[Overseas Stocks Spotlight] "Broadcom, Semiconductor Sector Annual Growth Resumption to Watch"

[Asia Economy Reporter Eunmo Koo] Samsung Securities evaluated Broadcom as having its benefits from data centers and 5G diluted due to excessive business diversification, but expects that the semiconductor division’s resumption of annual sales growth will serve as a catalyst for stock price revaluation.

Broadcom’s revenue for the third quarter of fiscal year 2020 (May to July) was $5.82 billion, a 5.5% increase compared to the same period last year, meeting consensus estimates. The semiconductor division saw networking and broadband revenues grow by 7% and 9% respectively compared to the previous quarter. The wireless components business declined an additional 4% quarter-over-quarter. Junho Moon, a Samsung Securities analyst, explained in a report on the 5th, “As announced during the fiscal year 2020 second quarter earnings conference call, this was due to the delayed launch of the new iPhone.” Overall semiconductor revenue grew 4.8% quarter-over-quarter, while the software division declined 6.6% quarter-over-quarter. Non-GAAP earnings per share (EPS) was $5.40, in line with consensus.

The company’s revenue guidance for the fourth quarter of fiscal year 2020 is $6.25 billion to $6.55 billion, exceeding the consensus of $6.2 billion. Broadcom expects the semiconductor division’s revenue to grow by the mid-double digits quarter-over-quarter, marking a turnaround point. Semiconductor revenue had declined year-over-year for seven consecutive quarters since the first quarter of fiscal year 2019.

By business segment, strong networking demand is expected to continue, increasing quarter-over-quarter. Analyst Moon said, “The wireless components business is expected to grow 50% in the fourth quarter due to the impact of the new iPhone launch,” adding, “Historically, the wireless components business experiences peak seasons in the third and fourth quarters due to new iPhone releases.”

Meanwhile, Broadcom expects broadband business to decline 10% quarter-over-quarter due to strong performance in the first half, and storage revenue to decrease by a high single digit due to reduced corporate investment. Conversely, the software division is expected to grow by a low single digit quarter-over-quarter.

Analyst Moon emphasized the need to focus on the semiconductor division’s resumption of annual sales growth. He analyzed, “While the S&P 500 and the Philadelphia Semiconductor Index are trading at 23 times 12-month forward price-to-earnings ratios (PER), Broadcom’s PER is undervalued at 15 times,” adding, “This is believed to be because excessive business diversification has diluted the huge momentum related to data centers and 5G.” He concluded, “Although there is no change in the business structure, the resumption of growth in the semiconductor business is expected to be a catalyst for revaluation.”

This content was produced with the assistance of AI translation services.