This summary is based on the first quarter fiscal 2007 earnings call conducted by Broadcom Corp. (BRCM) on April 26, 2007.
President and Chief Executive Officer: Scott A. McGregor
Senior Vice President and Chief Financial Officer: Eric K. Brandt
Vice President of Investor Relations: T. Peter Andrew
Key Investors Issues
- The earnings per share fell from 31 cents in Q4 to 29 cents.
- The quarterly revenue dropped sequentially by $22 million to $901.5 million.
- The firm commenced a new share repurchase program under which it can purchase up to $1 billion of class A common stock over the next 18 months.
First Quarter Fiscal 2007 Financial Highlights
Revenue of $901.5 million was down $22 million or 2.4% from Q4 2006, but slightly ahead of the firm’s expectations.
In the February call, the firm had expected Q1 revenue could be approximately $890 million to $900 million. The firm had expected a seasonal decline in a more consumer oriented businesses, which was anticipated to be partially offset by growth in the network switching and certain areas of broadband business. As expected, enterprise networking business, switch business and FI business did grow in Q1, but this growth was offset by softness in sales of controllers due to excess inventory in the server and enterprise client areas and seasonal weakness in the consumer client space. With respect to broadband communications market, strong growth of DSL, digital TV and satellite products was somewhat offset by a decline in sales of cable set-top box solutions as one of the major customers shifted their mix to lower end set-top boxes in anticipation of the cable card initiative. In the mobile and wireless business, seasonal declines across the board were somewhat offset by growth in the voice business.
In terms of revenue distribution for Q1, broadband communications accounted for approximately 39% of total revenue, mobile and wireless for 30%, enterprise networking for 31%. In Q1, the firm once again had two customers who accounted for 10% or more of its revenue, Motorola and Cisco.
Non-GAAP gross margin of 52.1% was up 20 basis points from last quarter and slightly above our long-term model of 50% to 52%.
This was driven by better pricing as utilization rates at the fabs continue to come down.
Total non-GAAP operating expenses increased by 3.4 million over fourth quarter.
This was principally due to increased investments in R&D and other staff costs of roughly $8 million. This was offset by efficiencies in prototype and costs due to increased usage of multi-product wafers, or MPWs, for new products and a reduction in legal costs, as the firm wound down the equity award review and settled a number of suits with Qualcomm that were about to go to trial where spending typically ticks up.
The firm continues to move forward with its 65-nanometer platform.
As in Q4 2006, roughly one-third of the takeouts in Q1 were 65-nanometer. By Q4 2007, the firm expects almost 90% of its tapeouts will be in 65-nanometer. 65-nanometer is giving the firm a definite competitive advantage in terms of low power and the ability to integrate features and functionality that most of the competition cannot achieve because they simply do not have the product breadth. In addition, the expanded use of MPWs and other efficiencies have allowed the company to implement 65 nanometers more cost effectively.
Broadcom increased its total company head count in Q4 by 340 people to a worldwide head count of 5,573 people.
This includes over 4,000 employees in engineering or 73% of total head count. This is increased from approximately 68% two years ago.
Free cash flow was $181 million.
The cash and marketable securities on hand decreased by $239 million for the quarter to $2.56 billion, driven primarily by $425 million in share repurchase settled in the quarter. Consistent with Q4, strong positive cash flow was generated from operations, $222 million, with some benefit from proceeds from employee stock option exercises of approximately $57 million net. This was more than offset principally by repurchases of common stock, capital expenditures, which included the new Irvine campus, and the acquisition of Level 7 in the quarter.
Inventory for the quarter decreased by roughly $2 million to $200 million, which equates to 8.6 turns.
This is the third consecutive quarter with a reduction in inventory. This demonstrates the excellent work the operations team has done to adjust the supply in ever-changing environment. The turns level of 8.6 times remains well above the long-term goal of 7 to 8 turns.
