Huawei Ban and Demand Slowdown Hit Broadcom’s Fiscal 2019 Revenue

Broadcom’s fiscal 2019 second-quarter revenue

Broadcom (AVGO) is among the world’s top ten chipmakers by revenue. It has one of the most diversified communication chip portfolios. It designs semiconductors for telecommunications, mobile, TV, cable boxes, enterprise, and data center gear. Over the last two years, it entered the infrastructure software market by acquiring Brocade Communications, which provides data and storage networking solutions, and enterprise software firm CA Technologies.

Huawei Ban and Demand Slowdown Hit Broadcom’s Fiscal 2019 Revenue

Despite such a diversified portfolio, Broadcom was hit by the US-China trade war. Broadcom’s fiscal 2019 second-quarter revenue fell 4.7% sequentially to $5.52 billion, missing analysts’ estimates of $5.68 billion. The decline was driven by a 7% sequential decline in the semiconductor business, the wireless segment in particular, and weak demand for storage switching. These declines were partially offset by the growth in the software and networking business.

Broadcom’s revenue guidance

The above declines come even before the impact of the Huawei ban and increased tariffs came into effect in May. The Huawei ban will likely significantly impact Broadcom’s wireless business, as the Chinese company is one of its major customers. Huawei is also the world’s largest networking equipment supplier. The US ban is expected to slow the 5G rollout and reduce visibility for Broadcom’s customers, making them cautious with their purchases.

A ban on Huawei presents an opportunity for rivals like Ericsson, but it will take some time for rivals to secure design wins from telecom carriers. The overall picture is bleak for Broadcom, and the company has lowered its full-year fiscal 2019 revenue guidance by 7%, or $2.0 billion, to $22.6 billion.