Broadcom Retreats From Annual Forecast, Citing Trade Concern

Ian King (Bloomberg) -- Broadcom Inc. cut its annual sales forecast, indicating the trade war between China and the U.S. will wipe out a rebound in orders it had been predicting for the second half of the year.

Shares fell as much as 9% during pre-market trading in New York Friday.

Revenue will be $22.5 billion in the 2019 fiscal year, the San Jose-based company said Thursday in a statement. That compares with the prediction it gave three months ago of $24.5 billion and indicates that it expects to lose out on a billion dollars of revenue per quarter in the rest of the year.

Chief Executive Officer Hock Tan has built one of the world’s biggest chipmakers through a series of acquisitions that give the company one of the broadest reaches in the industry. About half of the company’s revenue last year went through China and Huawei Technologies Co. is one of its biggest customers. With the world’s two largest economies caught up in an escalating war of tariffs and blacklisting, Broadcom is one of a number of chip companies caught in the cross hairs.

“It is clear that the U.S.-China trade conflict, including the Huawei export ban, is creating economic and political uncertainty and reducing visibility,” Tan said on a conference call. “Our customers are actively reducing inventory levels.”

Last year, Huawei accounted for about $900 million of Broadcom’s sales, Tan said. Other companies are cutting chip orders on concern the trade standoff will take a deeper bite out of the economy, and that’s causing a “very, very, sharp and rapid contraction,” the CEO added. This is happening even though end demand for devices remains OK in Europe and the U.S., he said.

Tan said his reduced outlook is “very conservative” and attempts to capture the impact of threatened higher tariffs. His company’s outlook isn’t confined to its status as a supplier of China’s biggest hardware company. The chipmaker’s position as a manufacturer of components for Apple Inc. and Samsung Electronics Co. makes its orders a gauge of confidence in future demand from some of the world’s largest makers of smartphones. It’s also one of the leading suppliers of networking components used by large data-center operators such as Alphabet Inc.’s Google and Amazon.com Inc.’s cloud division.

Concern about exposure to China has weighed on the company’s stock this year. It’s up 11% in 2019 compared with a 21% advance by the Philadelphia Stock Exchange Semiconductor Index. The sector was hammered last year by slower orders from customers who built up unused stockpiles of parts.

The chipmaker has stopped giving quarterly forecasts and instead updates its longer-term prediction each quarter.

Sales rose 10% to $5.52 billion in the quarter ended May 5. That fell short of analysts’ predictions. Minus certain items, profit was $5.21 a share, compared with an average analyst estimate of $5.15 a share, according to data compiled by Bloomberg.