Broadcom Sticks to Lowered 2019 Sales Forecast; Shares Slip

Ian King (Bloomberg) -- Broadcom Inc. reported modest quarterly sales growth and reiterated a muted forecast for the rest of the fiscal year, indicating the trade war between China and the U.S. is still suppressing demand for semiconductors.

Sales in the period ended Aug. 4 rose 9% to $5.52 billion, the San Jose, California-based company said Thursday in a statement. Before certain items, profit was $5.16 a share. That compares with average analyst estimates for per-share profit of $5.13 on sales of $5.52 billion, according to data compiled by Bloomberg.

Broadcom said it still expects revenue in fiscal 2019 to be $22.5 billion, a lowered projection it made in June. The company no longer gives quarterly predictions and instead updates its annual target at the end of each quarter. Shares declined about 1.3% in extended trading.

Chief Executive Officer Hock Tan has built a $100 billion company through a spate of acquisitions, including his purchase of part of Symantec Corp. for $10.7 billion in August. While Broadcom has one of the broadest reaches in the technology industry, that diversity hasn’t made it immune to the ongoing trade dispute between the U.S. and China and blacklisting of Huawei Technologies Co., which is hammering Tan’s semiconductor business.

“We believe demand has bottomed out but will continue to remain at these levels due to the current uncertain environment,” Tan said in the statement. There’s little visibility due to the trade war and no sense of a “sharp recovery around the corner,” he added on a conference call.

About half of the chips Broadcom sells are either used in China or sent through factories there on the way to becoming part of electronic devices sold around the world. Last year, Huawei accounted for about $900 million of Broadcom’s sales, Tan has said.

The chipmaker’s position as a major manufacturer of components for Apple Inc. and Samsung Electronics Co. means its orders are seen as a gauge of confidence in future demand from some of the world’s largest smartphone makers. 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.

Tan said that there is a “seasonal uptick” in demand for phone parts because of the launch of new models from his “large North American customer,” using his typical reference for Apple. Orders at this point are typical of the buildup ahead of a phone release, and sales of the devices will determine demand in the future. Apple’s iPhone 11 goes on sale Sept. 20.

Three months ago, Tan pared back his revenue forecast for the year, indicating that sales in each of the remaining quarters would be a billion dollars lighter than previously expected. That has held back Broadcom’s stock, which is up 18% this year, compared with a 39% advance by the Philadelphia Stock Exchange Semiconductor Index.

In the current circumstances, the company will prioritize paying down debt over buying back shares, Chief Financial Officer Tom Krause said on the conference call. Doing so is important to retaining the company’s investment-grade credit rating.

Net income in the fiscal third quarter declined to $715 million, or $1.71 a share, from $1.2 billion, or $2.71, a year earlier, Broadcom said. Chip unit sales were about $4.4 billion in the recent period, accounting for 79% of the company’s total revenue. They were down 4.7% from a year earlier.