On Aug. 24, chip giant Broadcom (NASDAQ:AVGO) reported its earnings for its fiscal third quarter and hosted a conference call to go over those results in more detail.
During that call, Broadcom management provided some insights into the business that current and potential shareholders should find helpful. Here are three items from the call that really stood out to me.
Great storage results, but mind the HDD correction
Broadcom CEO Hock Tan said that the company's enterprise storage business generated $735 million last quarter, making up 16% of the company's revenue during that quarter.
That figure, Tan indicated, represented 3% growth from the prior quarter and 39% growth from the same period a year ago.
"Growth in the quarter was primarily from our HDD products, while our server and storage connectivity businesses continue to hold up well," Tan said.
Broadcom, via its acquisition of chipmaker LSI back in late 2013, is one of two major vendors of hard disk drive controller chips.
The executive did have some words of caution for investors and analysts who might be tempted to extrapolate those kinds of growth rates out to future quarters, though.
"We do not believe this strength to be sustainable in hard disk drive and sure enough we expect a sharp decline in demand for our hard disk drive products in the fourth quarter," Tan said.
Though Broadcom is bracing for a correction in the hard disk drive market, management still thinks that its server and storage connectivity businesses will enjoy robust growth in the current quarter, so Broadcom's overall enterprise storage operating segment is expected to deliver "double-digit growth."
Solid results in wired connectivity
Broadcom's largest segment by revenue is its wired connectivity business, which Tan said generated $2.2 billion in revenue last quarter and made up 50% of Broadcom's total sales.
The $2.2 billion figure represented 5% quarter-over-quarter growth and 7% year-over-year growth. This isn't a huge growth business for Broadcom, but it's large, highly profitable, and still delivering a reasonable amount of growth.
"Overall, this was a very good quarter for the segment, driven by seasonal strength in set-top boxes and robust demand from data centers for both our merchant and custom silicon products," Tan said.
Offsetting this good news, Tan said, were signs of "softness in demand arising from Chinese operators" for Broadcom's "optical and broadband access products."
For the current quarter, then, Tan says that Broadcom is bracing itself for a sequential decline in its wired connectivity segment "arising from the seasonal weakness in demand for our broadband access products industrywide."
Tan likely added the comment about this being an industrywide phenomenon to assuage fears that this decline is Broadcom-specific (e.g., market share loss).
Year-over-year, though, Tan says that the wired business is poised "to continue to trend up very well."
The wireless ramp-up
Broadcom is a major vendor of wireless chips, with much of its wireless business coming from sales of components into the premium smartphones from Apple (NASDAQ:AAPL) and Samsung (NASDAQOTH: SSNLF).
Tan said on the call that Broadcom's wireless revenue last quarter clocked in at $1.3 billion (29% of Broadcom's revenue in the quarter), which was up 12% from the prior quarter and 27% from the same quarter a year ago.
"Third-quarter wireless growth was driven by the ramp from our large North American smartphone customer as they started transitioning to their next-generation platform," the executive said.
The "large North American smartphone customer" is understood to mean Apple.
Thanks to the ramp-up in unit shipments, coupled with what Tan calls a "large increase in Broadcom's total dollar content in this new platform," Broadcom expects "very strong sequential growth in wireless revenue" both sequentially and year over year in the current quarter.
Additionally, because Apple got started a little late in ramping up its production for the new iPhone models, Tan indicated on the call that wireless revenue in the following quarter should hold about steady with what the company expects to enjoy in the current quarter.