Broadcom shares rise due to strong sales forecast

Chipmaker Broadcom Inc. gave a strong sales forecast for next year thanks to heavy spending by cloud providers.

The company’s wireless business, a key Apple Inc. supplier, performed better than expected in the quarter that ended Nov. 4. Chief Executive Officer Hock Tan suggested that was driven by demand for older iPhones, but also warned of a “downtick” in the current quarter.

Revenue will be about $24.5 billion in the 2019 fiscal year, San Jose-based Broadcom said Thursday in a statement. Analysts had projected sales of $22.45 billion, according to data compiled by Bloomberg. The company has stopped giving quarterly estimates and will concentrate on annual forecasts, which will be updated each quarter.

“Our outlook for the semiconductor business is for moderate revenue growth,” said Tan said on a conference call with analysts referring to fiscal 2019. “We expect continued robust demand from cloud customers.”

While the outlook for iPhone sales is weighing on other chipmakers, Broadcom has maintained growth via strong orders from cloud providers such as Google and Inc. that are expanding their networks of data centers.

For the current quarter, total orders are “OK” and improving overall from the fourth quarter, Tan said.

Revenue from Broadcom’s wireless business fell from a year earlier, but it exceeded the company’s expectations because of “upside volumes of legacy phone generations from our North American customer,” Tan said, referring to Apple. He expects a “seasonal downtick,” in the quarter ending in late January — in line with what other chipmakers have reported.

Broadcom shares rose 4.7 percent in extended trading after the results. Earlier, the stock closed at $227.24 in New York, leaving them down 12 percent this year.

Broadcom’s main semiconductor business is used by analysts and investors as an indicator of the confidence major smartphone makers have in current demand and future products. The company’s Wi-Fi chips are part of leading models by Apple and Samsung Electronics Co.

The company’s products used in cloud-computing data centers are in high demand as that industry continues a massive expansion. Broadcom makes chips that control storage devices and also manufactures switch chips, the key component in machinery that directs traffic between server computers.

The benchmark Philadelphia Stock Exchange Semiconductor Index fell less than one percent Thursday on concern that the arrest of the chief financial officer of Huawei Technologies Co. will fuel a trade war between China and the U.S. The U.S. is home to half of the world’s top ten chipmakers. China is the largest market for semiconductors.

Net income was $1.12 billion, or $2.64 a share, in the fiscal fourth quarter, compared with $532 million, or $1.25 a share, a year earlier. Revenue rose 12 percent to $5.44 billion.

By division, wired infrastructure had sales of $2.2 billion, up 3 percent from a year earlier. Wireless communications revenue was $1.7 billion, down five percent over the same period a year ago. The enterprise storage unit reported sales of $1.3 billion, almost double last year’s total helped by an acquisition.

Now read: Shocking Huawei arrest threatens Trump-Xi trade truce

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Broadcom shares rise due to strong sales forecast