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Is Broadcom’s Revenue Escaping the Seasonality Effect?

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Broadcom’s fiscal 1Q17 revenue

Broadcom (AVGO) has been actively carrying out acquisitions that will expand its product portfolio and make it a leader in complementary markets. These acquisitions doubled its revenue in 1Q17.

In 1Q17, Broadcom’s revenue rose 133.7% YoY (year-over-year) to $4.15 billion, beating the consensus estimate of $4.08 billion. This high growth was the result of 1Q16’s not including earnings from classic Broadcom.

On a sequential basis, Broadcom’s revenue fell 1.2% due to seasonal weakness in the Wireless segment. The company earned more than 10% of its 1Q17 revenue from Apple’s (AAPL) assembly partner, Foxconn.

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Broadcom’s 2Q17 revenue estimate

For 2Q17, Broadcom expects its revenue to remain flat at $4.1 billion, higher than analysts’ revenue estimate of $3.9 billion. Any major rise or fall in Broadcom’s revenue is largely due to seasonalities in the Wireless segment, as its Wired segment is stable. In the Wireless segment, weak demand from Apple could be offset by strong demand from Samsung (SSNLF), which has launched its flagship Galaxy S8.

The above revenue trend makes it evident that Broadcom’s diversified product portfolio has been reducing the effect of seasonal weakness in the first half of the year.

Removing the seasonal effect, the company’s revenue is likely to rise 16% YoY (year-over-year), indicating that the combined Avago-Broadcom company has grown in the last year. However, this strong double-digit growth is unlikely to sustain in the long run.

Long-term revenue estimates

Over the past five years, Broadcom’s revenue grew at a CAGR (compound annual growth rate) of ~41.5%. RBC Capital Markets expects the chip supplier’s revenue to rise 29% YoY to $17.2 billion in 2017. It expects this growth to slow to 6% YoY in 2018.

Broadcom’s long-term model has guided revenue growth at a CAGR of 5% over the next five years.

The company has also improved its profitability as it’s realized merger synergies. We’ll explore this in the next article.

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