Why Broadcom Inc (NASDAQ: AVGO) stock is under pressure

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Broadcom Inc (NASDAQ: AVGO) stock fell over 2.73% on 13th December, 2019 (as of 10:19 am GMT-5; Source: Google finance) after the company’s margins are under pressure. The company reported fiscal fourth-quarter net income of $818 million compared to $1.12 billion, in the year-ago period. The gross margins fell due to the seasonal mix shift of wireless in the semi business, while operating expenses remained relatively flat at just over $1 billion. Operating income from continuous operations was $3 billion and formed 52.3% of net revenue. Adjusted EBITDA was $3.2 billion and formed 54.8% of net revenue. The company has accrued $119 million of restructuring integration expenses and made $115 million of cash restructuring integration payments in the quarter. These expenses and payments were mainly related to CA. The company has spent $96 million on capital expenditures and free cash flow formed 41% of revenue or $2.4 billion. The company has ended the quarter with $5.1 billion of cash and $32.8 billion of total debt.

Moreover, in the quarter, the company had returned $1.6 billion to our common stockholders, including $1.1 billion of cash dividends. AVGO had announced the Symantec deal in Q4, the company has now initiated the transition from stock buybacks to debt repayment. In the quarter, the company has invested $587 million for the repurchase and elimination of $2.1 million AVGO shares, however, the company had also paid down $4.8 billion of debt with proceeds from the preferred stock offering and excess cash flow.

AVGO in the fourth quarter of FY 19 has reported the adjusted earnings per share of $5.39, which is in line with the analysts’ estimates for the adjusted earnings per share of $5.39. The company had reported the adjusted revenue growth of 6 percent to $5.78 billion in the fourth quarter of FY 19, beating the analysts’ estimates for revenue of $5.77 billion. Semiconductor solutions revenue was $4.6 billion, and formed 79% of the total revenue this quarter. This was down 7% year-on-year and up 5% quarter-over-quarter. Revenue for the infrastructure software segment was $1.2 billion and formed 21% of revenue.

Broadcom expects fiscal 2020 revenue to be in the range of $24.5 billion to $25.5 billion, while analysts surveyed by FactSet had forecast on revenue of $23.9 billion. 2020 non-GAAP operating margins and adjusted EBITDA margins are expected to be relatively flat. The company plans to pay out just over $5 billion in cash dividends in fiscal ’20.

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