Broadcom Guides for Double-Digit Organic Revenue Growth

By Timothy Green Markets Fool.com

Semiconductor company Broadcom (NASDAQ: AVGO) reported its fiscal first-quarter results after the market close on March 1. Revenue soared compared to the first quarter of 2016 thanks to the Broadcom-Avago merger, but sequential revenue growth was weighed down by sluggishness in the wired infrastructure and wireless communications segments. Here's what investors need to know about Broadcom's first-quarter results.

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Broadcom results: The raw numbers

Metric

Q1 2017

Q1 2016

Year-Over-Year Change

Revenue

$4.14 billion

$1.77 billion

134%

Net income attributable to ordinary shares

$239 million

$377 million

(36.6%)

Non-GAAP EPS

$3.63

$2.41

50.6%

Q1 2016 results were prior to the Broadcom-Avago merger. Data source: Broadcom.

Image source: Broadcom.

What happened with Broadcom this quarter?

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Wired infrastructure and wireless communications drove Broadcom's year-over-year growth, while enterprise storage revenue surged compared to the fourth quarter.

  • The wireless communications segment produced $1.175 billion of revenue, up 103% year over year but down 13% sequentially.
  • The wired infrastructure segment produced $2.084 billion of revenue, up 440% year over year and flat sequentially.
  • The enterprise storage segment produced $707 million of revenue, up 4% year over year and up 26% sequentially.
  • The industrial and other segment produced $173 million of revenue, up 34% year over year and up 12% sequentially.
  • Cash from operations was $1.35 billion, up from $474 million during the first quarter of 2016 and flat compared to the fourth quarter of 2016.
  • Broadcom recorded a $999 million amortization of acquisition-related intangible assets charge, up from $184 million during the prior-year period.
  • Broadcom continued its interim quarterly cash dividend of $1.02 per share.

Broadcom expects to produce solid organic growth during the second quarter.

  • Year-over-year organic revenue growth of 15% is expected during the second quarter.
  • Revenue of $4.09 billion plus or minus $75 million.
  • Non-GAAP gross margin of 62% plus or minus 1%, and non-GAAP operating expenses of $789 million.
  • Guidance implies non-GAAP EPS of $3.48.

What management had to say

Broadcom President and CEO Hock Tan summed up the company's performance:

We had a very good start to our fiscal year 2017 delivering first quarter revenue and gross margin at the top end of guidance. We expect healthy demand for our products to continue and we are guiding second fiscal quarter revenue to grow organically by 15% on a year over year basis.

Looking forward

The Broadcom-Avago merger closed in February 2016, so Broadcom will finally lap that transaction in the second quarter. This will make year-over-year comparisons more meaningful going forward, although big charges related to the acquisition will continue to knock down GAAP earnings.

Broadcom's guidance for the second quarter was solid, particularly the call for double-digit organic revenue growth. Broadcom's growth rate will slow dramatically as the merger is lapped, but the company still expects healthy demand for its products to drive revenue higher.

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Timothy Green has no position in any stocks mentioned. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.