Broadcom’s business segments
From fiscal 2019 onward, Broadcom (AVGO) has changed its business reporting from four segments (Wireless, Wired, Enterprise Storage, and Industrial and Other) to two segments: Semiconductor Solutions and Infrastructure Software.
In the first quarter of fiscal 2019, Broadcom earned 76% of its revenue from the Semiconductor Solutions segment and 24% from the Infrastructure Software segment.
In the first quarter of fiscal 2019, the Semiconductor Solutions segment’s revenue fell 12% YoY (year-over-year) and 11% sequentially to $4.4 billion largely due to sharp declines in the Wireless and Enterprise Storage segments.
Broadcom’s Wireless revenue was hit by a 15% YoY fall in Apple’s (AAPL) iPhone revenue in the fourth quarter and the loss of some orders of radio frequency chips for iPhones to Qorvo (QRVO). An Investor’s Business Daily article citing Cowen analyst Matthew Ramsay stated that Broadcom earns more than 50% of its wireless revenue from Apple.
On Broadcom’s fiscal 2019 first-quarter earnings call, CEO Hock Tan stated that apart from the sharp declines in the Wireless segment, the Semiconductor Solutions segment had actually reported YoY growth driven by double-digit growth in networking in the quarter. In networking, Broadcom reported strong sales of optical components to cloud companies investing in 400-gigabit connections.
Broadcom’s guidance for Semiconductor Solutions
Broadcom expects its Semiconductor Solutions revenue to reach $19.5 billion in fiscal 2019. It expects the segment’s revenue to hit bottom in the second quarter of fiscal 2019 largely because of the Wireless segment. It expects growth to pick up in the second half driven by strong wireless and networking product cycles and a rebound in its broadband business.
Networking will see the volume production of its new products, the Tomahawk 3 switching chip and the Jericho2 packet processors. Wireless will see the increasing adoption of Wi-Fi and Bluetooth chips that support the new Wi-Fi 6 standard by Samsung (SSNLF) and most likely by Apple. However, Broadcom doesn’t expect any 5G growth opportunities to come before 2020, as its key customer, Apple, won’t launch 5G phones until then.
Next, we’ll look at Broadcom’s Infrastructure Software segment.
Broadcom's (AVGO) strategy of acquiring companies that generate high cash flows was evident in its CA Technologies acquisition.
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