Broadcom Beats on Q1 Earnings

Zacks

Leading semiconductor manufacturer Broadcom Corp. (BRCM) reported modest first quarter 2014 results buoyed by stronger-than-expected gross margin and stringent cost-cutting measures. GAAP net income for the reported quarter was $165 million or 28 cents per share versus $191 million or 33 cents in the year-ago quarter. The year-over-year decrease in earnings was primarily attributable to lower revenues.

Although GAAP earnings declined year over year, it exceeded the Zacks Consensus Estimate by 3 cents. Excluding non-recurring items, non-GAAP net income in the reported quarter stood at $318 million or 51 cents per share compared with $400 million or 65 cents per share in the year-earlier quarter.

Revenues

Revenues for first quarter 2014 were $1,984 million, down 1.0% year over year. However, quarterly revenues were above the Zacks Consensus Estimate of $1,962 million.

In terms of end markets, Broadband Communications revenues were up 2% on a sequential basis to $559 million primarily driven by higher-than-expected sales of both set-top box and broadband modem solutions. Mobile & Wireless segment revenues decreased 10% sequentially to $846 million. Revenues from the Infrastructure & Networking segment were up 35% year over year to $579 million due to continued growth in the switching business, particularly in the service provider and data-center markets.

Margins

GAAP product margin for the reported quarter decreased marginally to 49.4% from 49.6% in the prior-year quarter. Non-GAAP product gross margin, however, remained flat at 52.2%.

In order to streamline its costs and better align its resources as per strategic priorities, Broadcom initiated a global restructuring plan during fourth quarter 2013. This included retrenchment of up to 1,150 employees. Broadcom recorded restructuring costs of $17 million in the fourth quarter of 2013 in accordance with this plan and recorded $5 million in first quarter 2014.

Balance Sheet/Cash Flow

Broadcom generated $606 million in cash from operations in the reported quarter compared with $388 million in the previous year. The company ended the quarter with cash and cash equivalents of $2,254 million and long-term debt of $1.4 billion.

Guidance

Concurrent with the earnings release, management provided its guidance for second quarter 2014. Total revenue is expected within $2.0 billion and $2.1 billion. Product gross margin on a GAAP basis is expected to be up 100–200 basis points sequentially in the second quarter of 2014. Research & development and selling, general, and administrative expenses (:GAAP) are expected to be flat to up $20 million sequentially.

Broadcom expects a steady momentum in broadband in the coming quarters, driven by emerging market penetration and new technology adoption in developed markets. The company intends to deliver healthy LTE (Long Term Evolution) revenues in 2014, while focusing on data center innovation and next generation home video products with HEVC (High Efficiency Video Coding).

Broadcom presently has a Zacks Rank #3 (Hold). Other notable companies in the sector that are worth mentioning include Microchip Technology Inc. (MCHP), NXP Semiconductors NV (NXPI) and Inphi Corporation (IPHI), each carrying a Zacks Rank #2 (Buy).

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