This summary is based on the first quarter fiscal 2008 earnings call conducted by Broadcom Corporation (BRCM) on April 22, 2008.
Management:
President and Chief Executive Officer: Scott McGregor
Chief Technical Officer and Co Founder: Henry Samueli
Chief Financial Officer: Eric Brandt
Vice President of Corporate Communications: Peter Andrew
Key Investors Issues
- EPS were 14 cents a share compared to 10 cents a share last year.
- Net income was $74.3 million compared to profit of $61 million for the year-earlier period.
- Revenue was $1.03 billion, up from $901.5 million a year ago.
First Quarter Highlights
Revenue was $1.032 billion including $35.6 million in revenue from Verizon was up 5 million or 0.5% from the fourth quarter 2007 and 15% form a year ago and was well above the upper end of the range provided on fourth quarter earnings call.
- GAAP gross margin was 53.4% up about 90 basis points from last quarter. Included in this number are the positive affect of the Verizon royalty of 170 basis points and a negative effect of stock-based compensation and amortization of purchased intangibles of 90 basis points.
- Total GAAP operating expense increased by 12 million over the fourth quarter. There were a number of one-time/acquisition-related elements.
- GAAP earnings per share were 14 cents per share. One-time and acquisition-related items represented approximately a 4 cents shift in the quarter. Excluding these one-time acquisition-related items Broadcom experienced EPS growth of 38% over the prior year.
- Stock-based compensation was $130 million or 21 cents of earnings. Of which, approximately 79 million or 7.6 points of revenue was in R&D, 29 million or 2.8 points of revenue in SG&A, and 5 million or 0.5 points of revenue in cost of goods sold.
- Cash flow from operations is strong $239 million.
- Cash and marketable securities on hand declined and stood at $2.2 billion, driven down primarily by $392 million in share repurchases settled.
In the mobile and wireless business, as anticipated, the company experienced seasonal decline in Bluetooth, wireless LAN, and mobile multimedia products.
- In addition, the company has included in this business the $35.6 million in Verizon royalties.
- In enterprise networks business grew, principally driven by continued solid growth in switching offset somewhat by the expected fall in Gigabit Ethernet Controllers.
Revenue distribution was as follows:
- Broadband communications was 35% of total revenue.
- Mobile and wireless, which includes the Verizon royalty was 35% of revenue and enterprise networking accounted for 30% of revenue.
- GAAP gross margin increased 90 basis points to 53.4%, which was mostly driven by positive product mix.
- GAAP operating expenses were up 12 million from fourth quarter levels. Included in this amount are the negative effects of settlement charges of $16 million, 12 million of which relates to today''s announced settlement with the SEC and in process R&D of $11 million related to acquisition of Sunext Design offset by the positive effects of an $8.5 million payment from Qualcomm for reimbursement of legal expenses in the San Diego case that lowered SG&A amounts. This totaled to a negative effect of $18 million.
- The company benefited from a $17 million sequential decrease in stock-based compensation and associated payroll tax expense. On a comparable basis to the guidance provided in January, assuming the company includes the non-recurring $8.5 million payment from Qualcomm with the other non-recurring expenses, operating expenses increased by $11 million, which was below the guidance of 13 to $18 million.
- R&D as a percentage of sales on a GAAP basis was 34.5% and decreased approximately 90 basis points. Included in this number is $79 million or 7.6 points of stock-based compensation expense.
The company increased total company headcount by 171 people including 20 from Sunext Design to a worldwide headcount of 6518 people, approximately 74% of which are in engineering.
- Total cash and marketable securities were down at $2.2 billion, as the company generated strong positive cash flow from operations of $239 million offset principally by share repurchase program.
- Inventory decreased by approximately $10 million to $221 million.
- GAAP inventory turns remained strong 8.7 times.
- Accounts receivable day sales outstanding decreased from 33 days to a record 32 days driven by good linearity. The company continues to believe the DSOs will return to normal levels at sometime during 2008.
- As previously announced last November a new $1 billion share repurchase program was approved by the Board of Directors. The company repurchased approximately 20 million shares at a cost of $400 million. On a GAAP basis there were 540 million shares outstanding.
Broadcom''s overall revenue growth was driven by strength within wireline oriented businesses and more specifically enterprise networking and broadband communications businesses.
- Revenue attributable to the enterprise networking market grew by 5% sequentially. This increase was driven by solid growth in switching and broadband processors offset somewhat by client Gigabit Ethernet Controller business.
- Over the last few years revenue from the enterprise networking market has been relatively flat due to products mix issues. However, revenue grew nicely and has the potential to continue to grow in the future. This potential growth is expected to be driven by demand from switching products.
