Shares of Broadcom (NASDAQ: AVGO) surged on Friday, rising 7.7% by the time the market closed. The stock's gain followed the company's third-quarter earnings release, which featured double-digit revenue and earnings-per-share growth and a huge jump in free cash flow.
While the company's third-quarter results were revealing, some of the most important insights from the quarterly update came from management's conference call with analysts after the company posted its earnings release. During the call, management provided a window into the reasoning for its acquisition of CA Technologies, explained how it's benefiting from the cloud services boom, and provided commentary on how management is approaching acquisitions.
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Why CA Technologies?
There has been some concern about whether or not CA Technologies will live up to its $18.9 billion price tag. But Broadcom management couldn't be more optimistic about the pending acquisition's prospects.
CA represents "a new and huge opportunity," said Broadcom CEO Hock Tan about the potential deal. He explained:
Summing it up, Tan said, "So bottom line, we actually see this opportunity, a great opportunity I might say, to double down for future growth."
Benefiting from the cloud services boom
One area management singled out as a key driver for growth during the quarter was its strong data center demand. More specifically, one of the catalysts for strong data center demand was the fast-growing cloud services market, management explained.
Tan gave some insight into the impact of cloud service providers on its data center demand during Broadcom's earnings call:
In other words, Broadcom has importantly positioned itself to benefit from the rapid growth in cloud services at the world's most important cloud service providers.
Acquisitions outside of the semiconductor industry
Since CA Technologies operates outside of the semiconductor industry, some investors may have wondered how management approaches acquisitions outside of the company's normal scope of operations. Further, investors may wonder whether Broadcom's decision to venture beyond semiconductors implied management is worried about its growth rate.
After explaining that Broadcom continues to believe its long-term growth rate for its semiconductor business "will remain mid-single digits," Broadcom CFO Tom Krause provided perspective on how it's thinking about non-core acquisitions:
Broadcom has historically proven adept at making accretive acquisitions that build shareholder value. Krause's comments imply the company is maintaining the same fiduciary discipline it has with past acquisitions.
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