What to look for when Broadcom (AVGO) reports Q1 earnings?

Broadcom Inc. (NASDAQ: AVGO) is slated to report its first-quarter 2020 earnings results on Thursday after the market closes. The bottom line will be hurt by higher costs and expenses due to the continuous investment in product development and enhancement, both organically and through acquisitions.

The company will continue to make significant research and development expenditures in order to maintain its competitive position and to ensure a continuous flow of innovative and sustainable product platforms. Historically, the company’s revenue has typically been higher in the second half of the fiscal year than in the first half, primarily due to seasonality in wireless communications products.

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Broadcom sells products through its direct sales force and a select network of distributors and channel partners globally. The substantial majority of semiconductor sales come from distributors and OEMs, or their contract manufacturers. The company expects to continue to experience significant customer concentration in future periods.

The company faces macroeconomic weakness as the COVID-19 coronavirus outbreak continues to be impacting the stock markets around the world. This is likely to make Broadcom more difficult to accurately forecast revenue, gross margin, and expenses for the year as well as raise or refinance debt. The company is expected to stay safe by reaffirming its forecast for fiscal 2020.

Analysts expect the company’s earnings to drop by 4% to $5.33 per share while revenue will increase by 4% to $6 billion for the first quarter. The company had surprised investors by beating analysts’ expectations in all of the past four quarters. The majority of the analysts recommended a “buy” rating with an average price target of $347.68.

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For the fourth quarter, Broadcom reported a 24% dip in earnings due to weakness in the semiconductor solutions segment as well as higher costs and expenses. The top line increased by 6% backed by healthy results from the infrastructure software segment on the integration and performance of its CA business.

For fiscal 2020, the company expects revenue in the range of $24.5-25.5 billion and adjusted EBITDA in the range of $13.5-14.0 billion. The core semiconductor business is expected to return to year-over-year growth in the second half of the fiscal year. Broadcom expects to benefit from the integration of the Symantec Enterprise Security business into what is otherwise expected to be a stable infrastructure software segment in fiscal 2020.

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