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Which Broadcom Segment Will Benefit Most from the Merger?

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Jun. 8 2016, Updated 8:09 a.m. ET

Wired infrastructure product portfolio

In the previous part of the series, we saw that Broadcom (AVGO) reported revenues of $3.6 billion in fiscal 2Q16, driven by strong growth and increased exposure to the wired segment. We’ll now look at each of the four business segments of Broadcom starting with wired infrastructure, which is the company’s biggest segment.

The merger expanded Broadcom’s wired infrastructure portfolio significantly, increasing the segment’s revenue contribution from 23% in fiscal 2Q15 to 58% in fiscal 2Q16. The segment now consists of Avago’s custom networking, fiber-optic, and ASIC (application-specific integrated circuits) products. The segment also consists of Broadcom’s Ethernet switching and routing, optical, physical layer copper, and standard products, as well as its broadband products for set-top box, carrier access, and cable modem businesses.

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Wired segment’s fiscal 2Q16 performance

In fiscal 2Q16, wired revenue stood at $2.1 billion, which is a 439% YoY (year-over-year) growth. The company witnessed strong growth in Ethernet switching and routing sales, driven by demand for its new Tomahawk switching and Jericho routing platform from cloud service providers. Tomahawk network ASICs meet the 25G Ethernet standard preferred by hyperscale data centers of Google (GOOG) and Microsoft (MSFT). Recently, Arista Networks (ANET) adopted the Jericho routing platform.

Broadcom also witnessed strong demand for broadband products such as the set-top box as people started adopting Hawkeye Video. Broadband infrastructure products also reported growth driven by the continuing investment in fiber-to-the-home deployment in China and DSL and cable modem deployment in Europe (VGK).

Wired segment’s fiscal 3Q16 guidance

Fiscal 3Q16 results will give a comparable figure to determine revenue growth generated by the combined company. For fiscal 3Q16, Broadcom expects wired revenue to grow in low single digits on a quarter-over-quarter basis, driven by demand for broadband, switching, and routing products.

In the next part of the series, we’ll look at the performance of Broadcom’s wireless segment.

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