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Broadcom Inc. AVGO reported second-quarter fiscal 2021 non-GAAP earnings of $6.62 per share, which beat the Zacks Consensus Estimate by 2.8%. Moreover, the bottom line increased 28.8% from the year-ago quarter’s levels.
Net revenues were $6.61 billion, up 15% from the prior-year quarter’s figures. Moreover, the top line surpassed the Zacks Consensus Estimate by 1.6%.
Beginning first-quarter fiscal 2020, the company clubbed reporting of revenues from Intellectual property licensing with the Semiconductor solutions segment. The company now reports in two segments — Semiconductor solutions and Infrastructure software.
Semiconductor solutions’ revenues (73% of total net revenues) totaled $4.82 billion, up 20% from the year-ago quarter’s levels. The upside can be attributed to higher demand for wireless solutions and continued momentum in networking and broadband solutions.
The company witnessed strength in networking end market with revenues up 10% year over year and contributed 32% to Semiconductor Solution revenues. The improvement in networking revenues came on the back of increased spending by telecommunication companies in modernizing infrastructure and enhancing Edge and core networks as well as higher cloud spending by data centers. Revenues in switching soared 30% on a year-over-year basis, owing to robust demand for Trident and Tomahawk 3 solutions.
In broadband end-market, revenues were up 28% year over year and contributed 18% to Semiconductor Solution revenues, courtesy of robust adoption of Wi-Fi 6 in next-generation access gateway with solid demand from telcos and other service providers for PON and cable DOCSIS products. Revenues from PON fiber, within the broadband carrier access business, witnessed revenue growth of 40% year over year. The segement continues to benefit from favorable work-from-home trends.
Revenues from wireless vertical surged 48% year over year and contributed 34% to Semiconductor Solution revenues, driven primarily by favorable year-over-year comparisons.
In server storage connectivity domain, revenues were down 16% year over year, on soft demand from enterprise customers. The end-market contributed 12% to Semiconductor Solution revenues.
Meanwhile, industrial and other contributed 4% to Semiconductor Solution revenues. Resales were up 34% due to stabilizing global automotive sector as well as macroeconomic recovery in China.
Infrastructure software revenues (27%) increased 4% year over year to $1.79 billion. The company is well-poised to gain from synergies from acquisitions of CA and Symantec’s enterprise security business.
Moreover, more than 90% of the bookings correspond to recurring subscription and maintenance.
Non-GAAP gross margin expanded 180 basis points (bps) on a year-over-year basis to 75%. The improvement can be attributed to higher revenue base.
Total operating expenses on a non-GAAP basis decreased 1% year over year to $1.15 billion, due to lower selling, general and administrative expenses. As a percentage of net revenues, the figure contracted 290 bps to 17.4%.
Non-GAAP operating margin expanded 470 bps from the year-ago quarter’s figure to 58%, which can be attributed to expansion in gross margin.
Adjusted EBITDA (excluding $133 million of depreciation) was $3.96 billion, contributing 59.9% to net revenues in fiscal second quarter.
Balance Sheet & Cash Flow
As of May 2, 2021, cash & cash equivalents were $9.518 billion compared with $9.552 billion reported as of Jan 31, 2021.
Broadcom stated that liability management endeavors undertaken in second-quarter fiscal 2021 in terms of refinancing and redeeming of existing debt by exchanging new notes, helped the company to extend its weighted average debt maturity to nearly ten years compared with nine years earlier. The weighted average interest rate is now pegged at 3.7% compared with prior-quarter’s figure of 3.8%.
As of May 2, 2021, long-term debt (including current portion of $278 million) was $40.438 billion compared with $41.932 billion as of Jan 31, 2021.
Broadcom generated cash flow from operations of $3.569 billion compared with $3.113 billion in the previous quarter. Capital expenditures totaled $126 million compared with the last reported quarter’s figure of $114 million. Free cash flow during the quarter was $3.443 billion compared with $2.999 billion in the prior quarter.
During the reported quarter, Broadcom returned $1.477 billion in form of dividends to shareholders during the fiscal second quarter. The company paid an additional $75 million cash dividend for mandatory convertible preferred stock.
On Jun 3, 2021, the company approved a quarterly cash dividend of $3.60 per share on its common stock, payable on Jun 30, 2021 to shareholders as on Jun 22, 2021.
For third-quarter fiscal 2021, the company anticipates revenues of $6.75 billion. The Zacks Consensus Estimate is currently pegged at $6.59 billion. Adjusted EBITDA is expected to be approximately 60% of projected revenues in fiscal third quarter.
Management expects wireless revenues to increase more than 30% on a year-over-year basis.
In broadband end-market, management expects to sustain double-digit year-over-year growth in revenues in fiscal third quarter.
In networking domain, the company expects revenues to increase in low double digits year-over-year basis.
Nevertheless, sluggishness in enterprise demand is likely to result in high single-digit decline in server storage revenues compared with the year-ago quarter. Notably, the company expects revenues from resales to register double-digit percentage year-over-year growth in fiscal third quarter.
In the fiscal third quarter, management projects Semiconductor Solutions business to register a similar year-over-year growth as fiscal second quarter.
For fiscal third quarter, revenues from Infrastructure software segment is expected to be up “at or better than mid-single-digit percentage” on a year-over-year basis.
Zacks Rank & Stocks to Consider
Currently, Broadcom carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader technology sector are Alphabet GOOGL, Advanced Micro Devices AMD and NVIDIA NVDA. Alphabet and NVIDIA sport a Zacks Rank #1 (Strong Buy) while AMD carries a Zacks Rank #2 (Buy).
You can see the complete list of today’s Zacks #1 Rank stocks here.
The long-term earnings growth rate for Alphabet, AMD and NVIDIA is currently pegged at 18.1%, 35%, and 17.6%, respectively.
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