Broadcom Inc (NASDAQ: AVGO) stock investors panic on concerns over top line

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Broadcom Inc (NASDAQ: AVGO) stock lost over 6.2% on 14th June, 2019 (as of 12:56 pm GMT-4; Source: Google finance)

Broadcom Inc (NASDAQ: AVGO) stock investors panic on concerns over top line

The company posted mixed results for the second quarter of FY 19 and lowered its guidance for the rest of the year. The company expects revenue for its semiconductor-solutions business, still its biggest revenue-generator, to fall about 10% (about $2 billion) for the full year due to export bans on large customer Huawei and ongoing trade tensions. Broadcom is not the only company that had been predicting a stronger second half of the year. Nearly every chip maker has predicted at some point that revenue growth would return in the second half, though the target had already begun to slip with earlier second-quarter returns.

Further, the forecast, included in the company’s second quarter results, was the hardest evidence yet of the damage President Donald Trump’s trade war with Beijing may do to the global industry. Broadcom, which got $900 million in revenue from Huawei last year, also said, however, that the forecast cut “extends beyond one particular customer.” The semiconductor industry has been grappling with slowing demand since the second half of 2018 with bellwether Texas Instruments warning in April that a cyclical downturn could last for another two years. That has related chiefly to signs that mobile phone markets in some major economies are increasingly saturated while mass demand in new areas like self-driving cars and internet of things devices for homes and offices is still developing. The geopolitical risks from the trade conflict and Huawei ban are an additional shock.

AVGO in the second quarter of FY 19 has reported the adjusted earnings per share of $5.21, beating the analysts’ estimates for the adjusted earnings per share of $5.17, as per Zacks Consensus Estimate. The company had reported 4.7 percent decline in the adjusted revenue to $5.52 billion in the second quarter of FY 19, missing the analysts’ estimates for revenue by 2.58%.

Moreover, during the second quarter of 2019, the Company generated $2,667 million in cash from operations and spent $1,330 million on share repurchases and eliminations consisting of $830 million in repurchases of 2.9 million shares and $500 million on withholding tax payments related to net settled equity awards that vested in the quarter (representing approximately 1.8 million shares withheld), as well as $125 million on capital expenditures. On March 29, 2019, the Company had paid a cash dividend of $2.65 per share of common stock, totaling $1,057 million. The Company’s cash and cash equivalents at the end of the second quarter 2019 were $5,328 million, compared to $5,093 million at the end of the prior quarter.

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