Avago Technologies Ltd (NASDAQ:AVGO), a leading semiconductor device supplier to the wireless, enterprise storage, wired, and industrial end markets, today reported financial results for the fourth fiscal quarter and fiscal year ended November 1, 2015, and provided guidance for the first quarter of its fiscal year 2016.

Basis of Presentation

Avago’s financial results include results from LSI Corporation’s (“LSI”) continuing operations starting the third fiscal quarter of 2014, from PLX Technology Inc. starting in the fourth fiscal quarter of 2014, and from Emulex Corporation (“Emulex”) starting the third fiscal quarter of 2015, in each case from the date of their acquisition. 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.

Fourth Quarter Fiscal Year 2015 GAAP Results

Net revenue was $1,840 million, an increase of 6 percent from $1,735 million in the previous quarter and an increase of 16 percent from$1,590 million in the same quarter last year.

Gross margin was $997 million, or 54 percent of net revenue. This compares with gross margin of $884 million, or 51 percent of net revenue last quarter, and gross margin of $788 million, or 50 percent of net revenue in the same quarter last year.

Operating expenses were $483 million. This compares with $585 million in the prior quarter and $487 million for the same quarter last year.

Operating income was $514 million, or 28 percent of net revenue. This compares with operating income of $299 million, or 17 percent of net revenue, in the prior quarter, and $301 million, or 19 percent of net revenue, in the same quarter last year.

Net income, which includes the impact of discontinued operations, was $429 million, or $1.49 per diluted share. This compares with net income of $240 million, or $0.84 per diluted share, for the prior quarter, and $135 million, or $0.50 per diluted share in the same quarter last year.

The Company’s cash balance at the end of the fourth fiscal quarter was $1,822 million, compared to $1,354 million at the end of the prior quarter.

The Company generated $582 million in cash from operations and spent $106 million on capital expenditures in the fourth fiscal quarter of 2015. In addition, during that quarter, the Company realized $47 million in net proceeds from the sale of Emulex’s prior headquarters building.

On September 30, 2015, the Company paid a cash dividend of $0.42 per ordinary share, totaling $116 million.

Fourth Quarter Fiscal Year 2015 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 $1,853 million, an increase of 6 percent from $1,750 million in the previous quarter, and an increase of 15 percent, from $1,610 million, in the same quarter last year.

Gross margin from continuing operations was $1,149 million, or 62 percent of net revenue. This compares with gross margin of $1,063 million, or 61 percent of net revenue, last quarter and gross margin of $939 million, or 58 percent of net revenue, in the same quarter last year.

Operating income from continuing operations was $811 million, or 44 percent of net revenue. This compares with operating income from continuing operations of $733 million, or 42 percent of net revenue, in the prior quarter, and $636 million, or 40 percent of net revenue, in the same quarter last year.

Net income from continuing operations was $737 million, or $2.51 per diluted share. This compares with net income of $660 million, or $2.24per diluted share last quarter, and net income of $556 million, or $1.99 per diluted share, in the same quarter last year.

Fourth Quarter Fiscal Year 2015 Non-GAAP Results Change
(Dollars in millions, except EPS) Q4 15 Q3 15 Q4 14   Q/Q Y/Y
Net Revenue $ 1,853 $ 1,750 $ 1,610 +6 % +15 %
Gross Margin 62 % 61 % 58 % +1ppt +4ppt
Operating Expenses $ 338 $ 330 $ 303 +$8M +$35M
Net Income $ 737 $ 660 $ 556 +$77M +$181M
Earnings Per Share – Diluted $ 2.51 $ 2.24 $ 1.99 +$ 0.27 +$ 0.52

“We finished fiscal 2015 on a very strong note, delivering record levels of revenue and profitability in our recently completed fourth quarter. The LSI acquisition and the synergies we have been able to realize through its integration, as well as strong year on year growth in wireless revenues were significant contributors to our 2015 results” said Hock Tan, President and CEO of Avago Technologies Limited. “We are excited by the anticipated opportunities to further increase our earnings potential in fiscal 2016 following completion of our pending Broadcomacquisition.”

Other Quarterly Data

Percentage of Net Revenue* Growth Rates
Net Revenue by Segment Q4 15 Q3 15 Q4 14 Q/Q Y/Y
Wireless Communications 37 35 39 10 % 8 %
Enterprise Storage 35 34 29 9 % 38 %
Wired Infrastructure 20 21 22 2 % 7 %
Industrial & Other 8 10 10 -10 % -7 %
* Represents percentages of non-GAAP net revenue.
Key Statistics (Dollars in millions) Q4 15 Q3 15 Q4 14
Cash From Operations $ 582 $ 592 $ 381
Depreciation $ 58 $ 59 $ 51
Amortization $ 192 $ 197 $ 199
Capital Expenditures $ 106 $ 148 $ 189
Non-GAAP Days Sales Outstanding 50 42 42
Non-GAAP Inventory Days On Hand 68 67 70

Fiscal Year 2015 Financial Results From Continuing Operations

GAAP net revenue from continuing operations was $6,824 million, an increase of 60 percent from $4,269 million in the prior year. GAAP gross margin was $3,553 million, or 52 percent of net revenue, versus $1,877 million, or 44 percent of net revenue, in fiscal year 2014. GAAP operating income was $1,632 million compared with $438 million in the prior year. GAAP net income, which includes the impact from discontinued operations, was $1,364 million, or $4.85 per diluted share. This compares with GAAP net income of $263 million, or $0.99 per diluted share, in fiscal year 2014.

Non-GAAP net revenue from continuing operations was $6,905 million, an increase of 60 percent from $4,307 million in the prior year. Non-GAAP gross margin was $4,184 million, or 61 percent of net revenue, versus $2,421 million, or 56 percent of net revenue, in fiscal year 2014. Non-GAAP operating income from continuing operations was $2,926 million. This compares with $1,521 million in the prior year. Non-GAAP net income was $2,613 million, or $8.98 per diluted share. This compares with non-GAAP net income of $1,343 million, or $4.90 per diluted share, in fiscal year 2014.

Fiscal Year 2015 Non-GAAP Results Change
(Dollars in millions, except EPS)  2015 2014 Y/Y
Net Revenue $ 6,905 $ 4,307 +60 %
Gross Margin 61 % 56 % +5ppt
Operating Expenses $ 1,258 $ 900 +$ 358
Net Income $ 2,613 $ 1,343 +$ 1,270
Earnings Per Share – Diluted $ 8.98 $ 4.90 +$ 4.08

First Quarter Fiscal Year 2016 Business Outlook

Based on current business trends and conditions, the outlook for continuing operations for the first quarter of fiscal year 2016, endingJanuary 31, 2016, is expected to be as follows:

GAAP Reconciling Items Non-GAAP
Net Revenue $1,768M +/- $25M $12M $1,780 +/- $25M
Gross Margin 52.75% +/- 1% $150M 61.00% +/- 1%
Operating Expenses $472M $158M $314M
Interest and Other $84M $47M $37M
Taxes $30M $10M $40M
Diluted Share Count 289M 6M 295M

Projected reconciling items:

  • Non-GAAP Net Revenue includes $12 million of LSI intellectual property licensing revenue not included in GAAP revenue, as a result of the effects of purchase accounting for the LSI acquisition;
  • Non-GAAP Gross Margin includes the effects of $12 million of LSI intellectual property licensing revenue, and excludes the effects of $130 million of amortization of intangible assets, $7 million of share-based compensation expense and $1 million of acquisition-related costs;
  • Non-GAAP Operating Expenses exclude $53 million of amortization of intangible assets, $58 million of share-based compensation, $45 million of acquisition-related costs and $2 million of restructuring charges;
  • Non-GAAP Interest and Other excludes $47 million of ticking fees related to debt commitments for the pending Broadcom acquisition; and
  • $10 million provision at the Taxes line represents the tax effects of the reconciling items noted above.

Capital expenditures for the first fiscal quarter are expected to be approximately $140 million, which include the purchase of a fabrication facility in Eugene, Oregon for approximately $21 million. For the first fiscal quarter, depreciation is expected to be $61 million and amortization is expected to be $183 million.

The guidance provided above is only an estimate of what the Company believes is realizable as of the date of this release. The guidance also excludes any impact from any 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.

Avago will be meeting investors at the Barclays Global Technology, Media and Telecommunications Conference on December 9, 2015 in San Francisco. Avago will also be meeting with investors on January 5-7, 2016, at the 2016 International CES and presenting at the J.P. Morgan Tech Forum CES 2016 and the Citi Internet, Media and Telecommunication Tech Forum CES 2016 in Las Vegas. (Original Source)

Shares of Avago Technologies are up 4.38% to $138 in after-hours trading. AVGO has a 1-year high of $150.50 and a 1-year low of $89.72. The stock’s 50-day moving average is $123.53 and its 200-day moving average is $127.77.

On the ratings front, Avago has been the subject of a number of recent research reports. In a report released yesterday, Susquehanna analyst Chris Caso initiated coverage with a Buy rating on AVGO and a price target of $160, which represents a potential upside of 20.2% from where the stock is currently trading. Separately, on the same day, RBC’s Amit Daryanani reiterated a Buy rating on the stock and has a price target of $150.

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Chris Caso and Amit Daryanani have a total average return of 14.9% and 2.8% respectively. Caso has a success rate of 70.7% and is ranked #158 out of 3644 analysts, while Daryanani has a success rate of 56.3% and is ranked #919.

Overall, 9 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 $162.00 which is 21.7% above where the stock opened today.

Avago Technologies Ltd is engaged in manufacturing semiconductor products such as optoelectronics, radio-frequency and microwave components, and application-specific integrated circuits.