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What Could Drive Broadcom’s 1Q17 Enterprise Storage Revenue

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Broadcom’s enterprise storage segment

In the previous part of this series, we saw that Broadcom (AVGO) is likely to witness seasonal weakness in its wireless revenue. This decline is likely to be offset by flat revenue from its wired segment and strong growth from its enterprise storage segment, which accounts for 14% of the company’s revenue.

The enterprise storage segment was created through the acquisition of LSI and PLX Technology. Broadcom is also acquiring Brocade Communications Systems (BRCD), which will increase the segment’s revenue contribution to 22% by the end of fiscal 2017.

The segment offers storage products such as HDDs (hard disk drives), server storage, and PCIe (peripheral component interconnect express) switches and bridges. The company competes with the likes of Cavium (CAVM) and Microsemi (MSCC) in this space.

A10_Semiconductors_AVGO_1Q17 storage revenue estimates

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Broadcom’s earnings from enterprise storage

As shown in the above graph, fiscal 4Q and 1Q are seasonally strong quarters for the enterprise storage segment, as demand for PCs (personal computers) increases. Broadcom supplies HDDs for PCs.

In fiscal 4Q16, Broadcom’s enterprise storage revenue grew 6% sequentially to $561 million, driven by strong demand for HDDs and RAIDCore’s box adaptive products. In fiscal 1Q17, the company expects the segment’s revenue to grow 20% sequentially to $673 million, driven by strong demand for its custom flash controllers. These controllers are used in SAS (serial attached SCSI[1.small computer system interface]), enterprise, and SSD (solid-state drive) technology. Rival Cavium reported 34.5% sequential revenue growth during the same quarter.

What’s driving growth in enterprise storage?

SSDs are replacing high-performance HDDs in enterprise computers and cloud data centers, and the demand for PCs is seasonally strong during the first fiscal quarter. Also, cloud customers are spending more on storage, which is increasing demand for Broadcom’s MegaRAID and SAS/server storage connectivity products.

Fueling this growth is the supply shortage in the flash memory market, which has increased NAND flash memory prices. This rise boosted Micron Technology’s (MU) NAND revenue by 26% sequentially in fiscal 1Q17. Next, we’ll look at Broadcom’s industrial segment.

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