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Friday, January 30, 2009

Broadcom 4Q:2008 results

Broadcom exceeded revenue expectations for current quarter by roughly 40 mil, showing 1.13 bil in sales.  Gross margins came in 100-150 bps lower.  Guidance of 800-875 mil is well below the street’s 953 mil estimate and below the worst cases of 900 mil laid out in print.  Gross margins are expected to fall further as Verizon royalty payments begin to fall off next quarter.

The Skew:  While Broadcom has an impressive portfolio, downside risk seems significant.  Their success in wireless has been more challenging than the street seems to have factored into estimates.  Current weakness is due to inventory destocking in the channel.  Their financial statements are radically different from virtually every other company in the semiconductor universe.  While Broadcom is a fine trading vehicle, the confusing financial statements make it difficult to justify long-term holding.

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