Could You See Broadcom’s Miss Coming?

Probably should have! Broadcom’s predictions seem to be at odds with the rest of the semi industry. Most chip companies lowered full year guidance last quarter, Broadcom AVGO 645.03 +10.07 +1.59% maintained their guidance. Then after other chip companies are predicting a 2nd half recovery, Broadcom today reduces their full year revenue guidance. Perhaps to be in line with what other chip companies have already concluded. Unfortunately this is irrationally bringing down the whole sector.

Who’s right? Obviously not Broadcom at the moment. They’re down over 6% today after reporting 2nd Quarter earnings of $5.21 per share on revenue of $5.5 billion. The consensus earnings estimate was $5.18 (whisper number was $5.35) per share on revenue of $5.7 billion.

The company said it expects fiscal 2019 revenue of approximately $22.5 billion. The company’s previous guidance was revenue of approximately $24.50 billion and the current consensus estimate is revenue of $24.40 billion for the year ending October 31, 2019. Which proves neither the company nor analysts can predict the future.

Broadcom also said it was taking a $2 billion annual sales hit due to the trade battle with China. The company has had quite the wild ride this year, starting from around $250 and reaching a high of over $320. The sell off in late April brought it down to begging year prices before rallying into it’s poor earnings.

The brokers following it are still pretty bullish, despite the obvious company lack of vision. Morgan Stanley has the lowest price target, maintaining equal-weight rating even though they’re price target is $250. That’s a 5% drop from current price, and not sure what time frame their looking for for this stock to rally đŸ™‚ to $250. The rest of the analysts have targets anywhere from $280 to Bank of America’s lofty $345 expectations (lowered from $370!). I want to be skeptical of the whole mess, but as I said above, their lowering of full year guidance now, although late in the game, probably puts them in the same shape as the rest of the Semi industry.

Despite their maintaining outlooks in the past, the company has under performed the overall semi industry, so there’s that as well. AMD has fallen nicely over the last week or so, perhaps a better place to be if you are looking to jump into semis.