On March 14, Broadcom (NASDAQ: AVGO) announced financial results for the first quarter of its fiscal 2019. In that announcement, the company reiterated its financial guidance of $24.5 billion in revenue for the year as well as its operating margin percentage expectation of 51%, seemingly defying expectations that the company would be forced to reduce its financial guidance for the year.
In addition to giving investors a relatively robust financial outlook for the current fiscal year, Broadcom management also provided some further insight into its expectations for the business. Here are some key quotes from the earnings call that you won't want to miss.
Double-digit networking growth
One segment that has performed extremely well for Broadcom over the last several quarters has been its networking business. The segment enjoyed double-digit revenue growth last quarter, according to CEO Hock Tan, which served to more than offset a significant drop in the company's wireless chip sales as well as a lackluster performance in its silicon storage business.
During the second half of the year, Tan expects the company's chip business as a whole -- which includes its wired networking chip business -- to keep growing at a double-digit pace, thanks to the imminent release of two new products: Tomahawk 3, an Ethernet switch chip, and Jericho 2, a product targeted at switch-routers.
"We feel very good about networking and the ability to sustain the level of growth we have been seeing," Tan concluded.
According to Tan, the company's broadband chip business -- which had suffered meaningful declines in recent quarters -- "has started to recover and stabilize in the quarter."
Tan also indicated that Broadcom's broadband business will see a recovery in the second half of 2019. This, too, seems to be a product cycle-driven story, with the transition to the more advanced DOCSIS 3.1 standard in the cable modem market as well as a "new generation of DSL."
That's not all, though. Tan explained that "We are seeing, especially in the back half of the year, enterprises and more and more service providers, telephones, start to attach the next-generation Wi-Fi, Wi-Fi 6, onto those gateways."
The executive then said that "In Wi-Fi 6, I'm very, very pleased to note that we are very much in the lead in having developed and productized a whole suite of products that are perfectly addressed toward those enterprise and service providers."
In other words, Broadcom's broadband chip business is set to get a lift as it ramps up new products and also expands its dollar content in these new broadband access gateways.
Broadcom recently acquired mainframe software maker CA Technologies in a bid to supercharge its infrastructure software ambitions.
According to Tan, the "integration of CA onto the Broadcom platform is very well under way."
The executive also stated that the company is "confident that we can meet if not exceed in the long term -- exceed the long-term revenue and profitability target that we laid out for CA to you last year."
As a reminder, back on the company's earnings call in December, Tan told investors that the company's long-term goal is for CA's revenue to "stabilize at over $3.5 billion annually and grow from there" and that the company would need just $900 million in annual operating expenses to sustain that revenue.
"And as a result, we expect to achieve more than $2.5 billion per year in operating profitability from the CA business once we go through this transition," Tan said at the time.
That original goal was already impressive, as it meant that for a purchase price of $18.9 billion, the company would be able to add north of $2.5 billion in annual operating income to the business. If Broadcom can, over time, exceed these revenue and operating profit targets, then this purchase will, in hindsight, have been a total steal on Broadcom's part.
What lies ahead for Broadcom
The post-earnings boost that Broadcom shares enjoyed was well deserved. The company's financial forecast for the year is strong, and that forecast is justified by sensible predictions for how many of Broadcom's core businesses are set to trend upward going into the second half of the year. On top of that, the company's acquisition of CA Technologies is looking even smarter as time goes on, which should strengthen investor confidence in Broadcom's strategy of buying best-in-breed businesses and extracting the maximum profitability from them.
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