Strong Earnings Growth and Dividend Boost for Broadcom

By Timothy Green Markets Fool.com

Image source: Broadcom.

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Semiconductor company Broadcom (NASDAQ: AVGO) reported its fiscal fourth-quarter results after the market close on Dec. 8. The wireless business was the star performer, growing by more than 30% compared with the third quarter and more than offsetting sluggish sequential growth in Broadcom's other segments. Here's what investors need to know about Broadcom's fourth-quarter results.

Broadcom: the raw numbers

Metric

Q4 2016

Q4 2015

Year-Over-Year Change

Revenue

$4.14 billion

$1.84 billion

125%

Net income attributable to ordinary shares

($632 million)

$429 million

N/A

Non-GAAP EPS

$3.47

$2.51

38%

Q4 2015 results were prior to the Broadcom-Avago merger. Data source: Broadcom.

What happened with Broadcom this quarter?

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Broadcom's wireless business drove much of the company's growth compared with the third quarter.

  • The wireless communications segment produced $1.35 billion of revenue, up 34% sequentially and up 98% year over year.
  • The wired infrastructure business generated $2.07 billion of revenue, up just 1% sequentially, but up 449% year over year due to the Broadcom-Avago merger.
  • The enterprise storage segment saw revenue slump 12% year over year to $561 million. Revenue was up 6% sequentially.
  • The industrial and other segment produced $155 million of revenue, down 21% sequentially and up 8% year over year.
  • Cash from operations was $1.35 billion, up from $582 million during the same period last year.
  • The company recorded a $580 million amortization charge from acquisition-related intangible assets. Up from $192 million during the fourth quarter of 2015.
  • Broadcom doubled its interim quarterly dividend to $1.02 per share.

Broadcom expects revenue to decline sequentially during the first quarter.

  • Revenue of $4.065 billion, non-GAAP gross margin of 61.5%, and non-GAAP operating expenses of $785 million are expected during the first quarter. This implies non-GAAP EPS of approximately $3.47.

What management had to say

Broadcom President and CEO Hock Tan summed up an important year for the company:

Fiscal 2016 was clearly transformative for our company with the acquisition ofBroadcom Corporation. We finished the year on a very strong note, delivering a record level of revenue with 9% sequential revenue growth in the fourth quarter. Reflecting the operating leverage from our larger scale and improved profitability, we announced today a doubling of our dividend.

Broadcom also announced a series of upcoming investor events: "Broadcomwill be meeting with investors onJan. 4-6, 2017, at the 2017 International CES and presenting at the J.P. Morgan 15thAnnualTech Forumat the 2017 International CES onJan. 5, 2017and the Citi 2017Internet, Media, and Telecommunication ConferenceinLas VegasonJanuary 5, 2017."

Looking forward

Broadcom announced the $5.9 billion acquisition of Brocade Communications in November, with the company eying Brocade's Fibre Channel storage area network business. Broadcom plans to divest Brocade's IP networking business, which includes wireless and campus networking, data center switching and routing, and software networking solutions, once the deal is closed. The company expects that the deal will produce $900 million of non-GAAP EBITDA in fiscal 2018.

Broadcom produced another solid quarter, with strong growth in wireless driving revenue and earnings higher. Non-GAAP EPS jumped 20% compared with the third quarter on sequential revenue growth of 9%, allowing the company to double its dividend payment. Various charges related to the Broadcom-Avago merger continue to muddle the company's financial statements, but it will finally lap the merger in early 2017.

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Timothy Green has no position in any stocks mentioned. The Motley Fool recommends Broadcom. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.