uploads///A_Semiconductors_AVGO_Q Wired revenue estimates

Wired Infrastructure Segment Protects Broadcom

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Feb. 24 2017, Updated 9:06 a.m. ET

Broadcom’s wired infrastructure segment

Earlier in this series, we saw that Broadcom (AVGO) has significantly increased its size through aggressive acquisitions. While these acquisitions have helped the company create a diverse product portfolio, its primary focus continues to be on connectivity solutions.

Broadcom’s biggest acquisition increased the combined company’s wired infrastructure segment revenue to 50% of its overall revenue. The wired portfolio includes custom networking, Ethernet switching, and routing to broadband products. The segment serves companies such as Cisco Systems (CSCO), Hewlett Packard Enterprise (HPE), and Dell. The segment competes with NXP Semiconductors’ (NXPI) Secure Interface & Infrastructure segment and Intel’s (INTC) networking segment.

A8_Semiconductors_AVGO_1Q17 Wired revenue estimates

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Wired infrastructure a more stable market

The wired infrastructure segment caters to long-term projects that generate stable revenue. Revenue is hard to predict as its demand depends on the need for more stations that support data. Although this segment is not a growth driver for Broadcom, it is a cushion in downtime—such as in fiscal 1Q17, when wireless revenue is expected to fall.

Earnings from the wired infrastructure segment

As shown in the above graph, Broadcom’s wired infrastructure revenue was $2.06 billion–$2.08 billion between fiscal 2Q16 and fiscal 4Q16. The revenue was driven by an increase in demand for networking ASICs (application specific integrated circuits) into data centers and fiber-optic products into access and metro networks.

The company expects the segment’s revenue to remain unchanged at $2.08 billion in fiscal 1Q17. Demand growth in fiber optics and cloud data center ASICs is likely to offset demand weakness in broadband carrier access and set-top boxes. ASICs have a long product life cycle, and they take some time to materialize into earnings. This revenue is the outcome of past share gains. NXP’s Secure Interface & Infrastructure revenue rose 1% sequentially during the same quarter.

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What could drive wired infrastructure segment’s future growth?

Broadcom is seeing growing demand for its new Jericho product line for aggregation and edge routing applications. The company expects an upgrade cycle in the set-top box business as pay-TV service providers move to provide 4K ultra-high-definition services, which require more advanced chips. This move could drive demand for the company’s satellite, cable, and IP (Internet protocol) set-top boxes in fiscal 2017.

Broadcom has partnered with AT&T (T) to develop innovative network hardware products in switching, routing, broadband access, and customer premises equipment. With this partnership, AT&T looks to enhance video and broadband delivery across its network. Next, we’ll look at Broadcom’s wireless communications segment.

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