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Apple Struggles Shed Light on Broadcom’s CA Takeover

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Jan. 24 2019, Updated 7:31 a.m. ET

CA to help shield Broadcom from Apple weakness

Earlier this month, Apple revised the outlook for its first quarter of fiscal 2019, reducing revenue guidance by as much as $9.0 billion. The company blamed weak demand for its iPhones as the reason behind the outlook revision. Broadcom (AVGO) sells a wide range of components to Apple including some of the chips used in making iPhones.

According to a Bloomberg report, about 25% of Broadcom’s revenue comes from Apple alone, indicating that weakness in Apple’s business can be a big blow to Broadcom. But after the acquisition of CA Technologies, Broadcom is expected to reduce its exposure to Apple. The Bloomberg report stated that Broadcom’s exposure will come down to a range of 15%–20% of revenue thanks to the acquisition of CA Technologies.

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Apple suppliers cut forecasts

As a result of weak iPhone demand, several large Apple suppliers have cut their revenue forecasts, highlighting the risks of substantial exposure to Apple. Apple suppliers Lumentum Holdings (LITE) and Qorvo (QRVO) lowered their revenue estimates for the December 2018 quarter by as much as $75 million and $60 million, respectively.

2019 revenue expected at $24.5 billion

Broadcom bought CA Technologies for $18.9 billion in a transaction that closed last November. Including the impact of CA Technologies, Broadcom is expecting to generate $24.5 billion in revenue in its fiscal 2019 compared to $22.5 billion projected by analysts. The company generated $20.9 billion in revenue in 2018.

Qualcomm (QCOM) generated $22 billion in revenue in its fiscal 2018, which ended in September. Qualcomm was a key supplier of wireless chips for Apple’s iPhones, but Apple switched to Intel (INTC) chips in the latest iPhones.

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