Shares of chipmaker Avago (AVGO 0.06%) have been on fire year to date, delivering a whopping 47% increase while the PHLX Semiconductor Sector Index (SOXX +0.91%) is only up a paltry 0.79%. This run-up is hardly unjustified; the company is diversified and is a powerful competitive force in the segments that it serves.
The chip stalwart recently reported its financial results and hosted a conference call to discuss those results as well as offer some insight into the health of the business. Here are three items from the earnings call that I found particularly interesting.
Avago could have had a bigger slice of the Apple pie this year, but ...
During the call, Avago CEO Hock Tan said that although Apple's (AAPL 0.47%) recently launched iPhone 6s/6s Plus devices generally feature greater radio frequency (RF) chip content -- to be clear, he didn't mention Apple by name but it is strongly implied that the phones in questions are the new iPhones -- Avago's dollar content in these new phones was about flat compared to what it was in the previous iPhones.
As it turns out, the company had to "walk away" from providing more chip content into the new iPhones due to manufacturing constraints.
"This will not happen again," Tan asserted.
To avoid such manufacturing constraints in the future, Tan says the company is expanding its manufacturing capacity for FBAR filters in the current fiscal year by 50%. He also indicated the company expects to be running its manufacturing facilities at "near full capacity" in support of "pre-build inventory to support anticipated new phone launches later in fiscal 2016."
On the call, one analyst wanted to know why Avago has confidence that the customer it had to "walk away" from supplying additional RF content will be back next year.
"We are very good at what we do and we are just about one of the very few people who can do what we say we do here," Tan said.
Tan also emphasized that he "took the pain to explain" the situation in order to let investors know this isn't a case of competitors "catching up" but rather the company's "inability capacity wise to meet all of their needs for this particular short window of time."
Growth in RF content for years to come
Tan said the company's long-term "expectation" for its wireless business is that it will grow RF content per smartphone at a 20%+ compounded annual growth rate (CAGR). The executive clarified later on in the call that this forecast refers specifically to dollar content.
Driving this increase in content are the additional complexities associated with newer, more advanced cellular technologies (i.e., carrier aggregation) as well as increases in the number of bands that smartphones can support, Tan explained.
If Avago can capture this content growth, then its revenues from wireless devices should continue to grow nicely in the years ahead.
Hey, how's that Broadcom acquisition going?
Earlier this year, Avago announced it would acquire fellow semiconductor giant Broadcom (NASDAQ: BRCM) in a deal worth $37 billion. The deal hasn't closed yet, but Avago management offered some insight into how the acquisition is progressing.
"I would like to mention that the Broadcom acquisition process continues to progress very smoothly and day one integration planning -- including identification of all key business leaders and supporting teams -- has been completed," said Tan.
Tan went on to state that Avago expects this deal to close early in the first calendar quarter of next year.
"In fact, we believe that we could present an integrated set of financial results starting with our second quarter of fiscal 2016," Tan added.
