Semiconductor supplier Broadcom (NASDAQ:AVGO) reported its fiscal second-quarter results after the market closed on June 7. Revenue and earnings continued to march higher, and the start of a massive share buyback program will help boost per-share earnings going forward. Broadcom management did express some concern over cautious component orders for the next iPhone, but the company still expects to produce strong revenue growth in the third quarter. Here's what investors need to know about Broadcom's second-quarter results.

Broadcom results: The raw numbers

Metric

Q2 2018

Q2 2017

Year-Over-Year Change

Revenue

$5.01 billion

$4.19 billion

19.6%

Net income attributable to common stock

$3.73 billion

$464 million

704.5%

Non-GAAP earnings per share

$4.88

$3.69

32.2%

Data source: Broadcom..

Broadcom's Strataxgs Trident chip.

Image source: Broadcom.

What happened with Broadcom this quarter?

  • GAAP net income was boosted by a $2.6 billion tax benefit during the quarter.
  • The wired infrastructure segment produced revenue of $2.30 billion, up 9% year over year.
  • The wireless communications segment produced revenue of $1.29 billion, up 13% year over year.
  • The enterprise storage segment produced revenue of $1.16 billion, up 63% year over year.
  • The industrial and other segment produced revenue of $263 million, up 21% year over year.
  • GAAP gross margin was 50.9%, up from 47.2% in the prior-year period. Non-GAAP gross margin was 66.6%, up from 63.1% in the prior-year period.
  • Cash from operations totaled $2.31 billion, up from $1.58 billion in the second quarter of 2017. Free cash flow was $2.12 billion.
  • Broadcom poured $1.5 billion into share repurchases in the six weeks ended June 1.
  • The company completed its redomiciliation from a Singapore company to a Delaware corporation on April 4.

Broadcom provided the following guidance for the third quarter of fiscal 2018:

  • Revenue of $5.047 billion, plus or minus $75 million, up from $4.46 billion in the third quarter of 2017.
  • Gross margin of 50.75%, plus or minus 1%, and non-GAAP gross margin of 66.5%, plus or minus 1%.
  • Guidance implies non-GAAP EPS of $4.81, up from $4.10 in the prior-year period.

What management had to say

Broadcom CEO Hock Tan commented during the earnings call on the company's outlook for its wired segment:

We also benefited from an increase in spending on broadband capacity expansion by service providers. In contrast, however, spending on video access and in the China optical markets remains sluggish. Turning to the third quarter Fiscal 18, we expect growth in wired revenue to continue, notwithstanding the ban on shipments to ZTE. We expect demand to remain healthy from cloud data centers and enterprise IT while broadband access remains robust.

Tan sees stronger wireless demand from Apple in the third quarter but weaker demand from Samsung:

Looking ahead to third quarter, we expect to see the beginning of seasonal second half ramp in demand from our large North American smartphone customer as they start to transition to their next generation platform. However, we expect this recovery to be offset by a decline in shipments to our large Korean customer. As a result, we're expecting our overall wireless revenue to be flat, maybe even slightly declined on a sequential basis for the third quarter.

Broadcom CFO Thomas Krause gave an update on the company's tax rate expectations: "As you may recall in connection with redomiciling the United States and as a result of the effects of US corporate tax reform, we had initially expected our effective cash tax rate on a steady state basis to be in the range of 9% to 11% per year. Following redomiciliation, we currently expect our cash tax rate for the balance for Fiscal Year 18 to be approximately 7% and our long-term cash tax rate to remain in the 9% to 11% range."

Looking forward

A combination of strong revenue growth and the start of rapid-fire share buybacks boosted Broadcom's per-share profits during the second quarter. The company's $12 billion share repurchase program announced in April is far from exhausted, so expect continued share buybacks over the next few quarters.

Recent reports that Apple is being conservative with component orders for the iPhones set to launch later this year could portend trouble for Broadcom, and Tan did comment during the earnings call that there is "some caution in the level of build." But we won't know exactly how this will affect Broadcom's results until later this year.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool recommends Broadcom Ltd. The Motley Fool has a disclosure policy.