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Broadcom (AVGO) to Report Q2 Earnings: What's in the Cards?

Zacks Equity Research

Broadcom AVGO is slated to report second-quarter fiscal 2020 results on Jun 4.

The Zacks Consensus Estimate for fiscal second-quarter revenues is pegged at $5.7 billion, indicating an improvement of 3.3% from the year-ago quarter.

We note that the Zacks Consensus Estimate for earnings has remained stable in the past 30 days at $5.13 per share. The figure suggests a decline of 1.5% from the prior year reported figure.

Notably, the company has surpassed the Zacks Consensus Estimate in the trailing four quarters by 0.72%, on average.

Broadcom Inc. Price and EPS Surprise

Broadcom Inc. Price and EPS Surprise

Broadcom Inc. price-eps-surprise | Broadcom Inc. Quote

Factors to Note

Strength in enterprise business and substantial customer base is expected to have aided Broadcom in expanding presence in infrastructure software space. This, in turn, is likely to have driven the fiscal second-quarter Infrastructure software revenues.

Besides, coronavirus crisis-induced work-from-home trend may have driven adoption of cloud-based infrastructure software solutions, which is likely to have contributed to revenues in the to-be-reported quarter.

Synergies from the acquisitions of CA and Symantec’s enterprise security business are anticipated to have benefited Broadcom’s fiscal second-quarter performance. Markedly, CA and Symantec’s enterprise security business contributed $880 million and $400 million to revenues in first-quarter fiscal 2020, respectively.

Notably, the Zacks Consensus Estimate for the Infrastructure Software segment revenues for the fiscal second quarter is pegged at $1.659 billion. In first-quarter fiscal 2020, Infrastructure software revenues improved 19% year over year to $1.667 billion.

However, lockdown measures to contain the spread of coronavirus in China and other Asian countries resulted in massive delays in production and created logistic issues for Broadcom. This is likely to have impacted the company’s Semiconductor Solutions segment performance in the fiscal second quarter.

Further, increase in costs in order to mitigate the supply chain risks, and investments in supply chain network mapping is anticipated to have limited margin expansion in the fiscal second quarter. Moreover, lack of raw materials and other components might have hindered the company’s ability to fulfill orders. This, in turn, is anticipated to have hampered revenues in the quarter under review.

Notably, the Zacks Consensus Estimate for the Semiconductor solutions segment revenues for the fiscal second quarter is pegged at $4.04 billion. Notably, in first-quarter fiscal 2020, Semiconductor solutions’ revenues totaled $4.19 billion, reflecting a decline of 4% on a year-over-year basis.

Nevertheless, incremental adoption of latest offerings including enterprise and residential suite of Wi-Fi 6E-compliant solutions might have aided segmental performance. During the quarter under review, Broadcom launched Emulex Fibre Channel Host Bus Adapters (HBAs) that will provide full support for VMware ESXi 7.0.

Markedly, Baidu BIDU adopted Broadcom’s Stingray Ethernet-based adapter, 100G SmartNIC, to boost server performance and utilization of its cloud platform. (Read more: Broadcom's Ethernet Adapters Adopted by Baidu Cloud)

Growing clout of its SmartNIC adapters, which are aiding Baidu Cloud to accelerate dynamic workloads in a cost-effective manner in a secure infrastructure, is anticipated to have contributed to Semiconductor solutions’ revenues in the fiscal second quarter.

However, growing expenses on product development and debt financing for strategic acquisitions amid stiff competition from peers including Qorvo QRVO and Xilinx XLNX in the semiconductor market may have limited the fiscal second-quarter margins.

Broadcom currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

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