Has Avago's Growth Stalled Out?

On Wednesday, Avago Technologies (NASDAQ: AVGO  ) will release its latest quarterly results. Although the stock has largely treaded water over the past year, investors are concerned about troubling sales trends and their potential impact on the company's future.

Avago makes a variety of semiconductor chips that allow mobile devices to function more efficiently, with products including radio-frequency amplifiers and light and sound sensors. The company also has a fiber-optics business that makes important components and transceivers for network communications. Let's take an early look at what's been happening with Avago over the past quarter and what we're likely to see in its quarterly report.

Stats on Avago

Analyst EPS Estimate

$0.52

Change From Year-Ago EPS

(14.8%)

Revenue Estimate

$558.24 million

Change From Year-Ago Revenue

(3.3%)

Earnings Beats in Past 4 Quarters

4

Source: Yahoo! Finance.

Can Avago's earnings stay connected this quarter?
Analysts have cut back on their views of Avago's earnings by a large margin in the past few months, reducing their estimates for the April quarter by nearly a dime per share and making reductions to their full-year 2013 and 2014 calls by about twice that. The stock hasn't moved much in the interim, gaining less than 1% since the end of February.

Investors' concern about the current quarter began back in February, when Avago gave guidance that predicted a 2% to 5% sequential drop in net revenue compared to its January quarter. Given the fact that Avago's RF-related components are used in the iPhone 5, Avago's challenges seemed to be in line with those that many of its fellow iPhone-component providers have faced lately, given the phone's sales struggles.

But another part of the equation could have come from Qualcomm (NASDAQ: QCOM  ) , which announced an RF-module for LTE mobile devices that includes an integrated power amplifier. That poses a big threat to competitors Skyworks Solutions (NASDAQ: SWKS  ) and RF Micro Devices (NASDAQ: RFMD  ) as well as Avago, because if Qualcomm is able to integrate components that Skyworks, RF, and Avago currently sell separately, then it could lead to a huge loss in revenue for all three component-makers.

Avago, however, isn't betting all its chips on the mobile arena. The company bought CyOptics in April for $400 million, boosting its fiber-optics business and representing an attempt to grow in the highly promising enterprise data-center application arena. With Big Data initiatives increasing demand for enterprise networking and data products, Avago can hopefully use CyOptics' customer base to sell more optical components and grow that part of its business.

In Avago's quarterly report, watch to see how the company prioritizes its strategic vision in both parts of its business. Depending on the direction Avago goes, you should get a strong sense about how much the mobile market is changing and what role Avago sees for itself in the industry.

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