Broadcom Corp. (BRCM:US), a maker of chips that connect mobile devices to the Internet, fell the most in more than five years after issuing a revenue forecast that trailed analysts’ estimates amid slowing smartphone sales.
The shares tumbled 15 percent to $27.01 at the close in New York, the biggest drop since October 2007. The stock has dropped 19 percent this year, compared with a 24 percent gain for the Philadelphia Semiconductor Index.
Third-quarter sales will be $2.05 billion to $2.2 billion, the Irvine, California-based company said in a statement yesterday. Analysts had projected $2.25 billion, according to the average of estimates compiled by Bloomberg.
Broadcom’s products enable wireless connectivity in products such as Apple Inc. (AAPL:US)’s iPhone and iPad, and some of Samsung Electronics Co. (005930)’s Galaxy line of mobile devices. Broadcom’s forecast and a lack of chips that enable the latest cellular technology are causing concern that its largest business will struggle to deliver growth until next year, according to Craig Ellis, a San Francisco-based analyst at B Riley & Co.
“The modest growth in the outlook is well below what people would have expected,” Ellis, who recommends (BRCM:US) buying the stock, said. “It’s disappointing that there’s not consistent growth for them until the second half of next year.”
Chief Executive Officer Scott McGregor is also moving Broadcom into the market for baseband chips used to connect phones to cellular networks, an area dominated by Qualcomm Inc. (QCOM:US)
Broadcom has won Samsung as a customer for older types of technology, and is in a race with companies such as Intel Corp. (INTC:US) to challenge Qualcomm in the market for the latest high-speed connections known as long term evolution, or LTE.
“I think we need LTE to drive significant growth going forward,” McGregor told analysts on yesterday’s conference call. “We don’t see a material revenue event in the first half.”
Broadcom’s mobile and wireless business unit had $967 million of sales in the second quarter, down 3 percent from the preceding period, missing the company’s forecast for growth.
“Everybody, the company, and certainly me, were surprised by this pretty dramatic fall off,” said Ruben Roy, an analyst for Mizuho Securities USA Inc. He recommends buying the stock.
Smartphone makers including Samsung and HTC Corp. (2498) have reported earnings that missed estimates, causing concern that demand is slowing.
Broadcom’s stock has declined amid speculation that customers such as Apple and Samsung will either shift to competing products from Qualcomm, or start making their own connectivity chips. The two companies provide Broadcom with more than 30 percent of its revenue, according to supply-chain data (BRCM:US) compiled by Bloomberg.
The second-quarter net (BRCM:US) loss was $251 million, or 43 cents a share, compared with a profit a year earlier. Sales increased 6 percent to $2.09 billion. Profit, excluding an acquisition-related charge, was 70 cents. That compares with analysts’ projections for 69 cents on revenue of $2.11 billion.
Broadcom is also the largest maker of chips that run television set-top boxes supplied by satellite and cable TV service providers and has a division that sells chips for wireless phone network equipment.
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