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Avago Q4 EPS Gain Speeds Up For 6th Qtr

Avago Technologies reported its sixth straight quarter of accelerating earnings and revenue growth late Wednesday, spurred by chips for the iPhone 6 and expanded markets from its recent LSI acquisition.

The Singapore-based chipmaker said fourth-quarter earnings per share rose 124% to $1.99 a share excluding various items. Revenue surged 118% year-over-year to $1.61 billion.

Analysts polled by Thomson Reuters had seen adjusted EPS of $1.69 on $1.55 billion in sales for the quarter ended Nov. 2.

Avago was helped in part because more of its radio-frequency chips are going into Apple's (AAPL) latest smartphones, with demand stronger than expected, said Doug Freedman, analyst at RBC Capital Markets.

"Avago guided company revenues up 20% quarter over quarter on a 60% quarter over quarter wireless communications ramp, mostly driven by Apple," Freedman said.

Avago had guided those revenue figures in August, before the iPhone 6 models were released.

Avago forecast fiscal Q1 revenue to be sequentially flat to up 4%, implying revenue of $1.61 billion to $1.67 billion. That would be a yearly gain of about 131%. Analysts expected $1.51 billion.

Avago stock rose nearly 7% to 101.40 in after-hours trading. Shares closed up more than 3% to 95.13, hitting a new high. Avago has soared 80% in 2014.

Integrating, Divesting LSI

Traditionally, Avago (AVGO) has focused on the wireless communications, wired infrastructure and industrial markets. When Avago closed its $6.6 billion acquisition of LSI in May, management said the deal opened up opportunities in the enterprise storage market, enabling the company to expand and diversify its product offerings.

At the same time, Avago has sold off noncore LSI businesses. On Nov. 18, Avago completed a $650 million sale of LSI's Axxia Networking Business and related assets to Intel (INTC). That followed a sale of LSI's Accelerated Solutions Division and Flash Components Division to Seagate Technology (STX) for $450 million.

Avago CEO Hock Tan noted in a post-earnings conference call with analysts that noncore LSI businesses had annualized spend ing of roughly $200 million.

Avago plans to cut more than 1,100 jobs and realize various operating efficiencies of more than $200 million in cost synergies.

Tan said Avago is more than halfway through the integration process and expects to be largely finished by the end of fiscal 2015.

"The financial benefits from the integration program and divestiture from the noncore businesses have been achieved faster than we had originally planned and has definitely given us the flexibility to step up R&D investments in certain core businesses," Tan said.

Q4 earnings also included results from PLX Technology, which Avago acquired on Aug. 12.

Freedman said Avago's operating margin has kept rising as LSI costs are cut. But he doesn't want margins to get too big.

"We hope that costs are not cut to the point that the LSI business begins to lose market share to competitors, to the detriment of the longer-term business," Freedman said.