Broadcom Expects Its Earnings to Bounce Back -- Update

By Asa Fitch 

Broadcom Inc. promised an earnings recovery in the current financial year after the chip maker posted weaker fourth-quarter figures, dented by the protracted U.S. export ban of some items to Chinese telecom giant Huawei Technologies Co.

Broadcom said per-share earnings fell to $1.97 in the final quarter of the ended Nov. 3, compared with $2.64 a year earlier. The more closely watched adjusted earnings, which strip out some one-time items, fell 8% to $5.39 a share, in line with expectations from analysts surveyed by FactSet.

The company gave an upbeat sales forecast for the financial year that began last month, after reporting $5.78 billion in revenue for its most recent quarter. Analysts had expected $5.77 billion. The company projected growth of about 10% to roughly $25 billion, compared with 8% sales growth in the year just ended.

Broadcom shares were lower in after-hours trading, after rising slightly immediately following the release of the results.

Chief Executive Hock Tan said he was optimistic about growth in the company's core semiconductor business later in its current fiscal year. The company, he said, would benefit from its recent acquisition of cybersecurity firm Symantec's enterprise business.

Broadcom's semiconductor businesses, which account for about four-fifths of the company's revenue, fell 7% year-to-year in the fiscal fourth quarter, offset by a strong rise in the company's software segment. The chip business is likely to improve this fiscal year, said Mr. Tan said, who promised growth of 7% in sales of Broadcom's core semiconductor products.

"We continue to believe that our core semiconductor business is bottoming and will return to year over year growth in the second half of our fiscal year," he said.

The rollout of 5G communications networks also is likley to drive growth, Chief Financial Officer Tom Krause said on a call with analysts. The company's radio-frequency components business, which had $2.2 billion in sales in the fiscal year just ended, is likely to grow as smartphone makers boost production of 5G-capable devices, he said.

Broadcom has come off a tumultuous year, buffeted, in part, by U.S. trade tensions with China. The company, in June, cut its sales forecast by $2 billion. . Chinese telecom-equipment maker Huawei accounted for about $900 million of Broadcom's sales in its previous fiscal year.

Mr. Tan has been trying to expand Broadcom's reach beyond its traditional area of providing semiconductors for networking and wireless chips that go in Wi-Fi routers, smartphones and other electronics used in homes and factories. Those moves haven't come without challenges, including the U.S. government's decision to block Broadcom's acquisition of rival Qualcomm Inc. on national-security grounds last year.

Broadcom last month said it had completed the $10.7 billion acquisition of Symantec Corp.'s enterprise security business, first announced in August. That transaction followed last year's $19 billion deal to buy software firm CA Technologies, formerly Computer Associates.

Broadcom is also under investigation by European anticompetition authorities for allegedly trying to use its dominant position as a supplier of television set-top boxes and other electronics to edge out competition. The company called the inquiry meritless and said it didn't expect any major business impact.

The chip maker also faces new competition from Cisco Systems Inc., which sells networking equipment. Cisco said this week that it was getting into the business of selling chips for cloud-computing operators, putting it in direct competition with Broadcom.

"The fact that Cisco has joined it in our view validates the model, the trend we're pushing, and it's great to see that we're right in that regard," Mr. Tan said. "We welcome the competition."

Broadcom also said it was looking to pay down $4 billion of debt during the year after borrowing to finance recent acquisitions.

Write to Asa Fitch at [e-mail]

(END) Dow Jones Newswires

December 12, 2019 18:54 ET (23:54 GMT)

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