Can you read smoke signals? Broadcom
The second-quarter report showed a perfectly respectable effort. Sales shot up 54% year over year to $1.6 billion, including a 10% increase from the first quarter. GAAP earnings multiplied manifold to $0.52 per share from $0.03 per share. Broadcom provides many types of networking and video processing chips. The company benefits when networking giants like Cisco Systems
But that's not the interesting part of this report. A quick look at the cash flow statement reveals some drastic changes to Broadcom's inventory balances as well as an unseasonably low increase in accounts payable. That should be enough to send you to the earnings call for further clues, and sure enough, there's a story there.
According to Broadcom CEO Scott McGregor, the company is holding an unusually large number of chips in warehouses right now, waiting to ship them out and charge for the products on demand. This practice, known as "hubbing," allows gadget manufacturers to manage their build-outs for hectic sales periods such as year-end holidays. It's starting kind of early this year, and Broadcom is doing more of it than usual.
Management talked itself warm about the sneak attack of this holiday rush and the "magnitude of new products and tape outs coming out of the company" in the third quarter. It's anyone's guess exactly what products we're talking about here, though: Broadcom supplies chips for a wide variety of consumer electronics and enterprise-class infrastructure equipment. Large customers range from Cisco and Alcatel-Lucent
Broadcom is a fabless chip designer and depends completely on Taiwan Semiconductor Manufacturing
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