Broadcom Runs Into Headwinds (BRCM, QCOM)

Broadcom Corporation (NASDAQ: BRCM) appears to have missed the mark on its earnings report, which is now looking much less like QUALCOMM Inc. (NASDAQ: QCOM) earnings last week.  There is some confusion on the street over what consensus reports were expecting.  Because only loose guidance was not offered, this one should probably be considered somewhat as unfinished business until the conference call.

It posted a record quarter in revenue of $1.604 billion, up 9.7% sequentially and up a sharp 54.3% compared to the same quarter a year ago.  The chip designer posted GAAP income of $0.52 EPS, and this is listed as $0.56 EPS on basic income.  Thomson Reuters estimates were $1.59 billion and $0.62 EPS.  Unfortunately to ad to confusion, outfits like Reuters published consensus revenue data while Barron’s noted that the ‘consensus’ was $0.46 (and noted that $0.62 EPS number ‘everyone else’ was using for the non-GAAP basis).

Guidance for Q3 was put at 6% to 12% revenue growth from this quarter, implying $1.7 to $1.8 billion in revenues.  Thomson Reuters had estimates of $1.67 billion for the quarter ahead.  Gross margins are expected to remain flat.

Broadcom ended with nearly $2.5 billion in cash and equivalents.

The only comment we have is that this was an exceptional record quarter with strong product demand seen in Broadband and Mobile & Wireless segments with the growth and margins driving profitable growth in 2010.  Scott McGregor, its President and CEO said, “We anticipate that increasing demand for communications solutions and market share gains will drive strong revenue growth for Broadcom in the third quarter.”  Unfortunately, that tells us very little above and beyond the very loose data offered here.

Shares closed 1.8% lower at $37.53 versus a 52-week range of $25.76 to $38.41, but shares are currently down 3.3% at $36.17 in the after-hours session.

UPDATE AT 6:00 PM EST: Broadcom’s press release was not a usual report compared to many earnings reports.  The company said in a telephone call that they beat earnings expectations, and there is still confusion over the company’s story versus what we had seen as consensus and versus what others had seen as consensus at $0.62 EPS on a non-GAAP basis.  It seems that Broadcom did not like that its stock was down initially, and perhaps it should clarify its GAAP versus non-GAAP data more clearly to avoid repeat confusion in the future.  Shares were down over 3% initially, but shares are now indicated up 1% in the after-hours prints.

JON C. OGG