Broadcom (AVGO) Remains Well Poised for Long-Term Growth

On Jun 8, Zacks Investment Research updated the research report on leading semiconductor manufacturer Broadcom Limited AVGO.

Broadcom had merged with rival Avago Technologies earlier this year. Headquartered in Irvine, CA, Broadcom has an extensive product portfolio, which serves multiple applications within four primary end markets, i.e., wired infrastructure, wireless communications, enterprise storage and industrial & others.

Growth Drivers

The company maintains an efficient global supply chain with a variable, low-cost operating model. Broadcom outsources a majority of its manufacturing operations, assembly and test capabilities, as well as some of its corporate infrastructure functions. Broadcom also aims at minimizing capital expenditures by focusing on internal manufacturing capacities, leveraging innovative materials and processes to protect intellectual property rights while outsourcing standard complementary metal oxide semiconductor processes. These enable the company to maintain sustainable revenue growth and expand margins.

The Semiconductor Industry serves as a driver, enabler and indicator of technological progress. The Internet of Things is creating newer avenues and is largely believed to be the next semiconductor growth opportunity with the potential for billions of connected devices. With one of the most diversified communications platforms in the industry, Broadcom remains well poised for healthy long-term growth.  

Impetus from Solid Q2 Results

Broadcom recorded solid second-quarter fiscal 2016 (ended May 1, 2016) results with healthy year-over-year improvements in revenues. Adjusted earnings for the quarter were $2.13 per share, which comfortably exceeded the Zacks Consensus Estimate of $2.00. Total quarterly GAAP revenue increased 119% year over year to $3,541 million but narrowly missed the Zacks Consensus Estimate of $3,550 million. The year-over-year upsurge in revenues was led by strong product cycles from switching and broadband, slightly offset by a fall in demand for hard disk drives and premium smartphones.

Broadcom has continuously increased the quarterly dividends since its inception. During second-quarter fiscal 2016, the company paid a dividend of 49 cents per share.  The company's board of directors further approved an interim dividend of 50 cents per share for third-quarter fiscal 2016.

Moving Forward

Synergistic benefits from the merger of Avago with Broadcom are likely to increase profitability through economies of scale and mutual sharing of manufacturing expertise, research and development costs and adjustment of staffing expenses. We remain encouraged by the healthy long-term growth potential of this Zacks Rank #3 (Hold) stock. Some better-ranked companies in the industry include Alpha & Omega Semiconductor, Ltd. AOSL, Himax Technologies, Inc. HIMX and On Track Innovations Ltd. OTIV, each carrying a Zacks Rank #2 (Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.Click to get this free report >>