Interesting...
By Roger Cheng
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Despite beating Wall Street expectations for the second-quarter, investors felt the revenue bar Broadcom Corp. (BRCM) set for the third quarter wasn't high enough, a Wall Street firm said.
Shares fell as much as 14% Wednesday despite reporting third-quarter results that beat expectations.
The Irvine, Calif., company reported a second-quarter loss which includes charges stemming from the acquisition of ServerWorks. Excluding the charges, the company reported earnings of 10 cents a share, topping Wall Street estimates by 1 cent.
After posting sequential revenue growth of 15.4% in the second quarter, Broadcom guided for 6% to 8.5% revenue growth in the third quarter. What has investors questioning the company is the dramatic slowdown in anticipated revenue growth.
AG Edwards analyst Brett Miller said "with revenue growth expected at half the prior quarter's, investors are wondering what brick wall is the company hitting?"
Miller chalked up the low growth estimate to a "overly cautious" management projection. He cited the company's new products in satellite and wireless systems as a new source for growth. The company continues to exhibit strong growth momentum, he said.
Another concern is the entry of Intel Corp. (INTC) into the server business. Investors are concerned that Intel will take market share away from Broadcom and recently acquired ServerWorks, Miller said.
CIBC World Markets analyst James Jungjohann said "Broadcom will face investor skepticism as competition heats up in the company's end markets," citing ServerWorks as the primary example.
In a research note, Jungjohann said he remains cautious looking forward. He added ServerWorks represents 20% of the company's sales and is its most profitable businesses.
Jungjohann doesn't own shares in the Broadcom, and CIBC doesn't have an investment banking relationship with the company.
Wall Street is giving Intel too much credit, Miller said, adding he doesn't believe it will take market share away from the company next year.
"Intel is the underdog coming after Broadcom," Miller said. "Over time, it will gain market share, but it won't be next year."
Major companies such as Dell Inc. (DELL) and International Business Machines Corp. (IBM) have a strong relationship with Broadcom, and it will be difficult for Intel to break that up, Miller said.
Additionally, the earnings news gave an excuse for some profit-taking, Miller said. The company's stock has been strong for the past few weeks, having hit a 52-week high July 8.
Over the long term, the company's prospects look attractive, Miller said.
Miller doesn't own shares in Broadcom, and his firm doesn't have an investment banking relationship.
Broadcom recently traded at $23.25, down $3.28, or 12.4%, on more than double the average daily volume.
-By Roger Cheng, Dow Jones Newswires; 201-938-5393; roger.cheng@dowjones.com |
