Avago shares soar on strong fiscal 2Q

Shares of Avago get a boost from strong fiscal 2nd-qtr results, expectations of growth

Associated Press

NEW YORK (AP) -- Shares of Avago Technologies Ltd. jumped to their highest level in more than a year Thursday, after the maker of chips for iPhones and other mobile devices posted better-than-expected fiscal second quarter results and projected revenue growth for the current quarter.

THE SPARK: For the quarter ended May 5, Avago posted an adjusted profit of 61 cents per share, while revenue fell 3 percent to $562 million. Analysts polled by FactSet expected a profit of 58 cents per share on $557.2 million in revenue.

For the current quarter, the company said it expected sequential revenue growth of between 6 percent and 9 percent. Based on the second-quarter results, that implies third-quarter revenue of between $595.7 million and $612.6 million. Analysts expect $599.6 million.

THE BIG PICTURE: Avago President and CEO Hock Tan credited the company's strong second-quarter revenue to better resales at its distributors in its industrial business.

For the third quarter, Tan said the company expects broad-based improvement across all three of its end markets.

He said that the initial ramp of a product transition at a large smartphone manufacturer, a rebound in enterprise networking spending, as well as a continued uptick in demand from industrial markets, could result in sequential revenue growth in the "high single digits" on a percentage basis.

THE ANALYSIS: Jefferies analyst Mark Lipacis backed his "Buy" rating for Avago shares, attributing the stock's weak performance so far this year to its previous dependence on Apple Inc. for sales and worries about lower shipments and price pressures.

Lipacis noted that the company announced Samsung as a major customer for the first time, which he sees as a sign that the company's components will be broadly used in smartphones.

THE SHARES: Up $3.44, or 10 percent, to $37.87 in afternoon trading, after peaking at $38.23 earlier in the day and marking their highest price in more than a year.

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