Please ensure Javascript is enabled for purposes of website accessibility

3 Key Insights from Broadcom Limited’s Earnings Call

By Ashraf Eassa – Mar 16, 2016 at 11:06AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A look at how this chip stalwart's major business segments are doing.

Broadcom provides chips that enable wireless charging. Image credit: Broadcom. 

Broadcom Limited (AVGO -1.34%) -- formed from the merger of Broadcom Corp. and Avago Technologies -- is one of the largest and most diverse publicly traded chip companies out there. It develops products for a wide range of end markets, ranging from enterprise-class switches all the way to Wi-Fi combo chips.

Broadcom management had quite a lot of insight to offer into its business on its most recent earnings call. In this article, I'd like to go over three key insights that I found particularly interesting.

What's going on with the wireless business?
Both "Avago Classic" and "Broadcom Classic" had strong positions in the market for wireless chips. Avago's strength is in RF chips (FBAR and power amplifier chips) while Broadcom's specialty is in Wi-Fi combo chips.

Per CEO Hock Tan, "product lifecycle related decline in demand" from Apple (AAPL 2.44%) will "continue to impact [Broadcom's] combined wireless revenue." All told, the company expects that in the current quarter, wireless revenue will make up approximately 23% of Broadcom's total revenue from continuing operations.

Tan made it clear, though, that the second quarter will represent the trough for Broadcom's wireless business for the remainder of fiscal 2016.

"We expect to start ramping up shipments late in our third quarter to support the increase in demand driven by the typical product cycle ramp at our North American customer," Tan said.

Wireless revenue is expected to benefit from two key factors, according to Tan. Firstly, unit demand should simply be higher sequentially but, more importantly, the company expects a "substantial increase in our content in this new next-generation [iPhone]."

In addition to a boost in units/content in terms of RF content, Tan also seemed confident that the new iPhone would bring a boost in wireless connectivity content, too.

"Classic Broadcom's combo, Wi-Fi, Bluetooth, GPS, and custom analog solutions will further add significantly to our content in these Tier 1 OEM-leading smartphones," said Tan.

How about enterprise storage?
Around 38% of "Avago Classic" revenue in the last quarter cane from enterprise storage applications. The segment saw 6% quarter-over-quarter growth, which Tan described as being "better than expectations."

Avago Classic apparently saw "strong demand" from "enterprise and near-line hard disk drives." Additionally, the company's server and storage connectivity business "also had a good quarter" as a result of flat RAID and SAS demand as well as growth in fiber channel.

Tan says that in the current quarter -- once Avago and Classic Broadcom's revenues are combined -- this segment will make up "approximately 17% of our total revenue from continuing operations."

A look at wired connectivity
Another major business for Broadcom is its wired connectivity business. For classic Avago, this segment has traditionally consisted of custom networking, ASICs, and fiber optic products. However, once the "Classic Broadcom" product portfolio is added, Tan says this segment will include Broadcom's Ethernet switching and routing chips, standard products, PHY, and optical standard products. Additionally, the segment will include classic Broadcom's broadband communication solutions for set-top boxes, cable modems, and carrier access.

As far as business trends go, Tan says that growth in the company's custom ASIC business to return in the second quarter as a result of "increasing shipments to wireless base stations and the start of a product ramp into the new data center switches."

Tan also indicated that the company's switching, routing, and physical layer products are "seeing an increase from enterprise demand." Broadband carrier access, as well as the company's set-top box businesses are also expected to grow.

"In aggregate, we expect second quarter revenues from [the] wired segment to be approximately 55% of our total revenue from continuing operations," Tan stated.

Ashraf Eassa has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.