Broadcom Stock Falls Despite Earnings Beat and Demand Bottoming

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Broadcom Stock Falls Despite Earnings Beat and Demand Bottoming Out

Broadcom stock fell in pre-market trading on Friday despite the chip maker beating earnings expectations.

The Silicon Valley-based company said weak chip demand had bottomed out but was unlikely to recovery yet as the market backdrop remained challenging.

The back story.

Things have seemingly conspired against Broadcom so far this year as U.S.-China trade tensions and a slump in chip demand have hit the company.

Apple (ticker: AAPL) is Broadcom’s largest customer and made up around a quarter of the chip maker’s revenue last year, while Huawei accounted for $900 million, or 4.3% of total revenue.

Softer iPhone demand and the Trump administration’s decision to blacklist Huawei earlier this year has also hurt the chip maker.

However, shares are still up 18% so far in 2019 as it continued its long term strategy to bolster its infrastructure software business, that helps firms streamline their internal operations, through acquisitions.

Last month Broadcom (AVGO) agreed to buy cybersecurity company Symantec ’s (SYMC) enterprise security business to bolster its infrastructure software footprint.

What’s new.

Chief executive Hock Tan said demand at its core semiconductor business had “bottomed out” but would remain at low levels due to the uncertain current environment.

The Silicon Valley-based company stuck to its full year guidance of $22.5 billion revenue, made up of $17.5 billion from semiconductor solutions and $5 billion from infrastructure software.

The company reported that net revenue in the third quarter rose 9% to $5.52 billion, in line with the FactSet consensus.

Profit from continuing operations rose to $2.28 billion, or $5.16 per share, against beating estimates of $5.13 per share.

Broadcom stock fell 1% to $297.68 at 9:08 a.m. in pre-market trading, while Dow Jones Industrial Average futures rose 77 points, or 0.3%. The iShares PHLX Semiconductor ETF (SOXX) was up 0.3% to $219.72 in pre-open trading.

Moving forward.

Apple’s three new iPhones, which the company unveiled earlier this week, will undoubtedly boost Broadcom, as will management’s claims that weak chip demand has bottomed out.

While demand may not recover just yet, the company’s infrastructure software strategy means it is well placed to grow while the environment remains challenging.


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