This summary is based on the third quarter fiscal 2007 earnings call conducted by Broadcom Corp. (BRCM) on October 23, 2007.
Management:
President and CEO: Scott McGregor
CTO and Co-founder: Henry Samueli
Chief Finance Officer: Eric Brandt
VP, Corporate Communications: Peter Andrew
Key Investors Issues
- Revenue was $950 million, up 5.2% from the prior year.
- Net income dropped 74.8% to $27.8 million, or 5 cents a share.
- The firm continued to introduce several new products into the market winning business from major clients.
Year-to-date Highlights
- Net revenue was $2.749 billion, an increase of 0.2% compared with the $2.744 billion reported in the prior year.
- Net income was $123 million or 21 cents per share, down 63% from $334 million, or 57 cents per share in 2006.
- Research and Development expenses rose to $985 million
Third Quarter Highlights
Revenue was $950 million, up 5.2% from $902.6 million in the prior year due to and $10 million above the previous guidance range.
- Revenue growth was driven by strong growth in Digital TV due to the ramp of the new 65 nanometer 10 ADP products, as well as Bluetooth and wireless LAN though this was partially offset by a decline in the set-top box area, due a normal weaker back half of the year.
- In the mobile and wireless businesses, the firm benefited from strong growth driven by new product and customer ramps in Bluetooth and strength in all wireless LAN segments offset by a decline in mobile multimedia business due to the product transition.
- The increase in deferred revenue emanated from the Global Locate acquisition, with contracts that included a service component with the chip sale related to its worldwide GPS reference network. As a result, we need to recognize that revenue radically over the estimated life.
Contrary to expectations, the Enterprise Networking business grew modestly, driven by timing issues in the controller segment caused by customer pull-ins due to delivery delays.
- In terms of revenue distribution, Broadband communications accounted for 38% in total revenue.
- Mobile and wireless were 32% and Enterprise Networking 30%.
- Gross margins declined to 52.1% driven by product mix and the ramp of a number of new customers and products.
Net income was $27.8 million, or 5 cents a share, down 74.8% from $110.2 million, or 19 cents per share in 2006, driven by the decrease in gross margin and growth in R&D and operating expenses, which offset the benefits of increased revenues.
- Operating expense increased by 24% over the prior year to $482 million, with about half of the incremental expense due to dollar based R&D cost associated with opportunistic purchases of EDA tools and dedicated radicals prepared for productions of 65 nanometer products.
- Higher than anticipated litigation cost also led to an increase in expenses.
- The firm continues to operate above its long-term targeted R&D range of 20% to 22% as a percentage of sales, as it invests aggressively to deliver on recent design wins in the emerging businesses as well as to pursue additional opportunities.
- This increased R&D percentage will continue until these design wins convert into revenue, especially in the cellular market.
Recent product and customer announcements reinforced the firm’s view that 65 nanometer continues to give it a definite competitive advantage in the design win process.
- In addition, the expanded use of multi product wafers, and other efficiencies have continued to allow the firm to accelerate prototyping to customers.
- The firm increased total headcount by 287 people to a worldwide total of 6,114 employees, including over 4,500 employees in engineering, where 74% of the total headcounts included nearly 500 Ph.Ds.
Total cash and marketable securities were flat at $2.43 billion, driven by the share repurchase program approved in February of this year, as well as the closing of the Global Locate acquisition.
- The firm generated strong positive cash flow from operations of $212 million and had some benefit from proceeds from employee stock option exercise of $65 million net.
- Inventories increased to $213 million resulting in an inventory turn of 8.5 times.
- The percentage of sales made through distributors remained low at 16% and the firm continued to provide more products through hubbing arrangements with customers.
- Accounts receivable day sales outstanding decreased from 39 days to 38 days with good linearity.
- The firm continued with its share repurchase program, purchasing up to $1 billion of Class A common stock over an 18 months period that commenced in February of 2007.
- During the quarter, the company repurchased $4.9 million shares at a cost of $163.9 million and currently has $182 million remaining in this program.
Segment Highlights:
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Enterprise Networking revenue was better than expected, driven mainly by better than expected sales of gigabit Ethernet Controllers and a smaller decline in switching revenue.
- The gigabit Ethernet Controller business was stronger than anticipated, due to an overall strength in the PC market, however, this is expected to decline in the fourth quarter as the market share shifts and the market comes to terms with some double ordering reportedly occurring in the PCs space.
