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Did Avago Beat Earnings Estimates before the Broadcom Merger?

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Avago Technologies’ final earnings before integration with Broadcom

The semiconductor industry’s largest merger of Avago Technologies (AVGO) and Broadcom was completed on February 1, 2016. The combined company is named Broadcom Limited (AVGO).

Broadcom did not release its fiscal 4Q15 earnings, but Avago Technologies announced that Broadcom’s revenue stood at $2.1 billion in fiscal 4Q15 and $8.4 billion in fiscal 2015. Avago Technologies recently released its earnings for fiscal 1Q16, which ended January 31, 2016. The results reflect the financial performance of Avago Technologies excluding the merged entity. As the merger was completed after the quarter ended, the combined company’s earnings will be visible in the fiscal 2Q16 earnings release.

Similarly, Intel (INTC) and NXP Semiconductors (NXPI) completed the integration of Altera and Freescale Semiconductor, respectively, in December 2015. Earnings of the combined companies will be visible in their next quarterly earnings release.

In this series, we’ll look at Avago Technologies’ fiscal 1Q16 earnings and the guidance of the combined company for fiscal 2Q16.

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Avago Technologies beats analysts’ estimates

In fiscal 1Q16, Avago Technologies’ revenue rose 8.3% YoY (year-over-year) to $1.8 billion, topping analysts’ estimate of $1.8 billion. Strong growth in the enterprise storage and wired segments was offset by declines in the industrial and wireless segments. The company was hit by slowing iPhone sales as it earns more than 10% of its revenue from Apple (AAPL) and Foxconn.

During the quarter, the company’s non-GAAP (generally accepted accounting principle) EPS (earnings per share) rose 15% YoY to $2.41, beating the consensus estimate of $2.30.

After the earnings release, the company’s shares rose 6.5% to close at $146.35 on March 4, 2016.

Profitability

On a non-GAAP basis, Avago Technologies’ gross margin rose from 59% in fiscal 1Q15 to 61% in fiscal 1Q16. Its operating margin improved from 41.6% to 44% over the same period. The margin improved as the company reduced its SG&A (selling, general, and administrative) expenses by 18% YoY.

Broadcom merger at a glance

The combined company, Broadcom Limited, has a comprehensive portfolio of communications semiconductors. The merger is expected to result in cost synergies of $750 million over the next six quarters.

You can gain exposure to the combined entities mentioned above through the VanEck Vectors Semiconductor ETF (SMH), which has holdings in 26 semiconductor stocks. It has 17.8% exposure to INTC, 7.5% exposure to AVGO, and 4.3% exposure to NXPI.

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