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Broadcom Posted Upbeat Earnings Amid Weakness: Here’s Why

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Broadcom beats expectations

In Broadcom’s (AVGO) fiscal 2019 second quarter, its EPS rose 6.8% YoY (year-over-year) to $5.21, beating analysts’ expectation by 0.9% despite weak chip demand. Its EPS fell 6.1% sequentially. The company has beaten Wall Street’s earnings estimates in the past six quarters.

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Earnings drivers

Broadcom’s earnings were boosted by its top-line growth, improved margins, share buybacks, and acquisition of CA Technologies. Broadcom initiated a $12 billion share buyback plan in April to compensate shareholders for its failed Qualcomm (QCOM) merger.

The company’s adjusted gross margin expanded YoY by 60 basis points to 72.0% from 66.6%, and its operating margin expanded by 460 basis points to 53.5% despite operating expenses rising 15.2% YoY.

Weakness ahead

Broadcom expects chip demand to weaken in the second half of the year. The Huawei ban, announced in mid-May, has pressured many semiconductor companies, and weak smartphone demand is expected to impact Broadcom’s wireless chip business. Broadcom supplies wireless chips to smartphone makers such as Apple and Samsung.

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