Leading chipmaker Broadcom Corporation (BRCM) reported results for the fourth quarter of 2010, which were line with the Zacks Consensus Estimates.
Broadcom generated revenues of $1.95 billion in the fourth quarter of 2010, up 44.9% year over year and up 7.7% sequentially. The results surpassed management’s revenue guidance of $1.9 billion and the Zacks Consensus Estimate of $1.896 billion.
The growth in revenues was powered by new product ramps and increasing attach rates in a number of wired and wireless communications markets.
In terms of end-markets, the Broadband Communications segment recorded a 3% sequential growth, driven by strong growth in Broadband modem and digital set-top boxes. Further, the company has enabled the convergence of voice video and data services in China with its portfolio of market-leading and high-performance platforms.
Broadcom’s Consumer Electronics shipped its first production volumes of 40-nanometer chip. During the quarter, Broadcom’s acquisition of Percello provided significant benefits with the help of its energy-efficient and cost optimized small cell and Femtocell architecture. And another acquisition, Gigle Networks strengthens the company’s extended networking technologies portfolio.
The Infrastructure business booked a sequential growth of 4%, attributed to record sales of switches. There was a growth in revenues from Enterprise, Service provider solutions and Ethernet solutions.
The Mobile & Wireless segment registered a 14% sequential growth, driven primarily by the strength of combo solutions and the ramp of cellular products. The segment gains due to the outstanding performance of wireless connectivity products, wireless combo solutions and GPS business. Combo chip solution benefited from multiple Tier 1 handset customers and multiple Operating system Platforms.
On a product basis, product revenue grew 47.2% year over year to $1.89 billion. Income from the Qualcomm agreement was flat year over year at $51.7 million. License revenues came in at $4.7 million, down 37.9% year over year.
Gross margin declined to 50.9% from 51.7% in the previous quarter (in line with the company’s expectation) and 53.1% year over year. Product gross margin decreased sequentially to 49.4% from 50.1% in the previous quarter, primarily due to the acquisition and warranty charges.
Broadcom’s net income quadruples to $266.2 million or 47 cents per share compared with a net income of $59.2 million, or 11 cents per share in the fourth quarter of 2009. Excluding the impact of nonrecurring items, earnings per share was 58 cents, in line with the Zacks Consensus Estimate.
Balance sheet
During the quarter, Broadcom generated $452 million of cash from operations and used $26.9 million for capital expenditure. Accounts receivable days sales outstanding were 38 days, down from 40 days in the previous quarter.
Fiscal 2010 Highlights
Net revenues for fiscal 2010 came in at $6.8 billion, up 52%from the previous year.EPS soared to $1.99 compared with 13 cents in fiscal 2009.
At the end of the fiscal year, cash, cash equivalents and short-term marketable securities were $2.7 billion compared with $1.9 billion at the end of the previous year.
During fiscal 2010, the company generated $1.4 billion of cash from operating activities compared with $0.9 billion in fiscal 2009.
The company repurchased 9 million shares.
Dividend and Share Repurchase
Further, the company’s board of directors approved an increase in quarterly dividend by 12.5% to 9 cents per share. The dividend will paid on March 7, 2011, to shareholders of record on February 18, 2011.
The company announced that it intends to enter into a $300 million accelerated share repurchase agreement over the next 90 days, which aims at offsetting some of the shares released in the fourth quarter 2010 due to option exercises.
Guidance
Going forward, Broadcom aims at creating great products, which supports increased market share, strong profitability and robust cash flow from operations.
For first quarter of fiscal 2011, Broadcom projects revenues around $1.75 billion – $1.85 billion. End-market wise, Broadband Communications revenue is expected to decline, mainly due to excess inventory and a couple of customers ordering more than underlying demand.
Infrastructure revenues are expected to be flat in the first quarter. Management expects that Mobile and Wireless segment will show a seasonal decline.
Product gross margin is expected to be flat on a sequential basis, net of the increased step up in amortization costs of roughly 60 basis points. Gross margin is likely to be flat on a sequential basis.
Management projects that R&D and SG&A expenses will increase by $45 million-$55 million sequentially. GAAP share count is expected in the range of 585 million- 590 million shares.
We see limited upside potential in the stock and prefer to wait for improvement in margins, which drives our Neutral recommendation on Broadcom with Zacks #3 Rank translating into a short-term rating of Hold.
The guidance for the first quarter of fiscal 2011 was not encouraging; shares of Broadcom were down 7.1% and closed at $43.55 in after-hours trading. In regular trading, shares were up 2.9% and closed at $46.39.
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