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Broadcom (AVGO) Q3 Earnings and Revenues Surpass Estimates
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Broadcom (AVGO - Free Report) reported third-quarter fiscal 2021 non-GAAP earnings of $6.96 per share, which beat the Zacks Consensus Estimate by 1.2% and jumped 29% year over year.
Net revenues were $6.74 billion, up 16.4% year over year and surpassed the Zacks Consensus Estimate by 0.3%. The year-over-year growth was driven by strong demand from hyper-cloud and service-provider customers.
Segmental Revenues
Semiconductor solutions’ revenues (74.1% of total net revenues) totaled $5.02 billion, up 19% year over year. The upside can be attributed to higher demand for wireless solutions and continued momentum in networking and broadband solutions.
The company witnessed strength in the networking end market with revenues up 19% year over year to $1.8 billion, accounting for 36% of Semiconductor solutions revenues. Networking revenues were driven by routing from service providers in the expansion of 5G networks for backhaul, metro, and call, as well as major share gains in ethernet network interface controllers within data centers.
In the broadband end-market, revenues were up 23% year over year to $910 million and contributed 18% of Semiconductor Solution revenues.
Revenues from wireless vertical surged 35% year over year to $1.4 billion and contributed 29% of Semiconductor Solution revenues.
In the server storage connectivity domain, revenues were down 9% year over year. The end-market contributed 13% of Semiconductor Solution revenues.
Industrial revenues of $205 million contributed 4% of Semiconductor Solution revenues.
Resales were up 55% year over year, driven by aggressive buying from OEMs in automotive, robotics, and renewable energy.
Infrastructure software revenues (26%) increased 9.7% year over year to $1.76 billion. Brocade grew 27% year on year, driven by the launch of new-generation Gen 7 Fibre Channel SAN products.
Operating Details
Non-GAAP gross margin expanded 80 basis points (bps) on a year-over-year basis to 75.1%. The improvement can be attributed to a higher revenue base.
Semiconductor solutions' gross margin expanded 110 bps year over year to roughly 70%, driven by favorable product mix and content growth in next-generation products in broadband and networking end-markets.
Infrastructure software gross margin expanded 125 bps year over year to 90%.
Research & development as percentage of net revenues declined 170 bps on a year-over-year basis to 13.6%. Selling, general and administrative expenses declined 100 bps on a year-over-year basis to 3.3%.
Non-GAAP operating margin expanded 360 bps on a year-over-year basis to 58.2%, which can be attributed to expansion in gross margin.
Balance Sheet & Cash Flow
As of Aug 1, 2021, cash & cash equivalents were $11.105 billion compared with $9.518 billion reported as of May 2, 2021.
Total debt (including current portion of $278 million) was $40.457 billion as of Aug 1, 2021 compared with $40.438 billion as of May 2, 2021.
Broadcom generated cash flow from operations of $3.541 billion compared with $3.569 billion in the previous quarter. Free cash flow during the quarter was $3.426 billion compared with $3.443 billion in the prior quarter.
During the reported quarter, Broadcom returned $1.6 billion in the form of dividends to shareholders during the fiscal third quarter.
Guidance
For fourth-quarter fiscal 2021, Broadcom anticipates revenues of $7.35 billion. Adjusted EBITDA is expected to be approximately 61% of projected revenues in the fiscal fourth quarter.
In the networking domain, the company expects revenues to increase in low double digits on a year-over-year basis. Server storage connectivity revenues are expected to be up low double-digit year over year.
Broadcom expects double-digit year-over-year revenue growth in broadband for the fourth quarter. The company expects strong design win momentum for WiFi 6E in the United States, driven by increased deployment of next-generation last-mile fiber connectivity to homes by service providers like AT&T (T - Free Report) , British Telecom and Deutsche Telekom.
Management expects wireless revenues to increase 25% on a year-over-year basis. Revenues from resales are expected to register 20% year-over-year growth.
In the fiscal fourth quarter, Broadcom expects its Semiconductor Solutions business to be up double digits on a year-over-year basis.
For the fiscal fourth quarter, revenues from the Infrastructure software segment is expected to increase mid-single digit on a year-over-year basis.
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Broadcom (AVGO) Q3 Earnings and Revenues Surpass Estimates
Broadcom (AVGO - Free Report) reported third-quarter fiscal 2021 non-GAAP earnings of $6.96 per share, which beat the Zacks Consensus Estimate by 1.2% and jumped 29% year over year.
Net revenues were $6.74 billion, up 16.4% year over year and surpassed the Zacks Consensus Estimate by 0.3%. The year-over-year growth was driven by strong demand from hyper-cloud and service-provider customers.
Segmental Revenues
Semiconductor solutions’ revenues (74.1% of total net revenues) totaled $5.02 billion, up 19% year over year. The upside can be attributed to higher demand for wireless solutions and continued momentum in networking and broadband solutions.
The company witnessed strength in the networking end market with revenues up 19% year over year to $1.8 billion, accounting for 36% of Semiconductor solutions revenues. Networking revenues were driven by routing from service providers in the expansion of 5G networks for backhaul, metro, and call, as well as major share gains in ethernet network interface controllers within data centers.
Broadcom Inc. Price, Consensus and EPS Surprise
Broadcom Inc. price-consensus-eps-surprise-chart | Broadcom Inc. Quote
In the broadband end-market, revenues were up 23% year over year to $910 million and contributed 18% of Semiconductor Solution revenues.
Revenues from wireless vertical surged 35% year over year to $1.4 billion and contributed 29% of Semiconductor Solution revenues.
In the server storage connectivity domain, revenues were down 9% year over year. The end-market contributed 13% of Semiconductor Solution revenues.
Industrial revenues of $205 million contributed 4% of Semiconductor Solution revenues.
Resales were up 55% year over year, driven by aggressive buying from OEMs in automotive, robotics, and renewable energy.
Infrastructure software revenues (26%) increased 9.7% year over year to $1.76 billion. Brocade grew 27% year on year, driven by the launch of new-generation Gen 7 Fibre Channel SAN products.
Operating Details
Non-GAAP gross margin expanded 80 basis points (bps) on a year-over-year basis to 75.1%. The improvement can be attributed to a higher revenue base.
Semiconductor solutions' gross margin expanded 110 bps year over year to roughly 70%, driven by favorable product mix and content growth in next-generation products in broadband and networking end-markets.
Infrastructure software gross margin expanded 125 bps year over year to 90%.
Research & development as percentage of net revenues declined 170 bps on a year-over-year basis to 13.6%. Selling, general and administrative expenses declined 100 bps on a year-over-year basis to 3.3%.
Non-GAAP operating margin expanded 360 bps on a year-over-year basis to 58.2%, which can be attributed to expansion in gross margin.
Balance Sheet & Cash Flow
As of Aug 1, 2021, cash & cash equivalents were $11.105 billion compared with $9.518 billion reported as of May 2, 2021.
Total debt (including current portion of $278 million) was $40.457 billion as of Aug 1, 2021 compared with $40.438 billion as of May 2, 2021.
Broadcom generated cash flow from operations of $3.541 billion compared with $3.569 billion in the previous quarter. Free cash flow during the quarter was $3.426 billion compared with $3.443 billion in the prior quarter.
During the reported quarter, Broadcom returned $1.6 billion in the form of dividends to shareholders during the fiscal third quarter.
Guidance
For fourth-quarter fiscal 2021, Broadcom anticipates revenues of $7.35 billion. Adjusted EBITDA is expected to be approximately 61% of projected revenues in the fiscal fourth quarter.
In the networking domain, the company expects revenues to increase in low double digits on a year-over-year basis. Server storage connectivity revenues are expected to be up low double-digit year over year.
Broadcom expects double-digit year-over-year revenue growth in broadband for the fourth quarter. The company expects strong design win momentum for WiFi 6E in the United States, driven by increased deployment of next-generation last-mile fiber connectivity to homes by service providers like AT&T (T - Free Report) , British Telecom and Deutsche Telekom.
Management expects wireless revenues to increase 25% on a year-over-year basis. Revenues from resales are expected to register 20% year-over-year growth.
In the fiscal fourth quarter, Broadcom expects its Semiconductor Solutions business to be up double digits on a year-over-year basis.
For the fiscal fourth quarter, revenues from the Infrastructure software segment is expected to increase mid-single digit on a year-over-year basis.
Zacks Rank & Stocks to Consider
Broadcom currently has a Zacks Rank #3 (Hold).
Apple (AAPL - Free Report) and Zscaler (ZS - Free Report) are better-ranked stocks in the broader computer & technology sector. Both carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Long-term earnings growth rate for Apple and Zscaler stands at 12.7% and 50.6%, respectively.