Broadcom Earnings Cheat Sheet: Higher Expenses Shrink Margins, Profit Declines

Rising costs hurt S&P 500 (NYSE:SPY) component Broadcom Corporation (NASDAQ:BRCM) in the second quarter as profit dropped from a year earlier. Broadcom Corporation manufactures semiconductors for wired and wireless communications.

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Broadcom Earnings Cheat Sheet for the Second Quarter

Results: Net income for the semiconductor company fell to $175 million (31 cents per share) vs. $278.3 million (52 cents per share) a year earlier. This is a decline of 37.1% from the year earlier quarter.

Revenue: Rose 11.9% to $1.8 billion from the year earlier quarter.

Actual vs. Wall St. Expectations: BRCM reported adjusted net income of 72 cents per share. By that measure, the company beat the mean estimate of 64 cents per share. Analysts were expecting revenue of $1.81 billion.

Quoting Management: “Broadcom delivered solid profitability in Q2 within our non-GAAP target model, with better-than-expected gross margins and record cash flow from operations,” said Scott A. McGregor, Broadcom’s President and Chief Executive Officer. “Looking forward, we see strong demand for our communications solutions, reinforcing that innovation is driving customer demand. We expect solid growth in revenue and profitability in Q3.”

Key Stats:

The company has enjoyed double-digit year-over-year percentage revenue growth for the past five quarters. Over that span, the company has averaged growth of 35.9%, with the biggest boost coming in the second quarter of the last fiscal year when revenue rose 54.3% from the year earlier quarter.

Last quarter’s profit decrease breaks a streak of four consecutive quarters of year-over-year profit increases. In the first quarter, net income rose 8.5% from the year earlier, while the figure increased more than fourfold in the fourth quarter of the last fiscal year, more than threefold in the third quarter of the last fiscal year and 1976.8% in the second quarter of the last fiscal year.

Gross margin shrank 1.4 percentage points to 51.2%. The contraction appeared to be driven by increased costs, which rose 15.2% from the year earlier quarter while revenue rose 11.9%.

The company has now beaten estimates the last two quarters. In the first quarter, it topped expectations with net income of 40 cents versus a mean estimate of net income of 35 cents per share.

Competitors to Watch: QUALCOMM, Inc. (NASDAQ:QCOM), Texas Instruments Inc. (NYSE:TXN), Analog Devices, Inc. (NYSE:ADI), NVIDIA Corporation (NASDAQ:NVDA), Marvell Tech. Group Ltd. (NASDAQ:MRVL), Intel Corporation (NASDAQ:INTC), Entropic Communications, Inc. (NASDAQ:ENTR), PMC-Sierra, Inc. (NASDAQ:PMCS) and Zoran Corporation (NASDAQ:ZRAN).

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(Source: Xignite Financials)