Broadcom Expects Content Gains Next Quarter

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Semiconductor supplier Broadcom (NASDAQ: AVGO) reported its fiscal third-quarter results after the market closed on Aug. 24. All segments reported growth, with wireless communications and enterprise storage standing out. While the third-quarter results were solid, the company expects robust content gains in its wireless business to drive an even stronger fourth quarter. Here's what investors need to know about Broadcom's third quarter.

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Broadcom results: The raw numbers

Metric

Q3 2017

Q3 2016

Year-Over-Year Change

Revenue

$4.46 billion

$3.79 billion

17.7%

Net income attributable to ordinary shares

$481 million

($298 million)

N/A

Non-GAAP earnings per share

$4.10

$2.89

41.9%

What happened with Broadcom this quarter?

Revenue grew in all of Broadcom's segments, and it expects its wireless segment to perform well in the fourth quarter.

  • The wired infrastructure segment generated revenue of $2.21 billion, up 7% year over year.
  • The wireless communications segment generated revenue of $1.28 billion, up 27% year over year.
  • The enterprise storage segment generated revenue of $735 million, up 39% year over year.
  • The industrial and other segment generated revenue of $238 million, up 18% year over year.
  • Cash from operations totaled $1.66 billion, up from $1.58 billion in the second quarter and $963 million in the third quarter of 2016.
  • Cash, cash equivalents, and short-term investments totaled $5.45 billion, up from $4.45 billion at the end of the second quarter.

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Broadcom expects a strong fourth quarter ahead:

  • Revenue of $4.8 billion, plus or minus $75 million, is expected, compared to $4.1 billion during the fourth quarter of 2016.
  • Non-GAAP gross margin of 63%, plus or minus 1%, and non-GAAP operating expense of $780 million.
  • Guidance implies non-GAAP EPS of $4.48, up from $3.47 in the fourth quarter of 2016.

What management had to say

Broadcom President and CEO Hock Tan is optimistic that the company will post a strong fourth quarter: "We continue to execute consistently and delivered strong financial results for our third fiscal quarter, with revenue growth of 6 percent and EPS growth of 11 percent sequentially. We are expecting revenue growth to further accelerate in the fourth fiscal quarter, led by robust content gains and seasonal strength in our wireless segment."

Looking forward

With a new slate of iPhones just around the corner, Broadcom's fourth-quarter results will reflect the company's success getting its chips into the devices. Tan expects content gains during the fourth quarter, which suggests Broadcom will increase its per-iPhone revenue this year.

The wireless segment will be the main attraction next quarter, but Broadcom's other segments are performing well, particularly enterprise storage, which was the fastest-growing segment during the period. Based on the company's guidance, Broadcom expects to keep the momentum going next quarter.

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