Broadcom Corp. (BRCM) reported revenues of $1.46 billion in the first quarter of 2010, up 8.9% sequentially and up 71.3% from the first quarter of 2009. Sales for the first quarter of 2009 were adversely hit by the economic crisis.
The sequential revenue growth was broad-based and driven by strength in the enterprise and wireless businesses, which were up 15% and 10% respectively. The strength in revenue was driven by new product ramps and continued strong demand from customers in Asia.
Segment-wise, broadband communications segment recorded a 3% sequential growth, in line with management’s expectations, driven by an increase in demand for digital set-top boxes and broadband access equipment. IP set-top boxes are expected to be one of the fastest growing markets in 2010.
Management also remains upbeat about the recent legislative changes in China, allowing cable operators to offer voice and data services along with a nationwide push to increase HD broadcasting throughout China. This should result in a significant increase in orders for HD set-top box chipsets from Chinese customers.
Revenues increased 10% sequentially in the mobile and wireless segment due to the continued ramp up of cellular products and wireless combo chips. Shipments to customers like Samsung and Nokia (NOK) continue to be strong.
Enterprise networking segment reported a 15% growth, significantly stronger than management’s expectations driven principally by the continued improvement in customer order patterns in the Ethernet switching area.
In terms of product mix, product revenue jumped 70% year over year to $1.4 billion.
Gross margin declined to 52.5% from 53.1% in the previous quarter but was up from 47.7% in the year-ago quarter. Product gross margin came in at 50.5%, down from 50.9% in the previous quarter but up from 46.1% in the year-ago quarter.
The decline in gross margin was due to lower non-standard cost benefits and the costs related to the Dune and Teknovus acquisition. However, the 40 basis points (bps) decline was better than 100 bps expected by the management due to favorable mix in the quarter.
Net income came in at $210 million, or 40 cents per share compared to a net income of $59 million, or 11 cents in the previous quarter and a net loss of $92 million, or 19 cents in the year-ago quarter. Reported EPS easily beat the Zacks Consensus Estimate of 30 cents.
During the quarter, Broadcom generated $268 million of cash from operations and used $18 million in capital expenditures. Broadcom repurchased approximately 5 million shares for $154 million. The company also used $40 million in dividends and $117 million for Teknovus acquisition.
Broadcom ended the quarter with cash and marketable securities of $2.04 billion, up from $1.9 billion at the end of the previous quarter primarily due to strong cash generation.
Outlook
Going forward, management expects revenues to be up approximately 5% to 12% sequentially, implying a revenue guidance of $1.535 – $1.635 billion. The sequential growth is expected to be driven by broadband and mobile and wireless segments. The enterprise networking segment sales are likely to be roughly flat. Product gross margin is expected to be relatively flat.
Broadcom continues to benefit from improved year-over-year global demand and the secular trend of increasing need for data, video and multimedia. The recovery from the lull of 2009 has been quite strong for Broadcom.
In view of the expected strong recovery in the semiconductor industry and Broadcom’s market leadership position, we recently upgraded our rating to Outperform from Neutral.
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