Broadcom (AVGO) is among the last semiconductor companies to post its quarterly earnings. The strong performance of Apple’s (AAPL) new iPhone 7 could be reflected in Broadcom’s upcoming fiscal 4Q16 earnings, which are due to release on December 8, 2016. This isn’t the only good news.
A month before its earnings release, Broadcom announced its acquisition of Brocade Communications Systems (BRCD) for a full cash consideration of $5.5 billion. Broadcom also revised its revenue guidance for fiscal 4Q16 to the higher end of its previous guidance.
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All this saw AVGO’s stock rise 4.8% between November 1 and 8, 2016. However, not everything is rosy for the communications semiconductor giant. On November 8, 2016, Donald Trump was elected as the next president of the United States, which saw AVGO’s stock fall 7.6% to $163.78 between November 8 and 14, 2016.
Trump is a vocal critic of technology and isn’t well liked by many tech giants. Although he hasn’t outlined any specific policies for the technology sector, his policies on trade and immigration could impact technology stocks, especially Apple.
Trump has proposed the levying of a 45% tariff on all goods imported from China (FXI) until the country agrees on fair trade deals with the United States. If Trump actually levies this tariff, China may impose a tax on US imports such as automotive imports and Apple’s iPhones, impacting smartphone sales.
Trump has also proposed the levying of a tax on American companies manufacturing overseas. Apple manufactures all its iPhones in China and sources its components from across the globe. Such a levy would further impact Apple.
Trump is also looking to restrict immigration. Nineteen percent of Apple’s US workforce is Asian. Any action taken by Trump in this area could also slow product development at Apple.
All three of these policies could spell trouble for Apple, Broadcom’s key customer. The chipmaker earns 10% of its revenue from Apple, and a slowdown in Apple’s sales could impact its wireless segment significantly.
Trump is also an advocate of increasing industrialization in the United States, which could bring strong growth opportunities for Broadcom’s industrial segment. Gains in the industrial segment wouldn’t be able to offset losses in the wireless segment, though, so despite its strong fiscal 4Q16 guidance and its acquisition of Brocade, AVGO’s stock fell following the election.
There’s some uncertainty regarding whether Trump’s America-first policy will affect acquisitions of American companies by overseas companies.
In this series, we’ll look at the impact of the Brocade acquisition on Broadcom’s earnings, along with the fundamental and industrial factors that could drive Broadcom’s growth in fiscal 4Q16.