In the previous part of the series, we learned that Broadcom (AVGO) reported better-than-expected revenue driven by strong demand from its wireless segment. Broadcom is a supplier of analog and digital semiconductor connectivity solutions. It’s divided its business into four broad segments based on end market: wired, wireless, enterprise storage, and industrial.
When Avago acquired Broadcom, the latter’s products were integrated into the former’s wired and wireless segments. While wireless is a highly seasonal market, the other three markets are stable. Let’s take a look at each of the four segments, starting with the wireless segment.
Wireless segment’s fiscal 3Q16 performance
In the wireless segment, Broadcom offers wireless connectivity and custom analog handset solutions, FBAR (film bulk acoustic resonator) filters, and power amplifiers.
In fiscal 3Q16, the segment’s revenue rose by 27% sequentially to $1 billion, accounting for 26.4% of the company’s revenue. This amount was higher than the company’s expectation of $990 million.
On the company’s fiscal 3Q16 earnings call, it stated that the growth was largely driven by a large North American smartphone customer that was transitioning to the next-generation platform, thus increasing Broadcom’s content per phone. This customer is believed to be Apple (AAPL) for three reasons:
- Apple is preparing to launch its next flagship product, the iPhone 7, in September 2016.
- Broadcom earns more than 10% of its revenue from Apple’s key assembly line, Foxconn.
- Broadcom has signed a multiyear supply agreement with Apple.
Broadcom also witnessed a continuous rise in demand from a large Asian handset customer. This customer is believed to be Samsung (SSNLF) for three reasons:
- Samsung recently launched its premium smartphone Galaxy Note 7.
- Broadcom largely caters to premium phones.
- Broadcom doesn’t have a strong presence in China (MCHI), as it sells to OEMs (other equipment manufacturers), which in turn sell products across the globe.
On the LTE (long-term evolution) front, the number of bands in LTE interconnectivity is increasing, thus increasing Broadcom’s content.
Wireless segment’s fiscal 4Q16 guidance
For fiscal 4Q16, Broadcom expects its wireless segment’s revenue to rise by more than 30% sequentially as Apple completes the production ramp-up of its new flagship phone. However, this growth will be partially offset by a fall in demand from the rollover of Samsung’s product cycle.
While things look bright for the wireless segment, there are no signs of growth in Broadcom’s wired segment.