Leading chipmaker Broadcom Corp. (BRCM) is expected to report second quarter results on July 27, 2010. The company expects revenues to be up approximately 5% to 12% in the second quarter driven by strong growth in broadband and mobile and wireless segments. This implies a revenue guidance of $1.535 – $1.635 billion.
First Quarter Results
Broadcom reported strong results for the first quarter of 2010, driven by broad-based revenue growth propelled 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.
Net income came in at $210 million, or 40 cents per share compared to a net income of $59 million, or 11 cents per share in the previous quarter and a net loss of $92 million, or 19 cents per share in the year-ago quarter. The reported net income per share easily beat the Zacks Consensus Estimate of 30 cents.
Agreement of Analysts
For 2010 and 2011, 2 of 28 analysts covering the stock have increased their estimates while there was 1 revision in the opposite direction. Broadcom continues to benefit from improved year-over-year global demand and the secular trend of increasing need for data, video and multimedia processes. The top-line has steadily increased in the last four quarters.
For the June quarter, there was 1 upward revision and 1 in the opposite direction.
Magnitude of Estimate Revisions
The current Zacks Consensus Estimate is $1.83 for 2010. There were no revisions in either direction in the last 30 or 60 days. Broadcom has constantly been exceeding expectations. In the most recently reported quarter, the company’s earnings were 33.3% above the Zacks Consensus Estimate. On an average, Broadcom has come ahead of the Zacks Consensus Estimate by 115.35% in the last four quarters. The current Zacks Consensus Estimate for the June quarter is $0.45.
Our Take
The recovery from the lull of 2009 has been quite strong for Broadcom when it recorded a 71% year-over-year top-line growth in the first quarter of 2010 and an 8% sequential growth.
Broadcom successfully completed the transition of its products to low power 65 nanometer (nm) technology and now generates meaningful cash flow from this business, which will allow it to fund future products. Management is also on the lookout to leverage its research and investments in existing technologies to gain market share so that the company emerges stronger when the economy recovers.
In the last six months, the stock has had a good run, carving a steady growth path. However, we remain concerned about the pressure on margins due to the accelerated 65 nm ramps, which typically carry lower margins early in the product lifecycle. We think most of the positive factors have already been discounted at current price levels and see limited upside potential. Hence, we reiterate our Neutral recommendation.
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