Semiconductor supplier Broadcom (NASDAQ:AVGO) reported its fiscal third-quarter results after the market closed on Sept. 12. Revenue was driven higher by acquisitions, but the semiconductor business remains in a slump that the company doesn't see ending soon. Broadcom maintained its full-year guidance, so it doesn't see demand getting any worse. But there's no telling when a meaningful recovery will take root.

Broadcom results: The raw numbers


Q3 2019

Q3 2018



$5.52 billion

$5.06 billion


Non-GAAP earnings per share




Data source: Broadcom.

What happened with Broadcom this quarter?

  • Semiconductor solutions revenue was $4.35 billion, down 5% year over year. Networking products performed well, but weaker demand for storage and broadband hurt sales. The wireless business is seeing a seasonal uptick driven by new devices and increased content per device.
  • Infrastructure software revenue was $1.14 billion, up 132% year over year. This growth was driven by the acquisition of CA Technologies, which closed in November of last year.
  • Intellectual property licensing revenue was $22 million, up from $3 million in the prior-year period.
  • On a GAAP basis, EPS of $1.71 was down 37% year over year. The GAAP figure includes stock-based compensation and amortization of acquisition-related intangible assets.
  • GAAP gross margin was 55%, up from 51.7% in the prior-year period. Non-GAAP gross margin was 71%, up from 67.3% in the prior-year period. The increase in software revenue from acquisitions drove gross margin higher.
  • Free cash flow was $2.31 billion, up from $2.13 billion in the prior-year period.
  • Broadcom spent $977 million repurchasing 3.5 million shares during the quarter.
  • The company declared a quarterly dividend of $2.65 per share, payable on Oct. 1 to shareholders of record on Sept. 23.
A circuit board.

Image source: Getty Images.

What management had to say

During the earnings call, Broadcom CEO Hock Tan commented on the company's outlook for next year:

Infrastructure software is stable as renewals among our core customer base continue to be very solid. However, visibility continues to be very limited on the semiconductor side. So we are managing the business with an expectation that we will continue to operate in a very low growth uncertain macro environment for the foreseeable future.

This uncertain outlook has led Broadcom to prioritize debt repayment, according to CFO Thomas Krause: "Especially in light of the weak macro environment we are seeing today, we're conscious of the risks that a more levered balance sheet creates and are very focused on managing those risks. As a result, we have started to transition our focus to deleveraging the balance sheet following the recent Symantec acquisition announcement."

Looking forward

Broadcom maintained its outlook for fiscal 2019. The company believes the semiconductor business has bottomed out, but it doesn't have much visibility on the timing of a demand recovery. The company expects:

  • Revenue of $22.5 billion, with $17.5 billion from semiconductor solutions and $5 billion from infrastructure software
  • GAAP operating margin of 14.75%, and non-GAAP operating margin of 52.5%
  • Guidance implies non-GAAP earnings per share of $22.38 based on the current share count

"[T]here is not much clarity or visibility yet or certainty that any sharp recovery is around the corner," said Tan during the earnings call.

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