Broadcom profit for important insight into prospects for chip demand, China risk

* Reports results Q3 2019 on Thursday September 12 after the closure

* Revenue expectation: $ 5.55 billion

* EPS expectation: $ 5.14

When Broadcom (NASDAQ 🙂 CEO Hock Tan speaks, investors cannot afford to ignore him. That is because the company he runs is considered an important barometer for the semiconductor industry because of his extensive customer base and a diversified product line.

For the same reason, the third quarterly report and conference call from the San Jose, California-based company will be viewed intensively by investors, who are eager to know if the broad weakness faced by chipmakers is about to hit the bottom.

Another reason why Broadcom's earnings are closely monitored: the company receives nearly half of its earnings from China, so its sales growth provides some clues as to how the US-China trade war is affecting its business. Huawei Technologies Co., which has been blacklisted by the US government, buys Broadcom switch chips that are an important part of the Chinese company's network equipment.

Broadcom is also a major supplier of chips to Apple (NASDAQ :), making his commentary on the demand prospects of the wireless market too important to ignore. Slow demand from data centers, another major source of customers for Broadcom, may also weigh on the company's profits tomorrow and will provide clues about Tan's forecast for the latter part of 2019.

Future perspectives keep investors involved

Analysts on average expect Broadcom revenue to be $ 5.55 billion this quarter, compared to $ 5.07 billion a year ago. The profit should rise to $ 5.14 share from $ 4.98. The chip maker maintains its 2019 revenue forecast of $ 22.5 billion. About $ 17.5 billion of that revenue will come from chips and $ 5 billion from infrastructure software, the company said in a statement last month.

Despite a number of strong headwinds on the demand side, Broadcom has succeeded in keeping investors enthusiastic about its future prospects. The stock, trading at $ 294.44 at the end of yesterday, has outperformed the reference index, up 22% in the last 12 months against the 17% expansion in the

The company's latest deal to buy Symantec's (NASDAQ 🙂 enterprise security unit – whose products help companies save their networks from hackers – is such a step that is likely to be the business offering of strengthen the company and further diversify its revenue base.

Bottom Line

Broadcom shares have shown some resilience due to the recent slow period for chip makers. In our opinion, the effects of the ban on Huawei and the macroeconomic risks are well reflected in the current price of the share. Any improvement in trade relations between the US and China, or a possible deal that also involves Huawei, would be a big plus for Broadcom.

Meanwhile, investors looking at tomorrow's earnings announcement should also focus on the company's vision for recovery in the second half of the month, cloud capex spending, and trends in smartphone units.

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