Broadcom Ltd (NASDAQ:AVGO), a leading semiconductor device supplier to the wired, wireless, enterprise storage, and industrial end markets, today reported financial results for the second quarter of its fiscal year 2016, ended May 1, 2016, and provided guidance for the third quarter of its fiscal year 2016.
Broadcom Limited is the successor to Avago Technologies Limited (“Avago”). Following Avago’s acquisition of Broadcom Corporation(“BRCM”) on February 1, 2016 (the “Acquisition”), Broadcom Limited became the ultimate parent company of Avago and BRCM. Financial results for the fiscal periods prior to the Acquisition relate solely to the Company’s predecessor, Avago. Unless the context otherwise requires, references in this press release to “Broadcom,” “the Company,” “we,” “our,” “us” and similar terms are to Broadcom Limited from and after the effective time of the Acquisition and, prior to that time, to its predecessor, Avago. The financial results from businesses that have been classified as discontinued operations in the Company’s financial statements are not included in the results presented below, unless otherwise stated.
Second Quarter Fiscal Year 2016 GAAP Results
Net revenue was $3,541 million, an increase of 100 percent from $1,771 million in the previous quarter and an increase of 119 percent from $1,614 million in the same quarter last year.
Gross margin was $1,046 million, or 30 percent of net revenue. This compares with gross margin of $941 million, or 53 percent of net revenue in the prior quarter, and gross margin of $846 million, or 52 percent of net revenue in the same quarter last year.
Operating expenses were $2,047 million. This compares with $466 million in the prior quarter and $428 million for the same quarter last year.
Operating loss was $1,001 million, or 28 percent of net revenue. This compares with operating income of $475 million, or 27 percent of net revenue, in the prior quarter, and $418 million, or 26 percent of net revenue, in the same quarter last year.
Net loss, which includes the impact of discontinued operations, was $1,255 million, or $3.02 per diluted share. This compares with net income of $377 million, or $1.30 per diluted share, for the prior quarter, and $344 million, or $1.21 per diluted share in the same quarter last year.
Net loss attributable to ordinary shares was $1,186 million. Net loss attributable to noncontrolling interest (restricted exchangeable limited partnership units (“REUs”) in the Company’s subsidiary, Broadcom Cayman L.P. (the “Partnership”) was $69 million.
The Company’s cash balance at the end of the second fiscal quarter was $2,041 million, compared to $2,169 million at the end of the prior quarter.
The Company generated $622 million in cash from operations and spent $158 million on capital expenditures in the second fiscal quarter of 2016. During the quarter, the Company repaid $565 million of its outstanding term loans.
On March 31, 2016, the Company paid a cash dividend of $0.49 per ordinary share, totaling $193 million. On the same date, the Partnership, of which the Company is the General Partner, paid holders of REUs a corresponding distribution of $0.49 per REU, totaling$11 million.
Second Quarter Fiscal Year 2016 Non-GAAP Results From Continuing Operations
The differences between the Company’s GAAP and non-GAAP results are described generally under “Non-GAAP Financial Measures” below, and presented in detail in the financial reconciliation tables attached to this release.
Net revenue from continuing operations was $3,562 million, an increase of 100 percent from $1,782 million in the previous quarter, and an increase of 117 percent from $1,645 million in the same quarter last year.
Gross margin from continuing operations was $2,138 million, or 60 percent of net revenue. This compares with gross margin of $1,089 million, or 61 percent of net revenue, in the prior quarter, and gross margin of $998 million, or 61 percent of net revenue, in the same quarter last year.
Operating income from continuing operations was $1,329 million, or 37 percent of net revenue. This compares with operating income from continuing operations of $783 million, or 44 percent of net revenue, in the prior quarter, and $701 million, or 43 percent of net revenue, in the same quarter last year.
Net income from continuing operations was $1,120 million, or $2.53 per diluted share. This compares with net income of $710 million, or $2.41 per diluted share last quarter, and net income of $620 million, or $2.13 per diluted share, in the same quarter last year.
“We delivered solid second quarter revenue, while exceeding EPS expectations for our first quarter operating as a combined company. Our increased scale and diversity is already proving very resilient, with strong product cycles in our now largest segment, wired, offsetting weaker demand in our enterprise storage and wireless segments,” said Hock Tan, President and CEO of Broadcom Limited. “We are expecting a robust third quarter, led by strong growth in wireless revenue, and continued strength in wired networking, and remain confident in our ability to leverage earnings growth as we work towards full integration and achievement of our operating model.”
Third Quarter Fiscal Year 2016 Business Outlook
Based on current business trends and conditions, the outlook for continuing operations for the third quarter of fiscal year 2016, endingJuly 31, 2016 is expected to be as follows:
|Net revenue||$3,740M +/- $75M||$10M||$3,750M +/- $75M|
|Gross margin||43.75% +/- 1%||$599M||60.00% +/- 1%|
|Interest and other||$161M||$20M||$141M|
|Provision for (benefit from) income taxes||($88)M||($147)M||$59M|
|Diluted share count||419M||30M||449M|
- Non-GAAP net revenue includes $10 million of licensing revenue not included in GAAP revenue, as a result of the effects of purchase accounting for acquisitions;
- Non-GAAP gross margin includes the effects of $10 million of licensing revenue, and excludes the effects of $356 million of inventory step-up charges to record BRCM inventory at fair value, as part of the purchase accounting for the Acquisition, $210 million of amortization of intangible assets, $15 million of share-based compensation expense, and $8 million of restructuring charges;
- Non-GAAP operating expenses exclude $732 million of amortization of intangible assets, $206 million of share-based compensation expense, $36 million of restructuring charges, and $29 million of acquisition-related costs;
- Non-GAAP interest and other excludes $20 million of losses on extinguishment of long-term debt;
- Non-GAAP tax provision excludes $147 million tax benefit representing the tax effects of the reconciling items noted above; and
- Non-GAAP diluted share count excludes the impact of share-based compensation expense expected to be incurred in future periods and not yet recognized in the financial statements, which would otherwise be assumed to be used to repurchase shares under the GAAP treasury stock method.
Capital expenditures for the third fiscal quarter are expected to be approximately $230 million. For the third fiscal quarter, depreciation is expected to be $106 million and amortization is expected to be approximately $942 million.
The guidance provided above is only an estimate of what the Company believes is realizable as of the date of this release. Among other things, this guidance is based on an initial estimate of purchase accounting adjustments and allocations, all of which are subject to revision. The guidance also excludes the impact of any additional mergers, acquisitions and divestiture activity that may occur during the quarter. Actual results will vary from the guidance and the variations may be material. The Company undertakes no intent or obligation to publicly update or revise any of these projections, whether as a result of new information, future events or otherwise, except as required by law.
The Company’s Board of Directors has approved a quarterly, interim cash dividend of $0.50 per ordinary share. A corresponding distribution will also be paid by the Partnership, of which the Company is the General Partner, to holders of REUs, in the amount of$0.50 per REU.
The dividend and the distribution are both payable on June 30, 2016 to shareholders or unitholders of record, as applicable, at the close of business (5:00 p.m.) Eastern Time on June 17, 2016. (Original Source)
Shares of Broadcom are up 6.52% to $165.01 in after-hours trading. AVGO has a 1-year high of $159.65 and a 1-year low of $100. The stock’s 50-day moving average is $148.41 and its 200-day moving average is $140.29.
On the ratings front, Broadcom has been the subject of a number of recent research reports. In a report released yesterday, Oppenheimer analyst Rick Schafer reiterated a Buy rating on AVGO, with a price target of $170, which represents a potential upside of 9.5% from where the stock is currently trading. Separately, on May 31, Deutsche Bank’s Ross Seymore maintained a Buy rating on the stock and has a price target of $180.
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Rick Schafer and Ross Seymore have a total average return of 15.9% and 22.6% respectively. Schafer has a success rate of 69.6% and is ranked #17 out of 3896 analysts, while Seymore has a success rate of 75.2% and is ranked #10.
Overall, one research analyst has assigned a Hold rating and 22 research analysts have given a Buy rating to the stock. When considering if perhaps the stock is under or overvalued, the average price target is $177.11 which is 14.1% above where the stock opened today.
Broadcom Ltd. designs, develops and supplier of a broad range of analog and digital semiconductor connectivity solutions. It serves four primary end markets: wired infrastructure, wireless communications, enterprise storage and industrial & other. The company product’s includes data center networking, home connectivity, broadband access, telecommunications equipment, smartphones and base stations, data center servers and storage, factory automation, power generation and alternative energy systems, and displays.