Broadcom (AVGO), with a broad connectivity portfolio, operates in diverse industries and competes with top technology companies in different sectors. Despite its broad portfolio, Broadcom earns more than 30% of its revenue from smartphones, mostly from Apple (AAPL). It supplies FBAR (film bulk acoustic resonator) filters for iPhones.
The acquisition of Brocade Communications Systems (BRCD) could help Broadcom reduce its dependence on the slowing smartphone market and increase its exposure to the more stable enterprise storage market. Let’s see what investors should expect from Broadcom’s fiscal 1Q17 earnings.
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Broadcom’s high exposure to Apple makes the overall company’s revenue seasonal. While fiscal 3Q and 4Q are strong quarters for Broadcom, fiscal 1Q and 2Q are weak quarters. In fiscal 4Q16, the company’s revenue grew 9% sequentially to $4.3 billion, driven by strong orders from Apple.
In fiscal 1Q17, Broadcom expects its revenue to fall 2% sequentially to $4.1 million. Seasonal decline in the wireless segment is expected to be offset by strong demand from cloud customers in enterprise storage, an uptick in industrial demand, and stable revenue from the wired infrastructure segment.
As Broadcom realizes merger synergies, its margins are growing. In fiscal 4Q16, its non-GAAP (generally accepted accounting principles) EPS (earnings per share) rose 20% sequentially to $3.47, on 9% sequential revenue growth. The company expects to improve its profit margins in fiscal 2017, which would further improve its EPS. However, EPS are likely to fall in fiscal 1Q17 as seasonal revenue fades.
Analysts estimate Broadcom to report EPS of $3.02 in fiscal 1Q17. In the past six quarters, the company has exceeded analysts’ estimates by an average of 5.2%. If the company maintains this trend, it could report EPS of $3.18 in fiscal 1Q17.
Next, we’ll look at the company’s profitability. You can gain exposure to Broadcom and its customers by investing in the SPDR S&P 500 ETF (SPY), which has holdings in US equities listed on the S&P 500. It has 0.76% exposure to AVGO and 3.3% exposure to AAPL.