 billion to $20 billion to get its hands on the closely held data analytics firm, which is still owned by its 1970s era founders James Goodnight and John Sall. However, SAS quickly closed down any talks that may or may not have taken place as soon as details became public.

Whether or not Broadcom will be looking for other acquisitions remains to be seen, but in the meantime it expects its business to continue humming along nicely.

For the fourth quarter, it’s eyeing revenue of $7.35 billion, which would be an increase of 14% from the same period one year ago. That compares well with Wall Street’s estimate of just $6.75 billion in revenue.

Broadcom’s stock barely moved in after-hours trading.

Photo: Broadcom

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