Broadcom Gives Upbeat Forecast; Order Losses Hit Shares




 

(Bloomberg) -- Broadcom Inc. gave an annual sales forecast that signaled optimism that the chip industry has weathered the worst of the China-U.S. trade war, but shares dropped after the company said some units are losing orders, raising concerns about overall growth.Sales in fiscal 2020, which ends next November, will be $25 billion, plus or minus $500 million, the company said Thursday in a statement. That projection includes revenue from its purchase of a Symantec Corp. unit, and was in line with or better than estimates from some analysts who had also factored in that new division's contribution.

On a conference call with analysts, executives said Broadcom lost business from a big smartphone customer in one product area and warned that Wi-Fi chip sales will decline next year. The stock, which had gained on the initial report, slipped more than 2% in extended trading following the detailed outlook.

Chief Executive Officer Hock Tan has built the company into one of the biggest in the semiconductor business through a string of acquisitions, and is now expanding into software. That gives Broadcom one of the widest reaches in technology, with clients including Apple Inc. and Samsung Electronics Co. in smartphones and some of the top data-center operators for networking components. The evaporation of some business from one of those big phone makers will hold back revenue gains, and the company will tightly control its investment in wireless and industrial chips, Tan said on the call.

Apple is one of Broadcom's largest customers for smartphone components, and earlier this year the two companies struck a deal to supply Apple's products with radio frequency, or RF, chips for the next two years. Broadcom has also long supplied Apple with Wi-Fi components. But a wireless-charging component used in Apple's iPhone for a few years from Broadcom was replaced in newer models by a part from STMicroelectronics NV, according to breakdowns of the handset's parts by iFixit and others. That may be the lost business Broadcom disclosed.

The company is targeting total semiconductor sales of $18 billion in 2020, Chief Financial Officer Tom Krause said on the call. The company's core business -- chips used in networking, broadband and storage systems -- will grow about 7% to around $12 billion, he said. Wi-Fi chip revenue will decline from a total of $2.2 billion and mixed-signal chip revenue will drop by half to less than $500 million, he projected. The company is predicting enterprise software sales will rise to about $7 billion. Symantec revenue will grow from a base of around $1.8 billion, he said.

Sales in the fiscal fourth quarter of 2019, which ended Nov. 3, rose 6.1% to $5.78 billion, the San Jose, California-based company said. Before certain items, profit was $5.39 a share. That compares with average analyst estimates for per-share profit of $5.38 on sales of $5.73 billion, according to data compiled by Bloomberg.

Broadcom's market value has swelled to $130 billion following Tan's spree of deals, including his purchase of Symantec's enterprise security business for $10.7 billion last month. A big chunk of the company's products are used in China or sent through factories there on the way to becoming part of electronic devices sold around the world. Huawei Technologies Co., a Chinese equipment maker that has been called a security threat and was cut off from U.S. suppliers by the Trump administration, previously spent hundreds of millions of dollars a year on Broadcom chips.

Tan, who has been among the most vocal chip-industry leaders in calling out the impact of the trade dispute between the U.S. and China, trimmed Broadcom's revenue forecast earlier this year, shaving $2 billion from his original projections, citing declining orders amid the trade dispute. That's made Broadcom's stock a laggard. Its 29% gain this year compares with a 56% advance by the Philadelphia Stock Exchange Semiconductor Index.

(Updates with details of unit performance predictions starting in third paragraph.)

--With assistance from Mark Gurman.

To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net

To contact the editors responsible for this story: Jillian Ward at jward56@bloomberg.net, Andrew Pollack

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©2019 Bloomberg L.P.

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