Broadcom Profit Tops Estimates; Stock Down On Weak Outlook

(RTTNews) - Chip maker Broadcom Corp. (BRCM) on Tuesday reported an increase in third-quarter profit, due mainly to higher gross margin and lower one-time expenses. Broadcom's earnings and revenue for the quarter came in well ahead of Wall Street expectations.

The chip maker provided a soft revenue outlook for the fourth quarter, sending its shares tumbling 8 percent in after-hours trade on the Nasdaq.

"Looking forward, we are taking the necessary steps to tightly manage the business while focusing on strategic initiatives, including LTE...," said Chief Executive Scott McGregor.

During the quarter, Broadcom initiated a restructuring plan to cut costs and focus on strategic areas. The plan includes job cuts of up to 1,150 employees, with some related to the acquisition of the Renesas Electronics business unit.

Irvine, California-based Broadcom posted a third quarter net income of $316 million or $0.55 per share, compared with $220 million or $0.38 per share last year.

Results for the quarter include a settlement gain of $75 million, stock-based compensation expense of $126 million, among other items. The prior-year period included stock-based compensation expense of $132 million and impairment charges of $48 million.

Excluding items, adjusted earnings for the third quarter were $460 million or $0.76 per share, compared with $476 million or $0.79 per share a year ago. On average, 33 analysts polled by Thomson Reuters expected earnings of $0.69 per share for the quarter. Analysts' estimates typically exclude special items.

Revenue for the third quarter edged up 0.8 percent to $2.15 billion from $2.13 billion in the prior year. Thirty-four analysts had a consensus revenue estimate of $2.13 billion for the quarter.

Gross margin for the quarter climbed to 51.4 percent from 49 percent last year.

For the fourth quarter, Broadcom expects revenue of $1.975 billion plus or minus 3 percent. Analysts currently expect revenue of $2.13 billion for the quarter.

The company expects gross margin for the quarter to drop 50 to 100 basis points sequentially.

Broadcom's customers include Apple Inc. (AAPL) and Samsung Electronics (SSNLF) and its chips are widely used in smartphones, computers and network equipments. Investors fear that soft economic conditions and a saturation in the smartphone market may impinge future sales.

Meanwhile, Broadcom is foraying into the market for baseband chips used to connect phones to cellular networks - an area where Qualcomm Inc. (QCOM) reigns supreme. Last month, Broadcom agreed to acquire LTE-related assets from Japanese chip maker Renesas Electronics Corp. (RNECF) for about $164 million. Broadcom expects the deal to be roughly neutral to adjusted earnings by the second half of 2014 and accretive in 2015.

Broadcom's stock closed Tuesday's regular trade at $27.14, down $0.18 or 0.66%, on a volume of 14.7 million shares. In after-hours, the stock slipped $2.24 or 8.25%, trading at $24.90. In the past year, the stock trended in the range of $23.25 - $37.85, on a three-month average volume of 10.99 million shares.