Broadcom Q3 earnings preview: What’s in the cards?

Nearly a month after clinching a deal to acquire certain software assets of Symantec (NASDAQ: SYMC), Broadcom (NASDAQ: AVGO) will be publishing its third-quarter results on September 12 at 4:15 pm ET. It is widely expected that the chipmaker would report earnings of $5.13 per share for the July-quarter, higher by 3% than in the year-ago quarter. Revenues are estimated to grow10% to $5.55 billion.

One of the main concerns of the management has been the export restrictions imposed by the government on Huawei, one of Broadcom’s leading customers, though the recent improvement in the US-China relations bodes well for the company. Like its peers in the semiconductor industry, Broadcom is seeing a general improvement in operations in 2019, after a relatively downbeat performance last year.

Positive Trend

In addition to the improved demand conditions in the market, the cyclical nature of the industry also adds to the positive momentum. The improvement in the macroeconomic backdrop since the previous quarter increases the chances of third-quarter results beating estimates, as they did in each of the trailing four quarters.

Also read: Is semiconductor industry returning to growth mode?

The fast-growing smartphone industry and the roll-out of 5G, which requires a steady supply of processors, brightens the long-term growth prospects. While analysts, in general, predict a strong year for the industry, some remain skeptical due to the uncertainties related to the trade war.

Past Performance

For the second quarter, the company reported mixed results that disappointed investors. Though earnings rose 7% to $5.21 per share aided by a 10% revenue growth, a marked decline in the core business segment Semiconductor Solutions and downward revision of full-year outlook spurred a stock selloff. The results also topped the Street view.

Last month, Broadcom acquired the struggling enterprise security business of cybersecurity expert Symantec for about $11 billion. The management expects cost synergies of about $1 billion from the combination a year after the completion of the transaction.

Competition

In July, rival chipmaker Intel (INTC) reported stronger-than-expected profit and revenues for the second quarter. Earnings moved up 2% annually to $1.06 per share, while revenues dropped 3% to $16.5 billion, mainly reflecting the softness in the data center business.

Related: Broadcom Q2 2019 Earnings Conference Call Transcript

After retreating from the record high in April, Broadcom shares witnessed significant volatility in the following weeks. The stock gained about 16% since the beginning of the year and 26% in the past twelve months.

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