Earnings Preview: What to look for when Broadcom (AVGO) reports Q1 results

Broadcom, Inc. (NASDAQ: AVGO) will be releasing its first-quarter results next week. Over the years, the company constantly broadened its portfolio beyond semiconductors to areas like enterprise software solutions, a strategy complemented by the recent acquisition of VMware.  

Broadcom’s stock grew an impressive 4% on Friday morning, soon after opening, and reached a new record high. It has been on an upward spiral for quite some time, and its value more than doubled in the past twelve months. Despite the high stock price, the company is unlikely to disappoint those investing in it now for the long term.

Dividend

Recently, the semiconductor firm’s board hiked the dividend by 14% to $5.25 per share, bringing cheer to shareholders, mainly to reflect an expected increase in cash flows related to the acquisition of VMware. The payout has increased at least once annually since the company started paying dividends more than a decade ago.

January-quarter results are expected to come on Thursday, March 7, at 4:15 p.m. ET. Analysts’ average estimate for first-quarter earnings, adjusted for special items, is $10.29 per share, which is slightly lower than the $10.33 per share reported a year earlier. Revenues are expected to be $11.72 billion in Q1.

Outlook

As Broadcom continues to grow into a diversified technology company, it looks well-positioned to benefit from the high demand for AI chips as well as enterprise software solutions. It is estimated that the rapid growth of the generative artificial intelligence market will accelerate sales of the company’s data center and networking chips in the coming years. At the same time, the secular growth of the cybersecurity and cloud market adds to the growth prospects of its infrastructure business.

“We are now refocusing VMware on its core business of creating private and hybrid cloud environments among large enterprises globally and divesting noncore assets. Reflecting the consolidation of a restructured VMware into our 2024 outlook, we forecast our fiscal year ’24 consolidated revenue to be $50 billion. We expect the integration to take about a year and will require close to $1 billion in transition spending, which will largely be done as we exit fiscal ’24,” said Broadcom’s CEO Hock Tan during a recent interaction with analysts.

A few months ago, Broadcom closed the acquisition of virtualization and cloud technology provider VMware for $69 billion. While the integration is progressing, the tech firm has initiated measures to streamline the business. As part of that, the company recently revealed plans to sell VMware’s end-user computing division, Carbon Black.

Q4 Results Beat

In the last quarter, both earnings and revenues topped expectations, as they did in every quarter in the past four years. Q4 revenues moved up 4% annually to $9.30 billion, driving up adjusted earnings per share to $11.06, which is up 6% YoY. The core Semiconductor Solutions segment expanded by 3%.

Shares of Broadcom traded up 5% on Friday afternoon, after staying flat during the week. In the past six months, the stock gained about 55%.