Broadcom Corp. (BRCM:US) fell after the company forecast lower fourth-quarter revenue than analysts estimated and said it’s cutting as many as 1,150 jobs as demand slows for chips that connect mobile phones to the Internet.
The shares slid 2.9 percent to $26.36 at the close in New York. Sales will be about $1.98 billion, plus or minus 3 percentage points, the Irvine, California-based company said yesterday in a statement. That indicates revenue of $1.92 billion to $2.03 billion, while analysts on average (BRCM:US) predicted $2.13 billion, according to data compiled by Bloomberg.
While Broadcom dominates the market for chips that provide short-distance wireless connections in devices such as Apple Inc. (AAPL:US)’s iPhone and iPad, its struggle to roll out new cellular technologies has hurt its ability to grab more orders in smartphones. The lack of a chip that supports LTE, or long-term evolution, may tempt customers to switch business to rivals, said Alex Gauna, an analyst at JMP Securities in San Francisco.
“Right now they’re losing market share, but it’s not a cliff,” Gauna said. He has the equivalent of a buy rating (BRCM:US) on the stock. “What’s very clear now is that what the market wants is a road map to LTE.”
Broadcom shares (BRCM:US) have dropped 21 percent this year, compared with a 28 percent gain in the Philadelphia Semiconductor Index.
The company is eliminating employees to pare expenses, with a third of the reductions coming among workers gained with its acquisition of a Renesas Electronics Corp. business unit. Broadcom had a staff of 11,300 at the end of 2012, according to data compiled by Bloomberg.
Some of Broadcom’s 3G-chip customers are cutting inventory, and the company is facing “ferocious” price competition for that product, Chief Executive Officer Scott McGregor said on a conference call. Broadcom also needs to field LTE modems to help it regain some connectivity business because some phone makers, particularly those building cheaper handsets for markets such as China, prefer to buy both chips from the same provider, he said.
“Long-term, I believe this business is pretty vibrant,” said McGregor, who was asked whether Broadcom might consider giving up its efforts in cellular modems. “Near-term, we’ve got some headwinds.”
Third-quarter net (BRCM:US) income rose 44 percent to $316 million, or 55 cents a share, from $220 million, or 38 cents, a year earlier, Broadcom said. Sales were little changed at $2.15 billion. Excluding certain items, profit was 76 cents. On that basis, analysts had predicted profit of 68 cents and sales of $2.13 billion.
McGregor is moving Broadcom into the market for baseband chips used to connect phones to cellular networks, a business dominated by Qualcomm Inc. (QCOM:US) Earlier this month, Broadcom said it bought LTE-related capabilities from Japanese chipmaker Renesas, a move that some analysts took as an admission that the company’s in-house efforts to develop that technology have fallen behind schedule.
Apple and Samsung Electronics Co. are Broadcom’s two largest customers, together providing more than 30 percent of its revenue, according to a Bloomberg supply-chain analysis.
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