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Broadcom Protected By Non-Cancellation Policy, Assures Genuine Chip Demand: Bloomberg

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Broadcom Inc (NASDAQ: AVGO) CEO Hock Tan raised concerns over a potential demand-supply imbalance upon semiconductor buffer build-up by customers via increased orders, Bloomberg reports.

Customers have reportedly ordered 90% of Broadcom’s 2021 supply, which has spiked from the expected levels of 25%. The semiconductor company has been studying its order backlog to be at par with the actual consumption of end products like smartphones and networking gear. Broadcom had enough production from its outsourced providers to meet its customer needs despite chip crisis concerns raised by noted chipmakers.

The alleged overstocking has raised the order delivery time to 14 weeks. Further, the overstocking could lead to order cancellations and reduced revenue for the chipmakers in the future.

Thus, Broadcom’s sustainability assurances were questioned throughout Thursday’s earnings call. The stock lost about 2.5% in extended trading.

Related News: President Joe Biden has pushed for $37 billion in funding from Congress to counter the U.S. semiconductor chip crisis.

Broadcom expects chip revenue to grow by 17% during the second quarter of FY21 despite seasonality in smartphone chip orders. The unusually high growth rate was acknowledged to be justified by Broadcom’s non-cancellation order policy. Broadcom expects Q1 revenue of $6.5 billion, above the analyst estimate of $6.33 billion.

Broadcom’s guidance insinuates potential demand for major technology companies like Apple Inc (NASDAQ: APPL), Samsung Electronics Co Ltd (OTC: SSNLF), and Alphabet Inc’s (NASDAQ: GOOG) (NASDAQ: GOOGL) Google.

Broadcom semiconductor solutions revenue rose 17% year-on-year to $4.91 billion, driven by a 14% organic growth in the first quarter of FY21, slightly below analyst estimate of $4.93 billion. EPS stood at $6.61 above the consensus estimate of $6.56, and closing cash and cash equivalents amounted to $9.6 billion.

Price action: AVGO stock is down 1.26% at $438 on the last check Friday.

Image Courtesy: Wikimedia

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