2nd UPDATE: Broadcom 2Q Net Down On Lower Revenue; Shares Fall

Broadcom Corp.'s (BRCM) second-quarter profit plunged 90% as the company Thursday posted a double-digit revenue decline, but the company signaled that business conditions are returning to normal.

Broadcom also offered third-quarter revenue guidance above Wall Street expectations, predicting net revenue of $1.12 billion to $1.19 billion. Analysts expected $1.02 billion. Broadcom expects gross margin to expand 1.25 percentage points from the second quarter.

"Based upon the customer activity we've experienced today, we expect the revenue momentum we experienced in the second-quarter to continue into the third quarter," said Broadcom Chief Executive Scott McGregor in a conference call to discuss the results.

He predicted future revenue growth could be broad-based, though slightly stronger in the mobile and wireless segments.

However, Chief Financial Officer Eric Brandt added that it is "way too early" to make any projections concerning the fourth quarter. He said it is tough to determine whether the recovery in the chip market will be "v"-shaped - meaning the worst is now over - or "w"-shaped - meaning another drop is ahead - and so the company will remain cautious.

The company's outlook mimics those from several other chip makers, indicating that the technology market is stabilizing after months of depressed spending on tech products.

"It's consistent - consistent with what we've heard out of others," said Cody Acree, a Stifel Nicolaus analyst. "The overarching theme is that orders are improving."

Broadcom's shares fell 4.9% to $27.75 in after-hours trading. The stock, however, has more than doubled from a six-year low in October 2008.

Broadcom reported profit of $13.4 million, or 3 cents a share, down from $134.8 million, or 25 cents a share, a year earlier.

The results included a gain of $65.3 million from its settlement last quarter of long-running patent lawsuits with Qualcomm Inc. (QCOM). Also included were $50 million in charitable contributions to establish the Broadcom Foundation and $11.3 million in write-downs of long-lived assets. While the communications-chip maker's earnings fell below Wall Street's expectations according to Thomson Reuters, the consensus numbers aren't necessarily comparable, as some analysts have included the Qualcomm settlement in their estimates.

Analysts' latest estimates, which typically would exclude certain non-recurring items, were for per-share earnings of 24 cents.

Revenue dropped 13% to $1.04 billion. As part of its Qualcomm settlement, Broadcom recorded $67.3 million in licensing revenue. Prior-year results included $35.6 million in royalties from a patent agreement.

Analysts expected revenue of $984.4 million.

McGregor said the results "reflected a return to a more stable ordering pattern and the ramp of new products from our end customers."

Broadcom specializes in low-cost, high-speed "system-on-a-chip" semiconductors and software that combine voice, video data and multimedia applications. It posted an unexpected loss for the first quarter but said customer bookings strengthened. The company's wireless business is expected to expand since it settled the patent suits with Qualcomm.

Gross margin fell to 46.3% from 52.3%, slightly below Broadcom's April forecast of 46.5%.

Earlier this month, Broadcom dropped its bid to buy smaller chip maker Emulex Corp. (ELX), after that company rejected a sweetened offer valued at $912 million.

-By Kathy Shwiff, Dow Jones Newswires; 212-416-2357; [e-mail]

(Jerry A. DiColo contributed to this report.)