Broadcom’s revenue guidance
Broadcom’s (AVGO) fiscal 2019 second-quarter earnings were in the spotlight last week, as the company slashed its full-year revenue guidance due to the US-China trade war and the Huawei ban. The guidance pulled down semiconductor stocks and dampened hopes for a recovery in the second half of the year.
Broadcom earns 74% of its revenue from Semiconductor Solutions and 26% from Infrastructure Software. In the second quarter of fiscal 2019, the company’s revenue fell 4.7% sequentially and the entire decline came from Semiconductor Solutions. On a YoY basis, Broadcom’s revenue rose 10%, and this growth was driven by the integration of CA Technologies at the start of fiscal 2019.
Broadcom’s Infrastructure Software business
At a time when the entire semiconductor industry is going through a downturn, Broadcom’s Infrastructure Software business is showing growth and mitigating the impact of the downturn. Its Infrastructure Software revenue rose 1% sequentially to $1.4 billion in the second quarter of fiscal 2019. This segment comprises of the mainframe, enterprise, and SAN (storage area network) businesses.
The company restructured CA Technologies’ business model of perpetual licensing, which goes on for several years, to a subscription that’s subject to renewal at specific intervals. The subscription model adopts a XaaS (everything-as-a-service) approach. Broadcom CEO Hock Tan targeted these subscription models at CA Technologies’ existing large enterprise clients.
Hock Tan’s strategy has started showing results, as it is seeing a large number of renewals, which is lifting booking dollars. In the first six months of the CA Technologies’ integration, Broadcom has renewed more than 20 large accounts, and it expects the number to increase in the next six months. The chipmaker maintained its full-year fiscal 2019 revenue guidance for Infrastructure Software at $5 billion despite a slowdown in SAN switching.
On the other hand, Broadcom cut its semiconductor revenue guidance by $2 billion for full-year fiscal 2019. Broadcom’s strategy to expand into software business, which generates stable revenue helped it mitigate the impact of a downturn and also helped it maintain its profits and cash flows.