Tech Today: Broadcom Warns, Apple's Cash, Sprint, T-Mo Purgatory

Here are some things going on today in the world of tech:

Broadcom Warns on Wireless

Shares of chip giant Broadcom (AVGO) are up 6 cents to $232.84, after the company this morning narrowed its forecast for revenue in the March quarter, saying sales into the data center were "robust," but the market for wireless chips was " weak."

The company now sees revenue in a range of $4.975 billion to $5.025 billion, versus a prior forecast for $4.925 billion to $5.075 billion.

Broadcom also forecast revenue the current quarter below consensus, at $4.975 billion to $5.125 billion, below the consensus estimate for $5.24 billion.

The company said it would increase open-market purchases within its $12 billion share-repurchase authorization.

Srini Pajjuri with Macquarie, who has an Outperform rating on the stock and a $320 price target, writes that this is all better than was to be expected.

"Wireless weakness is well known, and we believe the preannouncement should allay concerns regarding a Wired slowdown, writes Pajjuri.

"We also suspect the preannouncement will give the company ability to be aggressive with its recently announced buybacks."

Sprint and T-Mo in Regulatory Purgatory

Shares of Sprint (S) are down 85 cents, at $5.65, and T-Mobile US (TMUS) is down $3.01, or 5%, at $61.51, following their announcement yesterday, as most analysts cheer a deal but also cringe at the regulatory uncertainty.

"We view a potential TMUS/S deal positively for both co.'s as a result of the higher-than-expected +$43B NPV synergies and how it would position them for 5G and industry convergence," writes Cowen & Co.'s Colby Synesael. "We however believe approval is 50/50 and thus it is difficult to recommend either stock on the deal alone."

Jennifer Fritzsche of Wells Fargo cuts her rating on both stocks to Market Perform from Outperform, writing that "there are many uncertainties from here which we believe make a move to the sidelines now more appropriate."

She notes there is no breakup fee between the two, so there's more of a burden on Sprint, in her view. "If TMUS can get this deal approved, it would have the most impressive spectrum assets of any of the three remaining players," concludes Fritzsche.

Apple's Diminishing Returns?

Apple's (AAPL) fiscal Q2 report tomorrow, after the closing bell, may be a "Sell the news" type of affair, predicts Barclays's Mark Moskowitz, who has an Equal Weight rating on the shares. He writes that investors mainly want Apple stock for the buybacks and dividends, and he's worried that a merely in-line capital-returns announcement could disappoint. Moskowitz cuts his price target to $135 from $145.

"While the next update stands to be meaningful, the stock has discounted for additional stock buyback of $125-$150Bn and a hike in dividend yield to 2.0%-2.5% (requires $4bn to $8bn add-on to annual dividend)," writes Moskowitz.

"We think any upside potential to those bogeys is limited due to softening iPhone franchise and lack of the next big thing."

For more on the Apple outlook, see Jon Swartz's piece on Friday.

Apple shares today are up $4.70, or almost 3%, at $167.02.

Snap's Low Expectations

Among other noteworthy reports tomorrow is that of camera company Snap (SNAP), and the Street is brushing up its models today.

The Street is modeling $238 million, and a net loss of 17 cents per share.

Deutsche Bank's Lloyd Walmsley, who has a Hold rating on the stock, is nevertheless "positively biased" toward Snap, raising his price target to $15 from $13, given he thinks the company could top expectations with $246 million in revenue, helped by usage of Snapchat during the Winter Olympics. By contrast, investor sentiment is "weak" at the moment, he observes.

On the all-important subscriber number, Walmsley thinks Snap added seven million daily average users during the quarter, for a total of 194 million. He explains how the math for that is not too challenging. The company ended Q4 with 187 million, so "simply keeping these DAUs flat for the quarter alone would result in five million" additional users, he estimates.

Snap shares are unchanged at $14.23.

Spotify Gets More Raves

Shares of streaming music pioneers Spotify Technology (SPOT) are up $1.21, or 0.8%, at $161.19, after several brokers this morning came out with initiations of coverage following its April 3rd initial public offering, unanimously positive: Goldman, JPMorgan, UBS, Morgan Stanley, and Evercore ISI all give the stock the equivalent of a Buy rating.

Remember, this was a direct listing, not the usual kind of IPO with underwriting, so there was no syndicate to initiate. Also, the stock had already gotten multiple initiations of coverage even before it started trading.

Anthony DiClemente with Evercore, starting the stock at a Buy with a $190 price target, writes that the "current valuation levels leave room for re-rating given our longer term expectation that Spotify will capture 220mn subscribers and generate €12.5bn in revenue by FY22E, a 25% CAGR over the next 5 years."

He assigns a multiple of 3.75 times his 2019 sales estimate for €6.4 billion, and 23 times his 2022 estimate for free cash flow, while also giving the company credit for its 9% stake in China's Tencent Music Entertainment.

DiClemente writes that it's important temper one's enthusiasm given the massive competition from Apple and others.

ON Semi Raises Chip Risks

Elsewhere in earnings, shares of chip maker ON Semiconductor (ON) are down 61 cents, or $22.38, after the company yesterday reported Q1 revenue and earning slightly better than expected, and forecast this quarter slightly better as well.

Christopher Rolland with Susquehanna, who has a "Positive" rating on the shares, writes that the results were "solid," but that there are aspects of the report that are going to concern chip investors already anxious about potential for " overheating " in the chip market.

" Increasing lead-times, inventories, and raw wafer investment may have some worried about doubling down on a hot cycle." He advises investors to look past that, at how the company's slowly evolving from commodity chips to a more valuable portfolio, including "ADAS image sensors, mixed-signal ASICs, high-voltage automotive and eventually, silicon carbide (2H18)."

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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