Leading chipmaker Broadcom Corporation (BRCM) reported solid results for the second quarter of 2010, which beat both management and the Zacks estimates.
Broadcom generated revenues of $1.604 billion in the second quarter of 2010, up 54.3% year over year and up 9.7% sequentially. The results surpassed management’s revenue guidance of $1.535 – $1.635 billion and the Zacks Consensus Estimate (ZCE) of $1.592 billion.
The growth in revenues was powered by strong product demand from the Broadband and Mobile & Wireless segments, which were up 15% and 14%, respectively.
In terms of end-markets, the Broadband Communications segment recorded a 15% sequential growth, driven by strong demand for digital set-top boxes, digital TV and broadband access equipment. Broadcom stated that revenue growth momentum is expected to continue in the September quarter, driven by new product cycles and widespread adoption of high-definition (HD) pay TV services and increasing consumer preference for HD content. In particular, the company continues to gain market share in IP set-top box market in Europe an Asia.
The Broadband Access business saw strong sequential growth driven by consolidation of market share during 2009, resumption of carrier network upgrades and acceleration of VDSL [Very high bit-rate Digital Line Subscriber] deployments in North America and Europe. In China, carriers are rebuilding with new fiber-to-the-node networks.
The Mobile & Wireless segment registered a 14% sequential growth, driven primarily by the strength in the wireless segment and the ramping of a new GPS solution. Revenues from the wireless LAN portfolio grew more than 30% sequentially.
Revenues from the Infrastructure and Networking segment were flat sequentially but up 80% year over year.
On a product basis, product revenue grew 60.1% year over year to $1.55 billion. Income from the Qualcomm (QCOM) agreement came in at $51.6 million, up 23.2% year over year. License revenues came in at $5.7 million, down 10.7% year over year.
Margins
Gross margin improved to 52.6% from 50.1% in the year-earlier quarter due to product mix. The gross margin was essentially flat on a sequential basis. Product gross margin improved to 50.8% from 46.3% in the year-earlier quarter and 50.5% in the previous quarter.
Broadcom posted a net income of $278 million or 52 cents per share compared to a net income of $210 million, or 40 cents per share in the first quarter and a net income of $13 million or 3 cents per share in the second quarter of 2009. The reported figure easily beat the Zacks Consensus Estimate of 45 cents.
Balance Sheet
During the quarter, Broadcom generated $196 million of cash from operations, repurchased 4 million shares for $122 million and paid dividends of $40 million. At the end of the second quarter, cash and equivalents increased by $4.2 million to $2.0 billion.
Inventory turns declined to 6.2x from 6.9x in the previous quarter. Approximately 60% of the increase in inventory came from cellular baseband and mobile multimedia products, as Broadcom gears up for new product ramps in the third quarter. Excluding cellular inventory, inventory turns would have been approximately 7x.
Guidance
Going forward, Broadcom expects that increasing demand for communications solutions and market share gains will drive strong revenue growth in the third quarter. Broadcom projects revenues around $1.7 billion – $1.8 billion. End-market-wise, the Broadband segment is expected to record solid sequential growth. The Mobile & Wireless segment is estimated to be up significantly over last quarter driven by wireless connectivity and cellular baseband business.
Revenues from wireless connectivity devices is projected to grow phenomenally driven by strong demand of smartphones, tablets, netbooks and digital TVs. Sales from Infrastructure Networking should be roughly flat.
Gross margin is expected to be flat on a sequential basis. Inventory turns should return to Broadcom’s targeted range of about 7x.
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The growth in revenues was powered by strong product demand from the Broadband and Mobile & Wireless segments, which were up 15% and 14%, respectively.
In terms of end-markets, the Broadband Communications segment recorded a 15% sequential growth, driven by strong demand for digital set-top boxes, digital TV and broadband access equipment. Broadcom stated that revenue growth momentum is expected to continue in the September quarter, driven by new product cycles and widespread adoption of high-definition (HD) pay TV services and increasing consumer preference for HD content. In particular, the company continues to gain market share in IP set-top box market in Europe an Asia.
The Broadband Access business saw strong sequential growth driven by consolidation of market share during 2009, resumption of carrier network upgrades and acceleration of VDSL [Very high bit-rate Digital Line Subscriber] deployments in North America and Europe. In China, carriers are rebuilding with new fiber-to-the-node networks.
The Mobile & Wireless segment registered a 14% sequential growth, driven primarily by the strength in the wireless segment and the ramping of a new GPS solution. Revenues from the wireless LAN portfolio grew more than 30% sequentially.
Revenues from the Infrastructure and Networking segment were flat sequentially but up 80% year over year.
On a product basis, product revenue grew 60.1% year over year to $1.55 billion. Income from the Qualcomm (QCOM) agreement came in at $51.6 million, up 23.2% year over year. License revenues came in at $5.7 million, down 10.7% year over year.
Margins
Gross margin improved to 52.6% from 50.1% in the year-earlier quarter due to product mix. The gross margin was essentially flat on a sequential basis. Product gross margin improved to 50.8% from 46.3% in the year-earlier quarter and 50.5% in the previous quarter.
Broadcom posted a net income of $278 million or 52 cents per share compared to a net income of $210 million, or 40 cents per share in the first quarter and a net income of $13 million or 3 cents per share in the second quarter of 2009. The reported figure easily beat the Zacks Consensus Estimate of 45 cents.
Balance Sheet
During the quarter, Broadcom generated $196 million of cash from operations, repurchased 4 million shares for $122 million and paid dividends of $40 million. At the end of the second quarter, cash and equivalents increased by $4.2 million to $2.0 billion.
Inventory turns declined to 6.2x from 6.9x in the previous quarter. Approximately 60% of the increase in inventory came from cellular baseband and mobile multimedia products, as Broadcom gears up for new product ramps in the third quarter. Excluding cellular inventory, inventory turns would have been approximately 7x.
Guidance
Going forward, Broadcom expects that increasing demand for communications solutions and market share gains will drive strong revenue growth in the third quarter. Broadcom projects revenues around $1.7 billion – $1.8 billion. End-market-wise, the Broadband segment is expected to record solid sequential growth. The Mobile & Wireless segment is estimated to be up significantly over last quarter driven by wireless connectivity and cellular baseband business.
Revenues from wireless connectivity devices is projected to grow phenomenally driven by strong demand of smartphones, tablets, netbooks and digital TVs. Sales from Infrastructure Networking should be roughly flat.
Gross margin is expected to be flat on a sequential basis. Inventory turns should return to Broadcom’s targeted range of about 7x.
Read the full analyst report on "BRCM"
Read the full analyst report on "QCOM"
Zacks Investment Research
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