Broadcom AVGO reported second-quarter fiscal 2023 non-GAAP earnings of $10.32 per share, beating the Zacks Consensus Estimate by 1.88% and increasing 13.4% year over year.
Net revenues increased 7.8% year over year to $8.73 billion, which surpassed the Zacks Consensus Estimate by 0.23%.
The year-over-year growth was driven by strength in networking and broadband.
However, Broadcom’s shares were down 1.97% in pre-market trading.
Broadcom Inc. Price, Consensus and EPS Surprise
Semiconductor solutions revenues (78% of total net revenues) totaled $6.81 billion, up 9.3% year over year, driven by strong deployment of generative AI by hyperscalers, service providers and enterprises.
Networking revenues were $2.6 billion, up 20% year on year, contributing 39% to Broadcom’s semiconductor revenues. The company witnessed strong growth from the deployment of Tomahawk 5 for data center switching at hyperscale customers and Jericho routing platforms for telcos.
Storage connectivity revenues were $1.1 billion, contributing 17% to semiconductor revenues and rising 20% year over year.
Broadband revenues rose 10% year over year to $1.2 billion and contributed 18% to semiconductor revenues. The business is benefiting from continued deployments by telcos of next-gen 10-gigabit PON and DOCSIS 3.1 with embedded Wi-Fi 6 and 6E.
Wireless revenues of $1.6 billion contributed 23% to semiconductor revenues with a 9% year-over-year decline.
Industrial resale revenues of $260 million increased 2% year over year as softness in China mostly offset the strength in renewable energy and robotics end-markets.
Infrastructure software revenues (22% of net revenues) increased 2.7% year over year to $1.92 billion.
In core software, Consolidated renewal rates average was 114% of expiring contracts. In strategic accounts, the renewal rate average was 120%.
In strategic accounts, annualized bookings of $564 million included $133 million of cross-selling of Broadcom’s portfolio of products to these customers. Over 90% of the renewal value represented recurring subscriptions and maintenance.
Annual recurring revenues at the end of the fiscal second quarter were $5.3 billion, up 2% year over year.
Non-GAAP gross margin contracted 70 basis points (bps) on a year-over-year basis to 75.6%.
Research & development (R&D), as a percentage of net revenues, declined 140 bps on a year-over-year basis to 11%. SG&A expenses declined 30 bps on a year-over-year basis to 2.7%.
Adjusted EBITDA increased 11.3% year over year to $5.69 billion. The adjusted EBITDA margin expanded 200 bps on a year-over-year basis to 65.1%.
The non-GAAP operating margin expanded 100 bps on a year-over-year basis to 62%.
Balance Sheet & Cash Flow
As of Apr 30, 2023, cash & cash equivalents were $11.55 billion compared with $12.65 billion reported as of Jan 29`, 2023.
Total debt (including the current portion of $1.12 billion) was $39.31 billion as of Apr 30, 2023.
Broadcom generated a cash flow from operations of $4.502 billion compared with $4.036 billion in the previous quarter. Free cash flow during the quarter was $4.38 billion compared with $3.933 billion in the prior quarter.
On Mar 31, 2023 the company paid a cash dividend of $4.60 per share of common stock, totaling $1.91 billion. In the fiscal second quarter, Broadcom spent $3.42 billion on repurchases and eliminations.
For the third quarter of fiscal 2023, Broadcom anticipates revenues of $8.85 billion. Semiconductor revenue growth is expected in the mid-single-digit percentage range on a year-over-year basis.
Management expects networking revenues to be strong and grow nearly 20% year over year in the fiscal third quarter. Server storage connectivity revenues are expected to be up low single digits year over year. Broadband revenues growth is expected in moderate to low-single-digit percent year over year.
Broadcom expects wireless revenues and Industrial resale to remain around flattish year over year.
Infrastructure software segment revenues are expected to be up low single-digit percentage year over year, reflecting stable core software revenue growth, offset by weakness in Brocade enterprise business revenues.
Adjusted EBITDA is expected at approximately 65% of projected revenues in the fiscal third quarter.
Broadcom also expects gross margins to be down approximately 60 bps sequentially, on a favorable product mix.
Zacks Rank & Stocks to Consider
Broadcom currently has a Zacks Rank #3 (Hold).
Shares of Broadcom have surged 41.3% year to date against the Zacks Computer & Technology sector’s rise of 30.5%.
Ciena CIEN, Momo MOMO and Soitec SLOIF are some better-ranked stocks that investors can consider in the broader sector. Momo sports a Zacks Rank #1 (Strong Buy), whereas Ciena and Soitec carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Ciena shares have declined 7.7% year to date. CIEN is set to report its second-quarter fiscal 2023 results on Jun 6.
Momo shares have declined 4.6% year to date. MOMO is set to report its first-quarter 2023 results on Jun 6.
Soitec shares have declined 17.6% year to date. SLOIF is set to report its first-quarter fiscal 2024 results on Jun 14.
Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.Free: See Our Top Stock and 4 Runners Up >>
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.