Earnings estimates for leading chipmaker Broadcom Corporation ( BRCM ) have been on the uphill in the last ten days driven by the company's positive revision for the fourth quarter outlook.
Last week, Broadcom stated that it now expects revenues to grow to $1.80 billion, at the high end of the range estimated earlier. The upgrade in guidance by management was driven by solid shipments and tight operational management.
Broadcom had projected revenues around $1.7 billion - $1.8 billion for the fourth quarter with its third quarter earnings conference call.
Product gross margin is now expected to be flat on a sequential basis, compared to the previous estimate of being flat to down slightly on a sequential basis.
Research & development and selling, general, and administrative expenses are now expected to be down by $5 million sequentially compared to the earlier estimate of being flat sequentially.
Broadcom expects to exit 2011 with cash and equivalents of $5.1 billion, up from $4.2 billion at the end of September quarter, driven by strong cash flow and completion of a debt offering.
Broadcom recently offered $500 million of senior notes. The company expects to use the net proceeds from the offering to fund a portion of its proposed acquisition of NetLogic Microsystems and other general corporate purposes.
For the third quarter, Broadcom missed the Zacks Consensus estimate by $0.06. Meanwhile, Broadcom was the only exception in the semiconductor industry to have raised its outlook for the fourth quarter of 2011. Other players such as Altera Corporation ( ALTR ), Xilinx Inc. ( XLNX ) and industry bigwig Texas Instrument ( TXN ) have all slashed their guidance for the December quarter citing weak demand due to the slowdown in global economic conditions. Europe continues to lag the results.
Consequently, most analysts covering Broadcom have upped their estimates barring one exception, leading to a rise in estimates for 2011 and 2012.
We continue to maintain a Neutral recommendation on Broadcom. Our recommendation is supported by a Zacks #3 Rank, which translates into a short-term rating of Hold.